The “Nokia” moment for China’s auto market has arrived

If the theme of the last auto show was "embracing change", this year's auto show has shown people that change has already happened

John Zeng, Director of Asian Forecasting

09 May 2023

The biennial 2023 Shanghai Auto Show officially kicked off on April 18 and is the first international ‘A-level’ auto show of the year.

In terms of the scale of the exhibition, this year’s Shanghai Auto Show encompassed thirteen indoor exhibition halls in the National Convention and Exhibition Centre (Shanghai), with a total exhibition area of more than 360,000 square metres. It attracted more than 1,000 mainstream auto brands, both domestic and foreign, with a total of more than 1,500 exhibited vehicles, including more than 150 newly launched examples. Of the vehicles on display, more than two-thirds were new energy vehicles. If the theme of the last auto show was “embracing change”, this year’s auto show has shown people that change has already happened. The symbolic reaction to this change is that local electric car brands now outperform foreign brands.

This year’s hottest models are electric vehicles, and traditional gasoline vehicles are scarce. The Chinese auto market has fully committed to the path of electric vehicles, and most of the vehicles on show are owned by Chinese domestic brands. The absence of Tesla at the show magnified this impression even more.

On the two days of April 18th and 19th, I visited almost all thirteen exhibition halls. Among the many car brands, only a handful of foreign brands and one local brand did not launch electric cars at the show. Even traditional European manufacturers such as Mercedes-Benz, BMW, and Volkswagen had filled their stands with electric models.

However, my overall feeling is that the luxury and electronics within the interiors of domestic electric vehicles, and the entertainment experience they provide, far surpass traditional gasoline vehicles, and indeed have been upgraded to a new type of consumer electronic product. Automobiles are evolving from traditional mechanical products to consumer electronics products, and this change has already occurred in the Chinese market. The “third space” experience provided by mainstream local brands has been well received. For example, theatre-grade audio, or a built-in large screen for car owners to play immersive 3D games or sing karaoke are already a common configuration, The integration of drone control allows people to control those external devices from within the car. These novel consumer electronic functions are selling points that foreign brands have not yet grasped, because they still tend to see cars only as a means of transportation.

For most foreign-funded brands, the decision-making and R&D models have not changed much, and strategic decisions and product development are conducted overseas and not in China. For example, at this auto show, I saw an electric car exhibited by a major European manufacturer which was developed in Europe. In the European market, this model is popular with consumers, but it is different from the mainstream models sold in the Chinese market. In terms of configuration, interior design, and technology application it is more than four to five years behind the local Chinese models.

According to our forecast, the sales volume of new energy vehicles in the Chinese market is expected to grow from 8.47 million units this year, or a penetration rate of 35%, to 14.36 million units in 2028, with a penetration rate of 52%. If foreign auto brands do not want to repeat the mistakes that Nokia made in the mobile phone market, it is time to make fundamental changes.