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How will Chinese automotive expansion affect UK market?

Owen Edwards
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Chinese automotive brands are increasingly looking to expand into the UK and Europe. Owen Edwards looks at the market opportunity, the level of interest from UK consumers, and what the market impacts might be.
Contents

In China, over 350 million used vehicles and 30 million new vehicles are sold each year (source: China Association of Automobile Manufacturers) – a new vehicle car market that's 13x larger than the UK. Chinese original equipment manufacturers (OEMs) see the UK and Europe as a potential market for expansion for several reasons: the new vehicle market in China has slowed with an excess number of vehicles. Furthermore, there's currently a price war taking place in the Chinese market, with many companies looking to attain better vehicle prices outside of the Chinese market. European importation tariffs are currently 10% lower than the USA market, which has import tariffs of 27.5% for Chinese vehicles. 

UK and European automotive market opportunities

The European market sells on average 15 million used vehicles a year and the UK is the second-largest market in Europe (source: ACEA) with an average of about 2.3 million new vehicles sold (source: SMMT, 2019). Europe is a large market with importation tariffs of only 10% for non-EU vehicles, or for vehicles that don't have a trade agreement with Europe. A 10% tariff is much lower than the US tariff of 27.5%, introduced by former president Donald Trump to prevent the import of cheap Chinese vehicles.

Chinese brands in the UK have managed to take market share of about five percent of the total new car market. (source: SMMT) This is mainly via MG, which is owned by SAIC, with vehicles that are built in China and imported into the UK. However, other brands are entering the market, including Ora (owned by Great Wall Motors), BYD, and many more to come.

Which Chinese automotive brands will enter the UK – and how?

In 2023, there were 111 automotive OEMs, with a further 15 new brands announced (source: JATO Dynamics). Although most of these are unlikely to come to the UK, the following are expected to enter the UK in three areas of the market:

1 State-owned OEMs – Chery, Dongfeng, JAC Motors, Changan, SAIC, JAC Group

2 Private-owned OEMs – Geely, BYD, Great Wall 

3 Startups – NIO, Xpeng, Li Leap Motors, Seres, Horizon

The Chinese brands will come to the UK with both battery electric vehicles (BEVs) and internal combustion engine vehicles (ICEV). The Chinese OEMs are likely to steal the advantage from the legacy OEMs, underpinned by BEV technology, value for money, and highly optioned vehicles.

Their focus will be on the size of the UK market, its lack of domestic volume-vehicle manufacturers and its isolation – there are no cross-border issues and its currency is sterling. UK consumers also tend to be brand-agnostic and have a long heritage in producing and purchasing motor vehicles.

The UK's right-hand drive vehicles may slow the entry of some Chinese brands into the market. But if they can produce sufficient numbers of right-hand-drive vehicles for the UK, Japan, Australia, South Africa, India, and a number of African countries, it will be viable to generate the tooling for these markets.

How will the average consumer react to Chinese brands?

At a recent conference we held on Chinese brands entering the UK new vehicle market, Neil Addley from JudgeService presented the findings of a 2023 survey asking 1000 UK car-buyers about their awareness of Chinese brands: 27% had heard of Polestar and 22% had heard of BYD. Other Chinese brands proved to be less well known, suggesting the possibility of a congested UK market for these brands.

brands-you-are-aware-of

It's clear that the Chinese brands need to stand out: through price, design, value for money, options and specification of the vehicles, and increased market presence. Therefore, many of the Chinese brands will initially take market-share in the fleet market. The following chart shows the key factors that would encourage UK consumers to purchase a Chinese brand vehicle.

factors-affecting-the-likelihood-of-buying-from-a-new-entrant

Price is a key factor. The following chart shows how it would affect the probability of a move from a prestige brand to a Chinese brand. Forty-one percent of consumers said they would move if they could save £3,000 on a new vehicle, whereas 25% said that price didn't matter and that vehicle specification was more important. This suggests that with only a relatively small price discount of £3,000, UK consumers would consider purchasing a Chinese brand. This should be a concern for the legacy OEMs.

move-from-prestige-brand

In comparison, 27% of respondents indicated that they would move from their current volume brand to a new Chinese brand if there was a saving of £3,000, whereas 25% said that price didn't matter and that vehicle specification was more important. It appears that the buyers of prestige brands are more likely to consider a Chinese brands than if they were a consumer who purchased volume vehicles. Our initial belief before seeing this survey was that there would be little appetite from prestige brand buyers to purchase a Chinese brand as we believe that consumers who purchased prestige brands would be more brand loyal. However, according to this survey, this isn't the case.

move-from-volume-brand

From the survey it's clear that brand isn't a barrier to entry for the Chinese brands as UK consumers buying both prestige and volume brands would consider the purchase of a vehicle made in China.

Servicing, parts, and used-vehicles factors to resolve

There's clearly consumer interest in Chinese brands entering the UK, but there are a number of other factors to consider. This includes the provision of servicing and parts to ensure that vehicles are well maintained and on the road. Chery, the manufacturer of Omoda, for example, has indicated that it will have 60 dealership outlets in the UK by the end of 2024. These dealerships need not only to sell new vehicles, however, but to service and sell parts at speed.

In China, most used vehicles are sold outside of the franchise dealer network. This is different in the UK, where used vehicles sales are key when forming a position on residual vehicle values. This factor will be crucial when selling Chinese brands on vehicle finance – personal contract purchase and hire purchase.

The UK is open for Chinese brands to enter, but dealers should exercise discretion when considering a partnership with any new brand. It's key to understand a number of factors when partnering with new brands in a mature market: financial stability of the parent company, the range a number of vehicles in the brands portfolio, the legal agreements between the OEM and dealer, and the ability of the new OEM to supply parts for the aftermarket.

This list isn't exhaustive, so for more insight and guidance, contact Owen Edwards.

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