Analysis: How Covid has opened new doors for China’s car industry

The arrival of 4000 sheep in the Hubei province of China earlier this month may have passed you by, but the significance of the transfer shouldn’t. Gifted by Mongolian president Battulga Khaltmaagiin, they were a symbol of wealth and health; the offer to send them was first extended in February, when he became the first foreign dignitary to visit a post-Covid-peak China, their final destination the dinner tables of Wuhan.

That the epicentre of the outbreak should now be in a position to celebrate its emergence from the crisis may well feel extraordinary to anyone back in lockdown in Europe right now, but it’s an indicator of the success with which China has dealt with and emerged from the pandemic.

While infection and mortality statistics are hotly debated, there’s little doubt that the dragon economy is now surging again, almost certainly in better shape in global terms than where it was positioned at the start of the year.

“The turnaround has been stunning,” says Bill Russo, CEO of Automobility, a Shanghai-based automotive consultancy. “The moment lockdowns lifted, there was a shift in behaviour – not just to pre-pandemic levels but something else again.”

Analysts have been pouring over the reasons why, looking for clues as to how China has achieved so much so soon. Governments the world over hope that it can provide a blueprint. In the initial months after the peak of the crisis, the recovery looked problematic; heavy industrial investment lifted the economy, but it wasn’t matched by a burst of consumer spending, as effective track-and-trace processes, abundant testing and rigorously enforced quarantines subdued the public mood. Crucially, though, these actions also suppressed the spread of the virus, so before long, even major cities were reporting days, then weeks and then months of no new cases. Then the spending began.

European nations of course experienced similar, with the trough of the first lockdown followed by a summer surge of buying. However, these have now almost universally been cut down by further curbs.

It helps too that China has a still-emerging middle class, especially outside of the major cities. Government subsidies and incentives have also been well-judged. In recent months, industrial spending has been up around 7% year-on-year and consumer spending 4%. Despite its economy shrinking by 6.8% in the first three months of 2020, China is now predicted to be the only major economy to record year-on-year growth; forecasts suggest a 2% rise, while the US will shrink 4% and the UK 10%.

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Few doubt that the threat of this happening to other Western brands is growing, as local manufacturers continue their rise across the budget, mainstream and premium sectors, offering capable and cost-effective transport, with a heavy emphasis on eclipsing the more upmarket Western brands by offering superior electric range and connectivity options and by being more agile and ingrained in online sales and marketing techniques.

At one end of the scale, the two-door, £3800 Wuling Hongguang Mini EV has recently become China’s best-selling EV, eclipsing the Tesla Model 3; and at the other, Nio, a premium EV maker with global ambitions that’s listed on the New York Stock Exchange, has enjoyed a near-600% rise in its valuation since 2018.

Back in March, Hui Zhang, Nio’s vice-president for Europe, told Autocar: “We have worked hard to engage audiences in lockdown and can see the pent-up demand is there.”

While a full economic recovery for China is nigh-on impossible in the context of global depression (even this famously inward-looking market is reliant on export and export trade), there are even suggestions that the country’s relatively positive performance will accelerate both the launch of more Chinese brands into global car markets (Changan, Nio, Xpeng and others are all eyeing Europe, for instance) and raise the prospect of Chinese firms investing in or acquiring struggling Western brands. Geely, already the owner of Lotus, Lynk&Co, Polestar, Volvo and the partowner of Mercedes, Proton and Smart, tried to invest in Aston Martin before its sale to Lawrence Stroll, and Mercedes’ newly increased holding there has raised speculation that its interest could be piqued again.

“The market valuation of Nio is now ahead of GM, BMW and more,” says Russo. “The next battleground is around smart, connected, electric vehicles. The most advanced Chinese car makers believe they have an advantage there, and they’re operating in the world’s largest car market, so they can grow scale and revenue quickly at home before looking to become global brands. The ingredients for success are there.”

As is so often the case with contemporary Covid-related analysis, it’s impossible to predict where it will end, but few doubt that the Mongolian sheep are likely to do anything but remain a footnote in a tale of how the pandemic re-energised the Chinese car industry and accelerated China’s global authority.