For much of the last decade, electric-vehicle leader Tesla Inc. has been the disruptive force in the automotive industry.
But in the coming years, Chinese automakers are likely to become the industry's greatest disruptor and force to watch. That's according to an industrywide analysis that global consulting firm AlixPartners included in its 2023 Global Automotive Outlook, which it released Wednesday.
Chinese auto brands are "poised to become the shaping force in the global automotive industry in the coming years," according to AlixPartners, which argues that, in response, automakers must "adopt radically new ways of doing business" in terms of their vehicle features, business set-ups and approaches to speed and risk.
"Pandemic-related forces may have receded, but the industry is under unprecedented pressure to urgently address technological and competitive forces that threaten to reshape the competitive playing field and the underlying business model that has been in place for decades," said Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners.
"Responding requires more than a pivot — companies need to overhaul their core product-development and manufacturing philosophies, including adopting a ruthless prioritization in the tradeoffs related to the features that will truly appeal to tomorrow's customers," he said. "This needs to be done with a newfound speed to market and with higher appetite for risk."
AlixPartners analysts see the global auto industry recovering from pandemic-era disruptions and constraints in the coming years — with the asterisk about growing competition from China.
The firm forecasts global auto sales rising 5% year-over-year this year, to 92% of pre-COVID levels.
It expects sales to be up 10% to 15.2 million units in North America, up 6% in Europe and up 3% in China. Average transaction prices are slated to fall about 7% in the United States by 2025 as production stabilizes, inventories grow and interest rates remain high.
The report notes that easing constraints around microchips will enable production of 85 million vehicles globally this year, with production slated to be free of constraints by 2025.
Another major caveat: the forecast does not factor in the strong possibility of a United Auto Workers strike against at least one of the Detroit automakers later this year during negotiations over new four-year contracts. Those negotiations are slated to begin next month.
Wakefield acknowledged that a strike, which he views as likely, would "change things dramatically."
"If you look into the data, it's pretty clear that the status quo isn't sustainable from the union's side, and the automakers haven't done themselves a lot of favors to set themselves up for a quick and easy negotiation," he said during a virtual presentation. "It doesn't look good at the moment."
Meanwhile, the march toward an electric future continues. Investments in electrification have doubled over the last two years, according to the firm, and now total roughly $616 billion globally.
AlixPartners forecasts that battery electric vehicles will make the majority of sales in all major regions by 2035: 59% in the United States, 66% in China and 82% in Europe.
The Chinese auto market has shifted dramatically in recent years, with EVs making up 25% of sales this year, up from 5% in 2019, Stephen Dyer, Asia leader in the automotive and industrial practice at AlixPartners: "This year has been remarkable in the Chinese auto market, almost a turning-point year."
Chinese brands are slated to outsell foreign brands in their home market for the first time in recent memory this year. And by the end of this decade, AlixPartners expects Chinese brands to claim 65% of their domestic market.
Underpinning the domestic brands' success is huge growth in EV sales.
"That's really the big story, is the success of the Chinese electric vehicle brands — first in China, and now we're seeing evidence that there are opportunities outside of China, as well," said Dyer.
One key factor in explaining this trend is massive investments by the Chinese government to support the shift to electric vehicles, he noted, to the tune of roughly $57 billion in the last decade, or about five times what the U.S. government has invested. Another key factor is that the Chinese brands have found a winning formula for producing fresh, stylish, tech-forward products that are appealing to Chinese consumers — and they're selling them at affordable prices.
Now that they are the dominant force in their home market, AlixPartners expects Chinese automakers to become a larger player in other markets around the world — including, eventually, the United States. In the first quarter, Chinese manufacturers for the first time ranked first globally in terms of auto exports.
"Historically, over the last 10 years or so, the industry has been focused on the disruption of Tesla," said Dyer. "Now what we see going forward is this might be the time and the age where we need to look at future disruptive competition from Chinese brands."
This means that legacy automakers must adapt their business and operating models accordingly, according to AlixPartners. It will require traditional automakers to shake up their traditional approaches to product development and parts sourcing, and to focus more on delivering in-demand tech features than on delivering perfection in areas like ride and handling, according to the report.
"There is time for the traditional automakers to do this kind of pivot," said Wakefield, "and to try to move towards this different type of business model."
