1. Global Core Automotive Markets Entering a Phase of Moderate to Low GrowthMajor overseas automotive markets such as the United States, Europe, and Japan have reached saturation. In the U.S., for example, vehicle ownership stands at 868 cars per 1,000 people, with an average annual growth rate of less than 1% over the past five years. The market has shifted from new vehicle purchases to replacement and circulation. In 2023, the ratio of used car transactions to new car sales in the U.S. reached 2.3:1.

China’s Export Growth Accelerates While Domestic Sales SlowFrom January to June, China’s auto sales reached 14.047 million units, a year-on-year increase of 6.1%, with exports accounting for the majority of growth. During this period, China exported 2.793 million vehicles, up 30.5% year-on-year, contributing 81% to the total market growth. In contrast, domestic sales were 11.255 million units, up only 1.4%, contributing just 19% to overall growth. Factors such as macroeconomic conditions, consumption expectations, and changing demand are exerting pressure on further domestic expansion.

Sluggish Economic Recovery Without a V-Shaped ReboundChina's GDP grew by 4.7% year-on-year in Q2 at constant prices, lower than the same period last year and pre-pandemic levels. The Manufacturing Purchasing Managers’ Index (PMI) remained below the 50% threshold for four consecutive months from May to August, indicating that the economic recovery still requires considerable time.

Weak Consumption Expectations and a Trend Toward Downward ConsumptionIn June 2024, China’s Consumer Confidence Index stood at 86.2, significantly below the pre-pandemic level (above 120). Around 70% of household wealth in China is tied to real estate. From August 2021 to March 2024, the prices of second-hand residential properties in 70 major and medium-sized cities declined by 10.7%. The weakening wealth effect, primarily driven by declining asset prices, has impacted automotive consumption as vehicles remain major consumer goods.

Shifts in Vehicle Ownership and Travel BehaviorOn the one hand, demand for first-time car purchases is decreasing. In 2024, first-time buyers accounted for 46% of total demand in China’s auto market, and this share is expected to drop to around 38% by 2025. On the other hand, the rise of ride-hailing and autonomous taxis is promoting mobility as a service, further reducing individual reliance on vehicle ownership.

ConclusionOverall, China’s domestic auto market has transitioned from high-speed to moderate and low-speed growth. By 2030, domestic vehicle sales are projected to reach approximately 28 million units annually, with a potential average growth rate of 1.6%. The total vehicle population is expected to reach 430 million, with vehicle ownership of about 300 cars per 1,000 people.

2. Disruptive Shift in Global Automotive Product Structure

By 2030, global auto sales will reach a tipping point with a 50/50 split between internal combustion engine (ICE) and new energy vehicles (NEVs), with NEV sales projected to reach 40 million units globally.

In China, the market will shift decisively toward electrification.

• In the first half of 2024, China sold 4.94 million NEVs, up 32% year-on-year.
• In July 2024, the monthly retail penetration rate of NEV passenger cars surpassed 50% for the first time.
• By 2030, NEV penetration is expected to exceed 70%, marking the beginning of an “electric-dominant” era in China.

Plug-in hybrid (PHEV) and range-extended EVs are major growth drivers.

• In H1 2024, these accounted for 40% of NEV sales in China, growing 85.2% YoY—outpacing BEVs.
• By 2030, PHEVs and range-extended models could make up around 50% of all NEV sales, reshaping the market structure further.

3. Industry Transformation Enters a Deep Adjustment Phase

In the next five years, automotive transformation will accelerate with broader impacts.At the national level, strategic shifts and trade protectionism are emerging. Due to political factors, climate policy changes, and industrial pressures, the U.S. and Europe are slowing down EV transitions.At the regional and city level, EV adoption is reshaping industrial distribution. Cities that embrace electrification benefit from new growth momentum, while those lagging behind face declining output, GDP losses in the billions, and shrinking employment and tax bases.At the corporate level, business models and growth strategies are under constant adjustment. This is a decisive period where companies must balance transformation, profitability, and sustainable growth—strategic choices now will define their future.

4. Structural Shifts in Chinese Auto Consumption

China’s auto market is transitioning from first-time buyers to replacement and upgrade demand. By 2023, over 50% of purchases were replacement vehicles, expected to exceed 60% by 2030. Consumers are now focused more on product quality than basic availability.Young consumers are emerging as the dominant force. They seek personalization, fun, and crossover appeal—bringing consumer electronics expectations into the automotive space. For them, a car is not just transport, but a statement of identity and lifestyle. Automakers that quickly understand and adapt to these shifts will lead the next generation of the market.

5. Global Competitive Landscape Is Being Reshaped

The rise of China’s NEV sector is redefining the global auto industry. Chinese automakers are rapidly shifting from followers to leaders. By 2030, several Chinese brands are expected to rank among the world’s top 10 automakers by sales.

6. Consolidation and Restructuring Across China’s Auto Industry

Over the next five years, China’s auto industry will enter a consolidation phase—shifting from incremental growth to stock-based competition. Mergers and acquisitions will accelerate.Companies that act early will benefit from lower costs and lower risks. Those aiming to be consolidators must meet three key thresholds:

• Scale: Annual production/sales must reach 1 million units to ensure sustainability.
• Technology: Strong R&D is essential, both for self-defense and as a foundation for future acquisitions.
• Speed: In a “fast-fish-eats-slow-fish” era, firms must adapt quickly. NEV product cycles have shortened to 18–20 months, and market is intensifying. Companies falling behind will face limited options: transformation, restructuring, or exit.

7. Competitive Advantages Are Rapidly Shifting

The automotive industry is undergoing a rapid shift in competitive dynamics. Traditional strategies like "one-hit wonders" or relying on a single model for market dominance are no longer viable. As product cycles shorten and market conditions evolve rapidly, the industry is seeing intensified competition along with rising technological and investment thresholds.

8. Divergence in Profitability Among Automakers

Profitability is becoming increasingly polarized. Major foreign carmakers are still profiting mainly from internal combustion engine (ICE) vehicles, but margins are tightening. Over 50% of their sales remain concentrated in mature markets such as the U.S., Europe, Japan, and South Korea. In these markets, prices for identical models are 40%–120% higher than in China, allowing them to sustain short-term profits.However, slowing ICE demand and the pressures of electrification are eroding profits. In 2023, General Motors’ net profit margin dropped to 5.89%, down 2% from 2021. Ford's margin declined by 10% in the same period. If traditional OEMs fail to successfully transition to electric vehicles, their profitability will face severe challenges.

9. Automotive Value Chain Undergoing Major Shift

The automotive value chain is being redefined by emerging components such as power batteries, semiconductor chips, and software. These new players, leveraging cross-industry technological expertise, are forming deeper, more integrated partnerships with OEMs—often leading and capturing a larger share of industry value.Such companies typically exhibit "three highs": high market valuation, high growth, and high profitability. For example, tech-driven firms in semiconductors and software (mainly in the U.S. and Europe) enjoy EBIT margins exceeding 30%, with trillion-dollar market capitalizations. Nvidia, a leader in AI chips, now has a market value dozens of times higher than Intel.

In contrast, traditional auto parts makers are facing a contraction phase. Companies focused on internal combustion systems—such as engines, transmissions, and drivetrains—are experiencing shrinking demand, slow electrification transitions, and transparent business models. Their average profit margin is below 5%, far behind their high-tech counterparts.Going forward, automakers and investors should prioritize emerging components with high growth potential.

10. Automotive Industry Shifts Toward Talent and Market Hubs

Traditionally, automotive clusters formed based on cost advantages and mature supply chains, especially within the 35°–40° north latitude belt globally. Today, the industry is realigning toward regions rich in talent, consumer demand, and logistics infrastructure.

In China, this means a likely southward shift, with the Yangtze River Economic Belt emerging as a key automotive hub.For example, compared to Northeast China (e.g., Jilin Province), the Yangtze Delta offers:

• 5x higher population density,
• Younger demographics (Jilin’s 60+ population accounts for 23%),
• Stronger talent base (college-educated individuals per 100,000 is 20% higher in the Yangtze Delta),
• Superior logistics, including more airports and denser rail networks.

Future automotive development will gravitate toward regions combining consumer purchasing power, talent concentration, and production efficiency.

11. Transformation in Automotive Production and Organization

The industry is undergoing a shift in both manufacturing methods and organizational structures:

• Manufacturing is becoming tech-driven, focusing on cost reduction and efficiency through advanced technologies.
• Supply chains are evolving into highly integrated, network-based systems. The core competency is shifting from vertical control to global supply chain orchestration.

Tesla exemplifies this transformation with four key features:

1. Maximized spatial efficiency, through vertically integrated production layouts.
2. Bold manufacturing innovation, such as giga-casting technology to simplify vehicle structure.
3. Practical digital integration, where software teams work directly with production to ensure data-driven improvements.
4. Collaborative supplier relationships, supported by a 300–400 person team that works directly with Tier-2 and upstream suppliers to enhance responsiveness and integration.

Looking forward, China’s automotive production will accelerate toward tech-integrated manufacturing and supply chain innovation.This will give rise to specialized vehicle contract manufacturers, similar to the smartphone ODM/EMS model, driving a new era of automotive industrial organization.