Automotive: The decade of China

While living in Oman, I have learned the passion for ‘sayarat’ (cars). In Singapore, I was somehow deprived of this pleasure, due the high cost of purchase and maintenance of vehicles. Hence, once I reached Muscat, I bought what was then my dream car and enjoyed driving it around, being particularly happy when it came to pumping in the cheapest fuel in the world.

Cars have with all of us a special emotional connection. Some of us, might even ‘love’ a car. It’s a passion that for boy starts at a very young age. My friend Abdullah told me that his nephew knew what the car key was when he was just 1 year and a half old. He would have taken the key from the table and run towards the car hoping to take his first ride all alone. Passion for cars flows in the blood.

But the industry of car manufacturing has changed sharply over the past decade or so, to a point that what we consider the standard of our automotive knowledge today, might be completely different very soon.

The ‘boom’ of cars sales in China produced something quite unexpected. In fact, back in 2007, the USA was still the world’s biggest market for new cars, with 7.5 million vehicles sold every year, while China was at slightly less than 6.5 million units, as 6.3 million to be precise. The total amount of cars produced that year was 53 million, which excludes the 20 million trucks and other commercial vehicles.

Fast forward 10 years and China skyrocketed to 25 million cars sold and the USA down to 6 million. The total global supply had reached 73 million units in 2017, an amazing 20 million more new cars being produced compared to 10 years earlier. A 37 per cent industry growth that outperformed many other industries. Despite the automotive being such an old and traditional sector, the growth shown has been one of the largest recorded, even among more trendy and tech-oriented industries.

Some might argue that technology has become a central element in cars production too. In fact, as many of the mechanic purist might point out, old cars seldom break down, while new cars, when they break, it often due to some electronic issues.

China has not finished growing in terms of number of cars. Projections say that by 2020 there will be 200 million cars on the streets of China, and although the number sounds enormous, it merely represents 1 car every 5 adults, or 20 per cent of the population. Whereas in the USA, cars are already owned by 80 per cent of the population.

The company that benefited the most from China’s growth is probably Toyota, which has become the number one (or arguably number two) car manufacturer in the world this year and also managed to become the highest valued brand in the automotive industry.

Currently Toyota is producing 10 million vehicles a year, a target amount that was hit in 2012, when the Japanese giant produced its 200 millionth car. Toyota Corolla can claim the world’s second best selling car, with 1 million units produced in 2018, just a few thousand short of Ford F-Series, the most popular car in the same year. Toyota also holds another very popular car, just outside the podium, on 4th position, the now classic Rav 4, which was produced 800 thousand times in 2018. The 3rd place however was snatched by Honda Civic, another classic, with just 5 thousand more units produced compared to the other Japanese competitor, Rav 4.

Collectively however, the Volkswagen group was the number one manufacturer with over 11 million cars produced in 2017. But while VW’s valuation in 2018 was at $25 billion, still discounting the hit from the diesel scandals a few years ago, Toyota had exceeded $46 billion.

The good news for VW is that the market valuation in 2018 went up 32 per cent compared to 2017, while Toyota ‘only’ 8 per cent. In third position, the group Renault-Nissan-Mitsubishi, which collectively also produced slightly over 10 million cars in 2017, when it was valued at close to $18 billion, showing significant growth in 2018, to a valuation of over $24 billion.

In 2017 and 2018, another growing market was CIS, with Russia leading the performance and being the number one region on a 2 years growth basis, where are the NAFTA region ceased to grow during the same period, spelling bad news for USA, Canada and Mexico.

In the Middle East, sales of new cars is still relatively small, with 2.3 million units sold in 2018 and a projected growth to 3 million by 2024.