Foxconn (Hong Hai Precision Industry) and Saudi Arabia’s Public Investment Fund (PIF) have agreed to jointly establish an electric vehicle (EV) brand named Ceer. PIF is Saudi Arabia’s sovereign wealth fund, and Ceer will operate as a joint venture of the two parties. As the country’s first EV brand, Ceer will target not only the home market but also the wider regional markets of the Middle East and North Africa.
Saudi Arabia represents largest car market in the Middle East. The country’s new car sales totaled 580,000 vehicle units for 2021. This year, however, has seen a decline with the figure for the first three quarters coming to 290,000. Until now, Saudi Arabia has no home-grown car brand, and there is no carmaker indigenous to the Middle East. Presently, Toyota and Hyundai are the two main automotive groups operating in Saudi Arabia. The former’s and latter’s market shares in the country come to 34% and 18% respectively. Also, since Saudi Arabia is one of the world’s major oil producers and has kept gas prices low for its citizens, the conditions of its car market give an absolute advantage to vehicles powered by fossil fuels. Up to recently, Saudis have had no real incentives to invest in the development of electric cars and the build-out of the supporting infrastructure. In terms of “green” offerings, the Saudi car market so far has only received hybrid electric vehicles (HEVs) from a few automotive brands (i.e., Toyota, Lexus, and Hyundai). Among countries in the Middle East, Israel is currently the leader with respect to EV availability.
Even though Saudi Arabia continues to build its wealth primarily through the exportation oil, it is now driven by government policies and the momentum of reform to develop a domestic EV industry. For instance, the Saudi government is promoting electrification for at least 30% of the vehicles operating in the country’s capital Riyadh by 2030. However, this target is not mandatory. Turning to the creation of a home-grown EV brand, this joint venture with Foxconn is also among a series of actions taken by the Saudi government to reduce carbon emissions, adopt green energy, and reform the country’s economy. More measures need to be implemented to support the growth of a domestic EV industry. After all, the Saudi Energy Ministry just completed the regulatory framework for EV charging stations this August.
Among EV brands and startups, the most noticeable ones tend to come from the US and China because these two countries are the world’s major car markets and possess enormous domestic demand. On the other hand, opportunities are also brewing for new entrants in the emerging markets that are promoting vehicle electrification. The UAE, for example, has a local EV startup named Al Damani that begun small-scale production this June. TOGG, which is another newly formed company, commenced production on Turkey’s first EV this October.
Commenting on the formation of Ceer, TrendForce said it is very difficult for EV startups to grow their businesses especially if they are operating in countries without an existing automotive industry. Usually, these new companies will have to poach talents from the more established automotive companies and obtain licenses for certain key technologies. Ultimately, they will have to draw enough support from the automotive supply chain in order to have a chance to push their vehicles to the mass production stage. Additionally, while dealing with the complexity of vehicle assembly, startups will have to quickly scale up production in order to control their costs. All of these challenges have to be overcome by rising EV manufacturers that are located in emerging markets.
Due to the implementation of lockdowns and dynamic zero-COVID in Shanghai and other locations in China, a large number of automotive supply chain manufacturers have been idle since March and the implementation of passive measures in many locales has led to a decline in both production and sales. A large number of automotive companies are clustered in Shanghai and it is the hub of the entire Chinese automotive industry. Many foreign automotive companies, Tier 1 suppliers, important parts and components headquarters, production bases, and distribution centers are located here, such as Tesla’s Shanghai plant.
This also includes an important state-owned automotive company, SAIC Motor and all its subsidiary automotive factories and wide network of suppliers. The total production capacity of Shanghai and Jilin accounts for approximately 20% of the whole of China. The production volume of major automakers in Shanghai in April 2022 will drop by 75% compared with March, while the production volume of major joint venture automakers in Changchun (Jilin Province) will drop by 54%. The drops in these two regions were sharper than the 38% decline in China as a whole. Recently, several districts in Beijing have been locked down. The impact of this on sales depends on the duration of lockdown. BAIC Motor, Beijing Benz, and Beijing Hyundai are located in Beijing and these companies will bear the brunt of these lockdowns if they are required to suspend operations.
Further discussing the three major effects of this wave of lockdowns, first, the lockdowns will disrupt the pace of new car launches in spring. Second, the export plans of automotive companies will be impeded, which will slow the expansion of Chinese car companies into overseas markets. Third, there is a risk of stagnant demand. The stagnation of demand can be viewed from several perspectives.
First, is the closure of traditional distribution channel car dealerships due to the decrease in orders. According to China Automobile Dealers Association statistics, more than 20% of automobile dealers in China have closed down, which hinders the car purchase process. In addition, since automobile pricing continues to rise due to a number of environmental factors, if delivery is continuously delayed or the acceptance of car orders is suspended, there is a risk of consumption shrinking as time goes on. Third, the negative impact of lockdowns on economic activities, employment, and salary income, coupled with global inflation, will bring uncertainty to demand in China’s automotive market in the second half of 2022.
The global auto market is experiencing a very unstable period. The lingering impact of the COVID-19 pandemic, the persisting shortage of semiconductor chips, and the Ukrainian-Russian war has caused chaos in the supply chain in Europe and other regions and it seems the war will last longer than expected. Many automotive plants are still unable to operate smoothly. Facing sustained production reduction or the transfer of production capacity, coupled with China’s lockdown and zero-COVID policies which began in March, global car sales in 1Q22 amounted to only 19.6 million units, down 7% from the same period in 2021.
Although the auto industry accounts for the majority of the work resumption whitelist announced by Shanghai in April, restoring production capacity is expected to take some time as manpower and transportation capacity are still limited and sales may still decline or remain low. Therefore, after taking into account the regional consideration of the Chinese market in 2Q22, sales volume is expected to be 17.7 million units and annual sales volume is revised downward to 80 million units, an annual decline of 1.3%. This forecast is based on the assumption of a supply turnaround leading to rebounding sales in the second half of 2022, so changes in various environmental factors will strongly affect the revision of future expectations.
According to TrendForce data, total sales of new energy vehicles (NEVs including battery electric vehicles, plug-in hybrid electric vehicles, and fuel cell vehicles) in 1Q22 was 2.004 million units, an annual growth rate of 80%. Battery electric vehicles (BEV) demonstrated the strongest growth with sales reaching 1.508 million units. Plug-in hybrid electric vehicles (PHEVs) sold 493,000 units. Growth in NEV sales did not come easy, as global auto market sales (regardless of powertrain type) fell by 7% YoY in 1Q22 due to factors such as the chip shortage, Russian-Ukrainian war, and China’s pandemic lockdown and prevention measures.
In terms of BEV brands, Tesla’s sales in 1Q22 exceeded 310,000 units, ranking first with a market share of 20.5%. Chinese automaker BYD ranked second with 143,000 units and a market share of 9.5%. BYD announced in April that it would stop producing fossil-fueled vehicles and transform fully into a NEV manufacturer. Its BEV sales rose sharply by 271% in 1Q22 compared to the same period last year. Wuling, a subsidiary of SAIC-GM, has been ranked second since the launch of the Wuling Hongguang MINI in 2020 but dropped to third place in 1Q22. The main contributor to this was the multitude of models positioned as miniature and low-priced launched in the past year such as the Chery Ant and Changan Benben. As similar products arrived on the market, sales competition hindered growth.
In terms of PHEVs, BYD once again broke its quarterly sales record. Sales volume in 1Q22 reached 142,000 units, with a market share of 28.8%. As more PHEV models gradually appear in the market, it has become increasingly more difficult to capture a large market share. It is worth noting that the sales volume of PHEVs in the European market was lower in 1Q22 both when compared with the same period last year and when compared to 4Q21, affected the performance of some European brands.
TrendForce expects that most automakers will adopt a strategy of prioritizing the production of EVs. Therefore, continued growth in the sale of NEVs is expected in 2022. However, automakers will be under greater cost pressure this year. In particular, the Russian-Ukrainian war has greatly increased the cost of power batteries. This has caused automakers to increase their prices. Some countries including China will withdraw car purchase subsidies which dampens the market for low-priced mini-cars that previously supported the rapid growth of NEVs. Factors such as global inflation will become variables in the future growth momentum of NEVs.
Due to the Russian-Ukrainian war, automotive factories currently located in Russia have shut down successively and stopped importing vehicles, TrendForce asserts. In addition, Russia has stated that if foreign-funded enterprises choose to permanently suspend business or withdraw from the market during this period, the Russian government will nationalize their business assets. Most automotive brands have factories in Russia and now face the dual pressures of international public opinion and corporate losses. According to TrendForce investigations, after Renault-Nissan acquired the Russian brand LADA, its market share reached 32%, making it the largest automotive brand in Russia followed by Hyundai-Kia at 23% and Volkswagen at 12%.
According to TrendForce, since Renault is the largest shareholder of local automaker AVTOVAZ and Russia is the company’s second largest market, whether AVTOVAZ is nationalized or sales are lost, the overall impact on Renault cannot be underestimated. In addition, even if production can continue, the depreciation of the ruble will greatly increase the cost of importing components.
Soaring costs not conducive to automotive industry recovery
The large number of components and the long supply chain inherent in the automotive industry makes mitigating geopolitical risk difficult. Almost all international or regional events will affect the normal operation of this industry. The Russian-Ukrainian war will not only affect automaker assets, supply chains, sales, and revenue in Russia and around the world in the short term but, in the long term, geopolitics will influence business planning, competiveness, and technology options. More broadly, geopolitical and economic conflicts are derailing automakers’ plans to recover from the pandemic and chip shortages.
According to TrendForce, there are three major factors impeding the recovery of the automotive industry and these factors will further affect automobile sales in 2022. First, the production of vehicle components in Ukraine has halted, affecting the production of complete vehicles. Volkswagen indicated that it intends to move production capacity to North America and China due to the shortage of vehicle wiring harnesses. Second, Russia produces various upstream raw materials such as nickel and palladium for vehicle manufacturing. Due to supply constraints, various costs have risen sharply and some car manufacturers have begun to increase the price of complete vehicles. Third, inflationary pressures have risen sharply, leading to rising costs of living and a reduction of consumer spending power.
In 2021, total sales of new energy vehicles (NEVs including battery electric vehicles, plug-in hybrid electric vehicles, and fuel cell vehicles) reached 6.473 million units, with annual growth rate reaching 122%, the highest growth rate since the development of vehicle electrification, according to TrendForce’s research. Battery electric vehicles (BEV) accounted for approximately 71.6% of total sales and plug-in hybrid electric vehicles (PHEV) accounted for approximately 28.1%, while the scale of fuel cell vehicles remained small.
Tesla ranked first among BEV brands with total global sales exceeding 930,000 vehicles and a 20.2% market share. SAIC-GM-Wuling ranked second, posting strong sales numbers for their low-priced mini electric vehicles in 2021. Other BEV brands such as Ora and Chery have also greatly increased sales performance on the backs of mini-vehicle products. The significance of this segment in the NEV market is considerable. On the whole, a reinvigorated BEV market has birthed a number of new brands that have further fractured market share. The concentration of market share among the top ten BEV brands dropped from 64.4% in 2020 to 57% in 2022, indicating an escalation of market competition.
BYD ranked first in PHEV sales with 273,000 vehicles sold in 2021, accounting for 15% of the market. Both BYD and seventh ranked Li Auto posted multifold growth, suggesting China’s reduced PHEV subsidy policy exerted minimum impact on the market. In addition to a number of luxury European brands holding their spots on the sales ranking, TOYOTA moved swiftly into fifth place while Jeep, a part of the Stellantis group and known for its performance cars, ranked 10th with the lion’s share of sales coming from the United States and Europe.
From a regional perspective, NEV sales in China once again exceeded half of the global total in 2021 while NEVs accounted for 19.3% of China’s overall auto market. TrendForce states, in addition to fierce competition, the Chinese market also includes numerous new brands, accelerated mass production, joint venture brands adjusting strategies, and overseas deployment of domestic brands targeting Europe, the Middle East, and Southeast Asia.
In addition, with the European Union strongly promoting electrification, the penetration rate of NEVs in several leading countries such as Germany and France is expected to reach 20~25% in 2022. In terms of the currently trailing US market, the Biden administration’s many policy incentives have focused the actions of brands and supply chains which include the introduction of ever-popular (in the U.S. market) battery electric pickups by a number of automakers. In addition, many new brands such as Rivian, Lucid Motors, Fisker, and Lordstown Motors have successively entered the mass production and assembly stage of vehicle manufacturing or plan to enter mass production in 2022, making the future of the U.S. electric vehicle market worth observing in terms of quantity and competition.
As the global trend of energy conservation and carbon reduction remains unchanged and automakers shift greater proportions of their product lines to electric vehicles, the total number of NEVs is forecast to exceed 10 million in 2022. However, the international situation is turbulent, and the Russia-Ukraine conflict has caused the price of crude oil to rise. In addition, Ukraine supplies neon gas for the semiconductor process and Russia is a producer of nickel ore. Nickel is a key material for electric vehicle batteries. Once the war heats up, the automotive industry will bear the brunt of rising costs and unstable supply chains, which are variables for the development of NEVs in 2022.