China is roughly a 16 million unit car market this year in terms of new sales and will grow to roughly 20 million units in 2020. However, there is a lot of room to grow for electric vehicles which will contribute to less than 1% share of the total cars sold this year and can grow as high as 18% of the total car sales in China by 2020. In other words EVs are expected to grow at 100% CAGR by 2020.
The major factors driving this is China government’s efforts and push to bring environmental friendly cars on the road to tackle the carbon emissions and grave pollution problems in major cities in China. This move will also help China to reduce their dependence on oil imports and consumption. The government’s efforts includes offering generous incentives schemes and subsidies to auto manufacturers as high as $10,000 per EV. Established players such as BYD, Kandi, Zotye and Tesla are already leading the way but this market is still very nascent.
This is a much lucrative opportunity for internet giants such as Baidu, Alibaba and Tencent which view future cars to be similar to smart devices connecting to internet and important extension of consumer’s digital lives when moving. Since EV is the future and garnering lots of incentives for auto manufacturers, vertically integrating into this business seems a lucrative opportunity for these internet and software giants which are already providing software, maps and digital services for the automobile dashboard. So it makes natural sense to participate in this segment early while in nascent stages and grab the share in future connected smart cars which they cannot in other mature markets such as smartphones. Furthermore, EVs can be a much more profitable business than smartphones moving forward. EVs will be just another hardware to distribute Baidu’s or Alibaba’s or Tencent’s (BAT) internet platform but lucrative compared to other hardware if scaled in a right way.
BAT’s entry into the industry would be highly impactful considering they are bringing their futuristic internet platform to the automobiles which is the capability most of the traditional manufacturers lack as consumers in future will too see and would like to experience their car as an extension to their smartphones. Thus BAT could bring innovation not only in terms of in-car digital and connected experience but also in terms of business model driving the sales as well as post-sales infrastructure with right partnerships in the value chain and leveraging government support.
This also signals for the component supply chain on where to bet their future partnerships and bringing in the internet platform within the car means an additional category to supply semiconductor content broadly similar to that in other smart devices.
– Neil Shah