McKinsey: Chinese consumers' acceptance of new energy vehicles is swinging for the first time in history, with limited direct impact from price wars

Global management consulting firm McKinsey recently released a report titled "McKinsey's 2024 China Automotive Consumer Insights", which surveyed nearly 2,500 car consumers from different regions across the country and summarized six key trends in the Chinese car market. Some of the research results in the report were somewhat surprising.

For example, the report suggests that Chinese consumers' acceptance of new energy vehicles is fluctuating for the first time in history. Despite the escalating price wars, which have limited direct impact on consumers, 80% of consumers indicated that price wars have not had a positive influence on their car purchasing decisions.

At the same time, McKinsey's research found a significant differentiation in consumer brand awareness between traditional fuel vehicles and new energy vehicles. When not distinguishing between vehicle power types, the top brands in the high-end awareness list are all traditional foreign brands known for fuel vehicles; however, when focusing on high-end new energy vehicles, the top three brands are all emerging new energy vehicle brands.

"The automotive industry has a history of over 100 years, and the inherent pattern formed over more than 100 years has been broken in just 3 years. The entire industry is undergoing new changes, and brand awareness is being reshaped. Currently, consumers maintain an open mindset. They have awareness of brand types, but when it comes to new energy brands, their awareness is different, leading to a fragmented state. I believe that the automotive industry is not in a state of saturation, but is evolving rapidly. In this process, brand loyalty has not yet been established, and every company has an opportunity. From the current stage to 2030, the industry will be in a process of accelerated evolution, during which the market will experience a 'out with the old, in with the new' situation. Embracing consumers and embracing evolution are the core themes for the future sustainable development of the automotive industry."

As a senior industry observer, McKinsey's Global Director and Head of Automotive Consulting in China, Guan Mingyu, made the above statement in an interview with media outlets such as "China Business News". In addition to Guan Mingyu, McKinsey's Global Directors Peng Bo and Fang Yinliang, as well as McKinsey's Global Deputy Director Zhou Guansong, also provided in-depth analysis of the trends in the automotive industry in the interview.

It's not yet time to "pop the champagne at halftime"

In 2024, for automotive companies, how to ensure they stay at the table and establish core advantages is a reality they must face.

With the advantage established in the new energy vehicle business and the continuous rapid development of the new energy vehicle industry, the influence of Chinese domestic brands in the automotive industry continues to strengthen. According to data disclosed by the China Association of Automobile Manufacturers, the market share of domestic brands was 44.4%, 49.9%, and 56% in 2021, 2022, and 2023 respectively.

The report released by McKinsey shows that the high premium advantage of foreign car companies is rapidly diminishing, and foreign brand allure is facing increasingly significant challenges, especially in the field of new energy vehicles. At the same time, Chinese high-end new energy vehicle brands have successfully gained consumer favor through advantages such as intelligence, while owners of traditional foreign high-end car brands are being converted into owners of Chinese high-end new energy vehicle brands in an almost one-way flow According to data compiled by McKinsey, 24% of luxury car owners of the German Big Three (Mercedes-Benz, BMW, Audi) indicated that their initial selection list when purchasing a car currently includes Chinese high-end new energy car brands; however, only 7% of Chinese high-end new energy car owners' initial selection list includes the German Big Three brands.

Chinese high-end new energy car brand owners interviewed stated that the main reason for choosing Chinese high-end new energy car brands is the technological advantages in areas such as autonomous driving, intelligent cockpit, native new energy car platforms, etc.

From being a "follower" to surpassing "half the country", the achievements of domestic car brands are evident, as they have overtaken on the new energy car track. However, this does not mean that domestic brands have already taken the high ground and can stop to catch their breath. It is worth noting that from McKinsey's report, one can "sense" a message: although Chinese domestic electric car brands have established a certain level of awareness, consumers have not yet developed enough brand loyalty towards them.

According to the "2024 McKinsey China Automotive Consumer Insights" report, if foreign traditional high-end brands can overcome technological disadvantages and introduce technologically advanced new energy models, about two-thirds of Chinese high-end new energy car owners would consider switching to foreign traditional high-end brands. McKinsey also stated that if in the future foreign traditional high-end brands can keep pace with Chinese brands in electrification and intelligent technology, over sixty percent of users still prefer to purchase foreign brands.

In the above interview, Zhou Guansong described his views on the competition between domestic brands and foreign traditional high-end brands as not yet reaching the "champagne popping at halftime" moment.

"For domestic brands, this is a very strong signal. At this stage, there is a growing sense of arrogance and pride in some domestic brand camps, but the voice from consumers shows that brand loyalty towards domestic brands has not yet been established, and it is far from the 'champagne popping at halftime' moment." Zhou Guansong believes that at the same time, for foreign traditional high-end brands, once they innovate in technology and leverage the deep brand heritage accumulated over the past century, they will continue to attract Chinese consumers.

"In the research, we also asked why new energy car owners of foreign traditional high-end brands did not choose domestic high-end brands. They mentioned that firstly, the quality of foreign traditional high-end brands is more reliable, and secondly, their car models are more aesthetically pleasing. Among these car owners, 65% also expressed a concern, fearing the bankruptcy risk of new forces brands," said Peng Bo.

Peng Bo believes that in the field of electric vehicles, some domestic brands have basically established a preliminary concept of "high-end", but when it comes to the concept of luxury cars in the Chinese market, the influence of domestic brands on consumers and the market still needs to be verified. As the penetration rate of new energy vehicles in the high-end market further increases, the market opportunities for domestic high-end brands will become greater, but it will take time for domestic brands to truly become high-end brands. The creation of Chinese high-end car brands not only requires efforts in sales volume but also crucially depends on brand building.

Breaking free from the confinement of primarily first and second-tier markets

After more than ten years of tempering, the development of China's new energy vehicles has entered the second half.

McKinsey pointed out in the report that the new energy vehicle market is transitioning from being subsidy-driven in the past to being product-oriented. Consumers are now more inclined to make car purchase decisions based on factors such as vehicle performance, operating costs, intelligence, maintenance costs, rather than just license plate restrictions. The market is moving towards a more mature model driven by products and market demand.

"The second half of new energy vehicles is intelligence. Intelligence has truly changed consumers' needs in car usage scenarios and car functions. In the future, the further development of intelligence is actually about building consumer stickiness, including creating new segmented markets. Intelligence is a crucial link in defining new car usage scenarios. We believe this is also a potential 'output' new model for Chinese new energy vehicle companies in the global market," said Fang Yinliang in an interview with reporters.

In the view of Zhou Guansong, the demand for intelligent functions by consumers is increasing day by day. For owners of mid- to high-priced new energy vehicles, advanced intelligent driving will become a non-negotiable requirement, putting great pressure on companies that have not yet established relevant advantages.

The new energy vehicle industry has established a moat for development. Fang Yinliang pointed out that according to research results, whether in terms of overall cost, value experience, intelligent cockpit, or space comfort, in terms of customer satisfaction, new energy vehicles are at least 3%-4% higher than fuel vehicles. "In terms of product quality, due to being a new technology, people have always been concerned about the stability of new energy vehicles. However, in terms of customer satisfaction, new energy vehicles are basically on par with fuel vehicles, and may even be slightly higher."

This undoubtedly lays a good foundation for further growth in the penetration rate of new energy vehicles.

However, an interesting phenomenon is that the McKinsey report pointed out that when asked if they would choose a new energy vehicle for their next car, Chinese consumers' acceptance of new energy vehicles has decreased for the first time since the 2017 survey, dropping from 68% in 2022 to 62% in 2023.

It was noted that unlike the continuous increase in acceptance of new energy vehicles among fuel vehicle and plug-in hybrid vehicle owners, the phenomenon of regretting purchasing among pure electric vehicle owners is more pronounced, which lowers the overall acceptance of new energy vehicles.

According to McKinsey's research data, in 2023, 22% of pure electric vehicle owners stated that they would no longer consider a new energy vehicle for their next purchase, compared to only 3% in the 2022 survey.

"The consumer's wavering attitude is mainly manifested in the third and fourth-tier markets, while consumers in the first and second-tier markets have not shown much change in their attitude towards new energy vehicles. From this perspective, we can see that the development of China's new energy vehicles has broken free from the past confinement to the first and second-tier markets, with much of the growth coming from the third and fourth-tier markets," Fang Yinliang said in an interview, attributing the decrease in acceptance of pure electric vehicles among consumers to poor charging experiences in lower-tier markets.

"According to research results, consumers in the third and fourth-tier markets are 10% less satisfied with pure electric vehicles than those in the first and second-tier markets, because in these markets, the number of new electric vehicles added far exceeds the number of new charging piles." "Range anxiety has become the core bottleneck for the long-term sustainable development of new energy vehicles. While electric vehicles are developing rapidly, we must better establish the supporting infrastructure of charging stations to improve the ecological development," said Fang Yinliang.

Guan Mingyu also believes that as new energy vehicles gradually expand from developed coastal areas to inland regions, the temporary fluctuation in consumer attitudes towards electric vehicles is due to the lag in charging and energy replenishment facilities. He pointed out that a significant change in the field of new energy vehicles is that consumers have transitioned from range anxiety to charging anxiety. Range anxiety has been "set aside," and charging anxiety has become a major bottleneck that needs to be overcome