Electric Cars of the East, Part 2: Stats, Trends & Quirks
A Deeper Look at Statistics and Factors Underlying the Automotive Industry
In Part 1 of this series, we had taken a journey through the automotive history of the two Asian powerhouses India and China. While listening to Sinophile investment “mavens” would have you believe that China is a unique and eternal growth engine, these long-time neighbours (and now fierce rivals) aren’t as different as they’re made out to be…. but also not so similar as to merit a “kumbaya”.
There is a lot of newsprint dedicated to the China “story”. While the “story” is indeed great, it helps to take this in context with the “story” of another: India. Let’s get right into it.
Quirks on the Ground
To get a broad overview of the landscape for the automotive industry, here’s a quick roundup of some key factors that would be pertinent:
Considering the fact that 2020 will almost certainly prove be the Grand Spoiler of Trend Estimations, I’m stopping most of my data analysis at 2019. Rest reassured, dear reader, that this particular selection of factors had shown a fairly regular trend across the preceding 4-5 years.
India has the second largest road network in the world, after the U.S. (it would be third only if the entirety of the E.U. were to be considered as a single entity). Despite being 3 times the size of India, China is close on its heels.
India, however, is close on China’s heels with respect to registered motor vehicles. This can be partly attributed to a fairly simple fact: despite the hated “license raj” (referenced in Part 1) in India, there was a fairly decent trend of vehicle ownership until liberalization dawned upon both countries in the nineties. This gave India a pretty good headstart over China until the more-recent growth spurts in vehicle ownership took China just past India in this metric.
GDP calculation is a little …. hinky… since this also includes affixing monetary values to real estate - an odious and opaquely-priced commodity. In India, real estate tends to be transacted at significant levels over the “government rate” while in China, the “government rate” tends to be inflated on account of years of stimulus for large-scale civil projects (despite seemingly stagnant public demand)*.
*The lead boffins at the economic ministry in Beijing must be devout Keynesians for having cooked up this particular “economy-building” trick; this would only lead to “ghost cities”. But, meh, what do I know? Anyways, here’s a rap battle for the Econ n00bs:
Nonetheless, the difference in scale is not so compromised as to make the “5X” estimation completely invalid. It’s safe to assume that China’s economic output is some degrees larger than India’s… for now.
An interesting factor is the relatively large difference in interest rates. From 1978 to 2020, the average value of the interest rate in India was 13.37% with a minimum of 8.33% in 2010 and a maximum of 18.92% in 1992. From 1980 to 2019, the average value of the interest rate in China was 6.92% with a minimum of 4.35% in 2015 and a maximum of 12.06% in 1995. While this rate is ostensibly a “basket” of all types of credit available, it’s an effective and correlated stand-in for vehicle financing rates in general. This also supports the idea that while the relatively high rate in India lends an inhibitory effect in promoting automobile sales, the relatively low rate in China has the opposite effect - and likely another part of the economic stimulus by the State.
The difference between median and average incomes is a pretty telling indicator of the spending power of a country’s middle and upper-middle class. The only impediment to making a comparison here is that the Indian government has been - and continues to be - averse to computing or sanctioning any estimate of the country’s median income, unlike China. All “private” sources for median income estimation in India use small population samples, which are very unlikely to be close to an accurate value. For all intents and purposes, though, I’m personally comfortable with the idea that the ratio for India is likely to be somewhere in the neighbourhood of that of China’s (it’s not a huge stretch).
*Note: This “median income” business will be an important feature in a later part of this series. Just a heads up in case you were beginning to nod off.
However, when it comes to GDP as well as income comparison, one fact must be kept in mind: while the Indian rupee is a “floating” currency (i.e., its rate is determined by the global markets’ demand for the country’s currency, goods and services, etc), the Chinese renminbi is a “pegged” currency (i.e., the Chinese government assigns an exchange rate relative to other currencies, chiefly the currency of its largest trading partner, the U.S.). This adds another confounding factor when it comes the comparison of indicators involving monetary transactions, i.e. most economic factors.
Vehicle Production Trends
Chinese attitude about vehicle ownership never waned since it arose in the eighties. Ownership has consistently increased over the years, along with the aforementioned strong government backing. From a sales base that was 3.5X that of India in 2005, it stood at 8X that of India’s by 2017.
In 1951, India estimated that 52% of its 300,000+ registered motor vehicles were “4-wheelers”. By 1991, more than two-thirds were “2-wheelers” and this trend continues till today. Most of the country doesn’t experience icy roads or driving snow; so 2- and 3-wheeled vehicles remain viable means of personal transport for many*.
*The author quite likes his motorcycle.
A five-year comparison of data1 reported by the Society of Indian Automobile Manufacturers (SIAM) versus those reported by the China Association of Automobile Manufacturers (CAAM) for Passenger Vehicles, i.e. PVs, which includes Vans and Utility Vehicles), and Commercial Vehicles, i.e. CVs, reveal no special surprises, given the aforementioned facts:
One interesting feature is the gradual but steady decline in sales of PVs in China in 2018 and 2019. Reports coming from the Mainland seem to indicate that popular demand is generally slowing down. In all likelihood, these are not anomalous years in the industry’s growth. Relatively recent factors such as:
Increased focus on inter-city and intra-city mass transit systems in both countries;
Increasing usage of app-based ride shares through local variants of Uber/Lyft;
Increasing availability of app-based on-demand vehicle rental opportunities
has begun to take its toll on the “growth story”. It’s very likely that growth in sales will “plateau” in the very near future.
In the event of a “plateau”, the key factors influencing the “growth story” would be:
A select segment of the “population dividend” upgrading from a 2-wheeler to a 4-wheeler due to improved income;
Another (larger) segment upgrading from an “older” 4-wheeler to a “newer” 4-wheeler and then trading away the “older” 4-wheeler into the secondary market.
The Top 10 models sold in 20192 lend a little more colour to this argument:
Volkswagen (VW) models account for about 6% of all PVs sold in China while Maruti models account for about 30% of all PVs sold in India*. Since VW models are generally more expensive relative to “local” competing brands and Maruti models are cheaper, it can be surmised that: (a) the “plateau” is inching closer and closer in China’s case and (b) “cost is king” when it comes to India.
*The author’s German car is NOT in either Top 10 list.
The confounding factor to both (a) and (b) is the heavy fragmentation across models and companies, which is a little more pronounced in China. In both countries, this gives the other competitors plenty of room to breathe and grow in their quest for market share.
However, it also bears noting that there is significant scope for growth in India’s consumer base as average incomes have shown a steady, high-single-digit year-on-year (Y-on-Y) increase over the past several years. Nonetheless, as the years roll by, both countries’ “growth stories” would come to rest on the “plateau”.
Up for Grabs: The World!
The graphs on the right side of the quadrant derived from SIAM and CAAM data indicate a prime area of focus for both Indian and Chinese automobile manufacturers: export. In this regard, both countries are keen rivals.
China’s exports to Iran, U.S., Mexico and Brazil have witnessed steady increases over the past few years. Also, according to the China Passenger Car Association (CPCA), the shares of export volume to North America saw a considerable increase in total annual exports, going from 1.9% in 2014 to 12% in 2017. Over the years, India has steadily exported to Latin America, Africa and Europe, with the likes of Hyundai, Suzuki and Volkswagen in particular using India-based production facilities to supply these regions.
The top companies exporting from China to the rest of the world are Ford, General Motors, BMW and Honda. In India, Maruti/Suzuki, Toyota, Ford, Chevrolet, Hyundai, Volkswagen, Kia Motors, Tata Motors and Mahindra are the top exporters*.
*Different models of Ford and General Motors are exported from China and India to the rest of the world.
As per UN COMTRADE data curated by the International Trade Centre’s (ITC) Trade Map, China is ranked 19th worldwide in Car Exports while India is No. 21*. Germany, Japan and the United States hold the top 3 positions.
* UAE is ranked No. 20, which indicates a flaw in the contextualization of export data. The UAE has no auto manufacturing facilities at present; it is, however, a major “re-exporter” of vehicles.
As per the Trade Map, around 50% of the export dollars earned by India and China across 2018 and 2019 are from these specific destinations:
The U.S. entered India’s “Top destination” list with a bang in 2017, standing 2nd only to Mexico. At this moment, the common area for competition for both Indian and Chinese manufacturers seem to be North America (or Mexico and the U.S.) and - by virtue of easy transshipment options from both of these countries - South America.
Africa - both by virtue of transshipment options from South Africa and traditionally warm diplomatic ties - also seems to lie within India’s grasp. Nonetheless, it must be remembered that it’s business, not personal. The best value provider will win.
This brings us to the end of Part 2. In Part 3, I get technical with EVs and start to ask, specifically, “what” exactly are they to India and China. Stay tuned and hit “Subscribe” here if you haven’t already!
SIAM reports its annual numbers in FY (financial year) format, which starts on April 1 and ends on March 30 of the next year. CAAM reports its numbers in CY (calendar year) format. However, automotive consumption and production are hardly seasonal; therefore, I’m simply comparing (say) SIAM’s 2014-15 data vs CAAM’s 2015 data and reporting it as “data for 2015”.
This list compares CY numbers in both cases, which in SIAM’s case was reconstructed using monthly data. Comparing CY and FY numbers in 2019 indicated a “drift” of 1.9%. Given the relative insignificance of the drift especially given that trends were being painted in broad strokes, doing a CY-to-CY comparison by working through each month’s data for ALL five years would have been “mendokusai” (めんどくさい).