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Hybrid and Electric Cars in China

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Word Count: 2030

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Contents
Introduction...............................................................................................................................................2
Global Business/Industry Environment Analysis....................................................................................3
Substitutes/Alternatives........................................................................................................................3
Supplier Power......................................................................................................................................4
The competitive advantage of leading players in the industry...............................................................4
The Socioeconomic Environment.............................................................................................................5
Cultural Environment...............................................................................................................................6
The Legal and Political Environment......................................................................................................7
Conclusion..................................................................................................................................................8
References..................................................................................................................................................9
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Introduction

Hybrid and electric cars are environmentally friendly as they consuming less fuel, are
cost-friendly (less gas), and transmit fewer emissions. Based on these benefits of hybrid and
electric cars, this report aims to explore the hybrid and electric car industry environment in China
and compare it to the Asia-pacific countries and the United States (US) and other Asia-Pacific to
attract more investors to the industry. The market share of hybrid and electric cars has grown
significantly since 2017. In 2021, the hybrid and electric car market growth was 33.4% bringing
the market value of this type of vehicle to $105, 243.8 million (Liu, 2022). In China, the market
volume of hybrid and electric cars as of 2021 was 34.1%, equivalent to 5,407,852.8 cars (Liu,
2022). In China, electric cars represent 88.4% of this category of cars, while hybrid cars
represent the remaining 11.6% (Wang et al., 2023). This report explores the Chinese hybrid and
electric car market and how it is shaped by the five forces, competitive advantage, and
socioeconomic, cultural, legal, and political factors. It also focuses on determining the impact of
these factors on profitability, competitive advantage, and the five forces. The report also
discusses anticipated changes in the industry and whether they are a threat or an opportunity to
the industry.

Global Business/Industry Environment Analysis

The global business environment (GBE) is the environment in foreign countries that is
exogenous to the home country environment of the firm. GBE influences the decisions made by
hybrid and electric car manufacturing firms concerning capabilities and the use or allocation of
resources (Du et al., 2018). Although GBE comprises the five forces, this section focuses on the
two strong hybrid and electric car industry forces.
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Substitutes/Alternatives

The hybrid and electric vehicle industry faces fierce competition from substitutes or
alternatives such as used cars, public transport, standard full cars, and other means of transport
such as trains. Although hybrid and electric vehicles are environmentally friendly, a significant
market share is in standard fuel cars and public transport because they are relatively cheap (Du et
al., 2018). Although public transport is less significant, less reliable, and less convenient, it
remains a preferable option to hybrid and electric cars. Most vehicle consumers in China view
hybrid and electric cars as more expensive and are concerned that they have insufficient battery
capacity. They are also concerned about the need for charging facilities as an electric car can
cover a maximum distance of 450km with a full battery (Liu, 2022). Conclusively, hybrid and
electric vehicles face a severe threat from alternatives or substitutes.

Supplier Power

In China's hybrid and electric car industry, there needs to be more differentiation of raw
materials, with car manufacturers outsourcing fabricated automobile components instead of
producing them in-house. Outsourcing significantly increases supplier power, with car
manufacturers needing high-standard services such as flexible replenishments, return logistics,
timely delivery, and availability checks. This gives suppliers argumentative bargaining power
over buyers (car manufacturers). The supplier power is fueled by the scarcity of certain raw
materials crucial in manufacturing hybrid and electric cars, such as lithium and cobalt. These two
raw materials are concentrated in a few countries, especially in central Africa (DRC), and can
only be mined and supplied by a few large companies (Wang, 2023). This increases suppliers’
power considerably. However, alternative LFP batteries reduce the supplier power to some
extent, with companies like Toyota and Volkswagen investing in research for alternatives.
Therefore, supplier power in China's hybrid and electric car industry is assessed to be strong. In
2020, the Chinese government set strict emission standards to encourage consumers to use
environmentally-friendly cars. This is an opportunity in this industry as these emission
regulations are meant to increase of hybrid and electric cars market share by 40% by 2030
(Wang, 2023).
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The competitive advantage of leading players in the industry

Beijing Automotive Industry Holding Co. Ltd (BAIC) is the largest manufacturer of
electric cars in China. It exploits strategic alliances' competitive strategy by partnering with
Toyota and BYD automotive manufacturers to provide tailored sales promotions to franchise
dealerships to attract local demand (He et al., 2018). Shanghai Automotive Industry Corporation
(SAIC) is also a China-based hybrid car manufacturer that has a significant local market share. It
also applies strategic alliances competitive advantage where it shares a joint venture with Wuling
Motors. Tesla Motors has defensive and competitive differentiation advantages as it distances
itself from its competitors by purely manufacturing hybrid and electric vehicles. Tesla Motors
also prefers direct sales over franchised dealerships, maximizing profits, which offers flexibility
for innovation. It also has fast-charging stations strategically located to ease consumers' anxiety
about overcharging their vehicles (Jia & Liu, 2019). Tesla has also eliminated car dealerships
and sells its electric cars directly to customers through its showrooms and online. It also
capitalizes on its strong brand image gained through the early adoption of its cars. It also
differentiates itself by having advanced autopilot systems in its cars. Tesla's business model is
impressive as it reinvests its first premium products into research and development, intending to
lower the costs and prices of its cars. Other car manufacturers, such as Toyota, have a
competitive edge over Tesla regarding cost leadership and strategic alliances. All Toyota-
branded hybrid cars in China are produced by country-based automakers First Automobile
Works (FAW) and Guangzhou Automobile Group Co. (GAC) (Jia & Liu, 2019). by having
financial muscle because they do not solely depend on the hybrid and electric car market. This
financial strength enables them to extend credit and discounts to car dealerships, increasing their
market share. They also have tailored sales promotions to boost and attract local market demand.
These competitive advantages are beneficial not only to the Chinese car market but also the other
parts of the world.
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The Socioeconomic Environment

In the hybrid and electric car industry, three major economic indicators shape the
socioeconomic environment for car manufacturers in China. These three indicators are social
class, education, and income. China is among the few countries with upper-middle-class income
in Asia-Pacific. Regarding education, China is among the first countries to have vehicle
engineering and technology centers where it trains most of its car manufacturing engineers.
These engineers are later employed by Chinese-based car manufacturers such as BAIC, SAIC,
WAK, BYD, and Wuling Motors. The level of education is an advantage to the country as it
contributes to the country's research on the development and production of hybrid and electric
cars. The income distribution in China is unevenly distributed. There is a sizeable rich-poor
income gap. However, with only 24.70% of the entire Chinese population falling below the
poverty line, a significant portion of the population can afford hybrid or electric cars (Liu, 2022).

In the Asia-Pacific region, China has a higher income, education, and social class than
other countries. Therefore, it is the leading country in the region with the highest market share of
hybrid and electric cars (63.9%), followed by South Korea and Singapore market share with
11.1% and 1.1% market share, respectively (Liu, 2022). China's socioeconomic level in the
hybrid and electric vehicle industry is low compared to the US. This is because only 11.7% of
the US population falls below the poverty level (Liu, 2022). The US, a high-income country, was
also the first to adopt hybrid and electric cars through Tesla Motors. Therefore it is more
advanced in matters of education in this industry.

The importance of these socioeconomic indicators in China, the Asia-Pacific region, and
the US is understanding the buyers' power in these countries or regions. This is because, in the
car industry, buyers prefer low-cost vehicles and a price sensitive. One of the anticipated changes
in this industry is innovation fueled by the 'Made in China 2025'intiative (Kim, 2020). This
initiative is an opportunity for the industry as it will drive research and development.
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Cultural Environment

In terms of the Chinese cultural environment, the country’s culture is shaped by

behavioral measures, philosophical ideas, and religious traditions. The Chinese people are
influenced by behavioral values such as honesty, righteousness, harmony, loyalty, and
benevolence. The primary language in China is Mandarin, also called the 'Han language.’ This is
the language preferred by the media, the government, and educational institutions (Caulfield et
al., 2022). However, in big cities like Shanghai and Beijing, the most popular language is
English making the culture in these cities heterogeneous. The country's leading religion is
Taoism, followed by Buddhism, then Christianity and Islam (Hang, 2023). Religious practices
and philosophical ideas shape the country's cultural landscape, undermining or overlooking them
can drive consumers away. China has few but very tight norms in the entire Asia-Pacific region.
While the Chinese culture encourages collectivism, the US culture embraces individualism.

Since the Chinese culture plays a crucial role in determining the success of products in
the country, it is essential to understand its influence on consumers of hybrid and electric cars on
interpersonal and transpersonal levels. This implies that most hybrid and electric car
manufacturers in the country must adhere to Chinese norms and culture, including
multilingualism, to gain a competitive advantage over their rivals and increase profit margins
(Hang, 2023). The Chinese culture is slowly shifting from traditional to urban. The anticipated
change from this shift is that more people will value materialism and individualism. This is an
opportunity for the industry as more people will purchase hybrid and electric cars, considered
high-end luxury vehicles.

The Legal and Political Environment

The Chinese government has also incentivized these car models through tax exemptions
since 2022. The government also has rebate programs to increase the purchase of this type of car.
The government has also offered subsidies to car manufacturers of hybrid and electric cars,
intending to promote them to achieve large-scale production. It has also eased quotas to promote
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large-scale production of this type of car for two years. It has also extended subsidies of up to
$3500 to car consumers to increase the market share of these cars (Zheng & Chen, 2020).

Compared to other Asia-Pacific countries like South and North Korea, China is
politically stable. It also offers subsidies to encourage the adoption of hybrid and electric cars
while others do not. Compared to the US, the two countries are politically stable and make
regulations and efforts to increase the market share of these cars. The US government does this
through the Department of energy, which offers domestic car manufacturers loan guarantees and
grants to boost large-scale production (Dilotsotlhe, 2022). Just like most countries, China has a
liability of foreignness which reduces the competitive advantage of foreign firms operating in the
country. Since most hybrid and electric car manufacturers are foreign companies, they must
invest more resources to operate in China due to its strict legal and political barriers (Qiao et al.,
2019). This gives Chinese-based car manufacturers a competitive advantage over international
car manufacturers such as Tesla and Toyota. It has put strict carbon emission standards in place
to encourage new entrants with the promise that more car consumers will opt for these vehicles.
The anticipated change from these regulations is the market value growth of these cars by
171.2%, estimated at $285,412.4 million by 2026 (Dilotsotlhe, 2022).

Conclusion

The hybrid and electric car industry in china is expected to continue growing, with a
market share forecast showing increased growth between 2021 and 2026. In light of this growth,
the five forces, rivalry, buyer power, supplier power, the threat of new entrants, and threats of
substitutes or alternatives, shape the car market industry. The report focused on two forces
including substitutes and role of suppliers. The global hybrid and electric car business
environment has few players; Tesla, Toyota, Volkswagen, General Motors, and others have seen
higher prices for these cars due to limited competition. Despite the limited competition, each
player has tried to gain a competitive advantage over their rivals. The Chinese government and
other governments like US have made several efforts to increase the market share and promote
large-scale of these cars to achieve set environment-conscious commitments and targets such as
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reducing climate change. These efforts have been informed of easing quotas, offering purchase
subsidies, incentives, loan guarantees, grants and rebate programs to stimulate the purchase of
electric battery-powered cars. There are also strict emission standards to encourage consumers to
use environmentally-friendly cars.
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References
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DILOTSOTLHE, N. (2022). Determinants of consumers’ purchase intentions of electronic

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Du, J., Meng, X., Li, J., Wu, X., Song, Z., & Ouyang, M. (2018). Insights into the characteristics
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He, H., Jin, L., Cui, H., & Zhou, H. (2018). Assessment of electric car promotion policies in
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Wang, H., Feng, K., Wang, P., Yang, Y., Sun, L., Yang, F., ... & Li, J. (2023). China’s electric
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