An important part of Beijing’s “Made In China 2025” plan is dominating the automobile sector. Despite being a global manufacturing hub, China has failed to produce a single car brand that is popular worldwide. This is largely because Chinese cars seem to suffer from some serious quality issues that make consumers wary.
Jaguar Land Rover posted a US$4.3 billion loss for the last quarter of 2018, with its China deliveries falling by 22 percent last year. Falling sales and tensions regarding the U.S.-China trade war were said to be the main reasons for the performance decline. However, there is another big reason for the company’s dismal performance in China – poor quality control.
Jaguar Land Rover set up its manufacturing plant in China in 2014. Domestic production not only allowed the company to adapt its products to local tastes, but also enabled it to avoid the 25 percent tariffs the government charged for imported vehicles. In the initial years, Jaguar Land Rover experienced strong growth in sales. But later on, car users started complaining about a number of problems with their vehicles. In 2017, Jaguar Land Rover had to recall almost 106,000 cars, which comes to about 70 percent of its sales during the year. In 2018, car owners started protesting at company headquarters.
Jaguar Land Rover is not an isolated case. Several domestically manufactured vehicles tend to be of poorer quality than imported ones. In fact, the Chinese actually place a premium status on imported vehicles for this very reason. Haphazard manufacturing processes and lax quality control policies have also affected the demand for electric vehicles. A survey showed that almost 70 percent of people regretted buying a new energy vehicle (NEV) manufactured locally. This is shameful for the Chinese automotive industry given that the government has been enthusiastically supporting the sector through various policies, like providing subsidies, funneling R&D funding, slapping high tariffs on imported vehicles, and so on.
Despite all these advantages, local manufacturers have failed to capitalize on them and have ended up producing substandard cars. In 2018, almost 132,700 NEVs were recalled by Chinese manufacturers. In 2019, more than 23,000 NEVs have already been recalled. Last year, about 40 NEVs spontaneously caught fire. Problems with batteries, odometers, motors, and transmissions have been reported by a large number of NEV owners.
A major reason for poor NEV quality is attributed to the fact that several companies involved in the production are basically startups that have no experience in the production of vehicles. According to estimates, there are about 500 NEV startups in the country, which makes it an industry with cut-throat competition. As a result, the companies focus on cutting down costs often at the expense of quality components, thereby ending up with substandard cars. If the industry does not change its manufacturing practices quickly, Beijing’s plan to become the world’s leading NEV manufacturer will remain only a pipe dream.
Falling vehicle sales
According to data from the China Passenger Car Association (CPCA), sales of passenger vehicles declined 12.1 percent Year-on-Year in March. For Q1, 2019, sales fell by 10.5 percent to 5.1 million units. However, the decline was not felt equally in all segments of the market.
“The growth rate for luxury cars was up 7.5 per cent, but mainstream joint venture brand sales growth was 12.3 per cent down, and domestic brands were down 15.7 per cent… Markets in northern provinces and [nationwide] towns are still weak, which has recently affected the growth of the automotive market. Although some manufacturers are promoting sales in the countryside, the overall effect is still weak,” the organization said in a statement (South China Morning Post).
Interestingly, sales of foreign cars from Japan and Germany have seen a relatively strong performance compared to local manufacturers, highlighting once again that Chinese customers remain negative on the quality of domestically produced vehicles.