Industry Trend Analysis - 13th Five Year Plan: A Driver Of High-Tech Vehicles - APR 2017
BMI View: China's 13 th Five Year plan will improve automotive technologies and product offerings in the country - particularly those required for the introduction of connected and autonomous vehicles. The government 's attempt to boost frontier tech nology development by 2020 will also have negative effects on labour in the automotive in dustry as producers are encouraged to adopt more labour-saving manufacturing technologies.
A Consumption Based Economy Supported By The Five Year Plan
China's 13th Five Year plan has been released and is designed to guide the country's growth over the second half of the decade to 2020. While we acknowledge that the new economic plan will have a strong formative impact on the automotive industry, we believe we have already factored its sales and production impacts into our forecasts and thus we maintain that vehicle sales in China will grow 4.3% in 2017, at an annual average of 3.3% to 2021 reaching some 33mn units. This is predominantly due to our earlier assumption that the government's new five year plan will largely reflect its aim to restructure the economy towards a consumption-based one. This has proven to be the case, therefore, we maintain that China's increasingly consumer-friendly environment will be the key driver of vehicle sales growth in the country over the next five years.
Despite Unchanged Forecast, Industry Still Headed For Big Changes
Though we maintain our sales and production forecasts for the forecast period, we stress that the new five year plan will still significantly reshape China's automotive market. Therefore, in this analysis, we seek to highlight the main ways in which the new five-year plan will determine the industry's evolution. To do so, we will focus on four key areas:
Electric Vehicle Sales
Connected Car Technology
Autonomous Vehicle Technology
Electric Vehicles Charged Up
The clear commitment in the Five Year Plan towards cleaner energy usage will continue to boost electric vehicle (EV) sales. New energy vehicle (NEV) sales grew 53.1% in 2016, totalling 507,000 units, largely due to the generous subsidies which the government offers on the purchase of EVs and plug-in hybrid vehicles (PHEV).
|NEV Segment Supported By Clean Energy Drive|
|China - New Energy Vehicle Sales, Units|
With renewed commitment to cutting emissions and pollution, we believe China's NEV-supportive environment will continue over the next five years. The government's supportive subsidy policy will be coupled with the government's drive to ramp up charging infrastructure throughout the country which will continue to support the EV segment.
Connectivity Boosting Connected Cars
The improving mobile network and fibre speeds, which form part of the government's aim within the 13th Five Year Plan to expand the network economy, will support the uptake of connected cars. We expect that by 2050, cars will be fully connected to an ecosystem of smart devices and transport infrastructure. The improved network will reduce latency times and create an environment in which vehicle to vehicle (V2V) and vehicle to infrastructure (V2I) communication is more effective.
However, in the short-to-medium term we expect that average in-car telematics technology will improve and will present consumers with better quality choices when purchasing a vehicle. For example, automatic braking systems and upgraded safety features are an added benefit of the improving technology within the connected-car realm. The offering of improved technologies in vehicles will impact sales as consumers migrate away from more basic standard models and move into the new high tech, connected-car market.
From a motor company's perspective, the development of connected-car technology will present opportunities in the form of new services which will need to be provided. Not only will repair and services of connected vehicles themselves become more high-tech, but the ability to interact and communicate with the car and its driver will transform the industry. Most importantly, the ability to leverage consumer data generated by connected cars and to sell subscriptions to message services and other connected-car services will all aid in ensuring automakers can capture more aftermarket service business and diversify their revenue streams.
Vehicle Manufacturing: Moving Up The Value Chain
The FiveYear Plan's commitment to promote emissions free technology will also boost manufacturers in the country. As part of the plan, the government will continue granting production licences to EV manufacturers which were introduced towards the end of 2015. These manufacturers will remain in the government's favour since their products support the government's drive to be a leader in higher-value added automotive technology while also reducing pollution and the country's dependence on imported oil. Furthermore, the explosive growth in the EV segment will also provide opportunity for up-stream suppliers such as EV battery producers in the market.
|EV Battery Suppliers Boosting Hi-Tech Manufacturing|
|Domestic EV Battery Sales By Brand 2014|
|Source: EVObsession, BMI|
However, the aim within the 13th Five Year Plan to promote new types of manufacturing threatens to unsettle labour relations in the country. The five year plan's focus on intelligent manufacturing, coupled with the drive to expand industrial capacity in material sciences and other high-tech industries, will limit employment growth in the automotive manufacturing industry. The inevitable introduction of new labour saving technologies as part of this process will also create significant uncertainty amongst industry employees, which could lead to growing labour unrest. However, we believe that this will only become the case over the long term leading up to 2050.
A Platform For Self Driving Vehicle Development
China's focus on autos tech development will also help develop the technological platform needed for the introduction of autonomous vehicles (AVs). While we stress that mass-market introduction of autonomous vehicles will not be achieved within the next five years, we still believe that China's Five Year Plan will start to address the major barriers to the introduction of AVs.
For instance, the lack of ICT infrastructure that is needed to facilitate machine-to-machine communications of AVs and problems with network reliability will all start to be addressed through the Five Year Plan's goals of expanding and upgrading the network economy and more specifically the ICT and consumer electronics industries. The government has highlighted that it will focus on building a more efficient information network over the next five years, in line with its goal of becoming a 'Cyber Power' by 2020. The aim to improve the mobile network system and the high-speed fibre networks, coupled with the plan to foster the bridging between internet and other industries will facilitate the development of AVs.
Furthermore, the government's emphasis on promoting cybersecurity will benefit the development of AVs in the country. Cybersecurity issues remain a major challenge to the adoption of AVs, given that the level of connectivity used in the technology to drive these vehicles opens the industry up to the threat of hacking or cybercrime. By starting to address cybercrime, the government is creating an environment conducive to the eventual mass adoption of AVs.