British luxury sports car brand, Lotus is all set to begin manufacturing in China in the next three years following the purchase of a majority of stake in the company by China-based company Geely. The brand will be the first high-end car franchise that will begin production in the largest automobile market in the world. The regulatory authorities in Wuhan approved Geely’s plan of constructing a manufacturing plant in the region which is estimated to be worth $1.3 billion. The factory is expected to manufacture 150,000 vehicles a year and will be focusing on the production of sports utility vehicles in the initial phases of manufacturing.
Will Other Luxury Brands Follow in Lotus’ Footsteps to Open New Manufacturing Plants in China?
China is the largest recognized market for automobiles with consumers spending approximately twice on cars as compared to their American counterparts. The luxury brands hold the bulk of the share of the automobile market. Investors around the world are injecting billions of dollars to capitalize on the growing demand of cars in the Chinese market. For instance, Chinese automotive giants Geely bought Volvo, a subsidiary of Ford in $2 million and further invested a hefty amount of over $10 billion in new cars and trucks. The growing disposable income coupled with lax regulations in the country is helping the growth of the luxury car market in China. Further, luxury car brand manufacturers can save themselves of the heavy import tax of 35% levied on vehicles costing over 1.3 million Yuan.
However, the recent trade war with the US has triggered an economic slowdown in the country which has resulted in the slump of demand for automobiles in the country. The trade war has weakened the Chinese currency and has caused a substantial decline in the stock market. The demand for cars also suffered a huge blow due to the phasing out of the law that allowed a rebate on purchase tax. Rising property prices are also weighing down on the automobile industry in the country.
Despite all the regulations and hurdles, the sales of luxury cars have remained rampant in the region presenting a promising prospect for luxury brands. Companies continue to invest in the region banking on the growth of the automobile market as car dealers push the government to come with fresh regulations to spur demand. For instance, BMW bought a majority of stake in its Chinese joint-venture which was estimated to be worth $4.1 billion while Tesla Inc. will go ahead with its plans of setting up a manufacturing facility in China to gain a share of the largest electric vehicle market in the world.
Mohit Loshali, an experienced campaigner, writes about the latest evolutions and trends in the automotive and allied domains. He has helped clients from across the globe with his thought-provoking research and analysis.