Do Chinese car makers see a bright spot in Saudi Arabia?

• Saudi sovereign wealth fund is expected to open offices in Beijing, Shanghai and Shenzhen.
• Saudi Arabia is the fifth-largest destination market for Chinese car exports and has become a logistical hub for re-exporting imported cars from China.
• As price sensitivity grows among consumers, who are now gravitating towards smaller, more economical engine options, the Chinese manufacturers appear poised to capitalise on this trend.

The recent hints by China’s Ambassador to Saudi Arabia, Chang Hua, regarding potential factory setups by Chinese car manufacturers in the Kingdom reflect a significant strategic alignment between these two nations.

The partnership transcends mere economic transactions, illustrating a concerted effort by both countries to navigate the complexities of a rapidly changing global landscape.

As Saudi Arabia strives to diversify its economy, particularly in light of its status as the world’s leading oil exporter, and as Chinese carmakers seek new avenues for growth amidst geopolitical tensions, the implications of this collaboration merit careful examination.

Saudi Arabia, currently ranked as the 22nd largest car market globally, presents a promising opportunity for Chinese manufacturers.

Notably, several prominent Chinese automotive companies—Changan, Geely, MG, Chery, Great Wall Motor, Hongqi, GAC, and BYD—have already established branches in the Kingdom, indicating a burgeoning presence.

The rising sales figures, with a reported 16.9 per cent increase in 2023 amounting to 729,466 units, further underscore the viability of the Saudi automotive market.

Equally important is the dramatic rise in market share for Chinese automakers, which increased from less than one per cent in 2017 to approximately 12 per cent of new vehicle sales in the Gulf Cooperation Council (GCC) region last year.

The trajectory suggests a growing acceptance and demand for Chinese vehicles among Saudi consumers.

China’s automotive expansion into Saudi Arabia is also intertwined with the broader context of the Kingdom’s Vision 2030 initiative, which aims to transform the nation’s economic framework away from oil dependency.

Evolving partnership

Saudi Crown Prince Mohammed bin Salman has expressed aspirations for “Made-in-Saudi” vehicles to populate the streets of the Kingdom, revealing a commitment to building a domestic industrial base.

In this regard, Chinese manufacturers find themselves at a pivotal intersection; they can tap into an emerging local market while participating in the Kingdom’s ambition to become an industrial hub within the Middle East.

The geopolitical climate plays a significant role in this evolving partnership.

 As relations between China and the United States have soured, Saudi Arabia is increasingly looking to strengthen ties with Beijing.

Chinese companies seek to explore new markets in response to growing trade restrictions and tariffs imposed by Western nations. The diversification of portfolios and a strategic pivot towards the Middle Eastern market appear not only pragmatic but essential for sustaining growth in an increasingly competitive automotive sector.

Moreover, the Public Investment Fund (PIF) of Saudi Arabia’s impending establishment of offices in Beijing, Shanghai, and Shenzhen signals a commitment to fostering deeper economic ties with Chinese enterprises.

Investments such as the $5.6 billion deal in 2023 with Chinese electric vehicle maker Human Horizons further illustrate PIF’s strategy to develop a domestic electric vehicle industry, which is critical in today’s environmentally conscious market.

The collaboration aims to leverage Chinese technological advancements in electric vehicles, positioning Saudi Arabia as a significant player in the EV sector.

While the burgeoning presence of Chinese automakers in Saudi Arabia is promising, it is also indicative of a fiercely competitive landscape.

Stealing market share

The enhanced quality and finish of Chinese imports have begun to challenge established competitors from Japan and the United States, highlighting a critical evolution in consumer preference and market dynamics.

Automotive experts have noted that Chinese brands are increasingly capturing market share from established South Korean automakers like Kia and Hyundai, showing that consumer perceptions are shifting in favor of Chinese offerings.

Last week, Saudi Arabia’s Minister of Industry and Mineral Resources, Bandar Alkhorayef, embarked on a visit to Guangzhou, Hong Kong, and Singapore, aimed at enhancing bilateral relations and exploring joint venture opportunities.

The initiative underscores Saudi Arabia’s commitment to diversifying its economy, with particular emphasis on the automotive sector, a pivotal element of the national industrial strategy.

Alkhorayef highlighted the importance of fostering innovation within the car industry, acknowledging the rapid evolution of the market landscape.

Over the past decade, the emergence of Chinese car manufacturers has significantly altered the dynamics of the Gulf Cooperation Council (GCC) auto market.

Stats say it all

Companies such as MG, Geely, BYD, and Changan have introduced an extensive range of models, catering to diverse consumer demands with remarkable speed and competitive pricing. The proliferation of affordable vehicles has rendered traditional players, particularly American and Japanese manufacturers, increasingly less accessible to large segments of the population.

As price sensitivity grows among consumers—who are now gravitating towards smaller, more economical engine options—the Chinese manufacturers appear poised to capitalise on this trend.

The sustained advance of Chinese automakers is evident in the increasing volume of vehicle imports into Saudi Arabia. From 2019 to 2023, the number of cars imported from China surged from 48,120 to 180,590, reflecting a staggering growth of 275.3 per cent.

The influx has transformed Saudi Arabia into a logistical hub for the re-exportation of Chinese cars to neighbouring markets, further solidifying the presence of Chinese brands in the region.

The market has seen the introduction of models that not only mirror popular brands such as KIA but also challenge European offerings. For instance, the Hongqi H5 sedan, priced at $47,000 with a seven-year warranty, exemplifies the competitive strategy employed by Chinese manufacturers to attract consumers who value both prestige and affordability.

The evolution of the automotive market in Saudi Arabia serves as a testament to shifting consumer preferences, where value for money increasingly dictates purchasing decisions.

The success of Chinese brands within this landscape is a clear indication of their strategic acumen in understanding and responding to the nuances of consumer demand in the GCC region.

As the competition intensifies, it will be critical for traditional automakers to adapt to these changing dynamics, lest they cede further ground to their more agile and cost-effective rivals.