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Financial Literacy

China’s Role in Shaping Consumer Industries

Total Vehicles Sold Globally in 2018

Volkswagen (OTC: VWAGY) and Toyota (NYSE: TM) have been in a race for the title of world’s largest automaker since 2015. But based on last year’s sales figures, Germany’s automotive giant is pulling ahead of its Japanese rival.

But how? Toyota is the most valuable brand in the auto industry (the Corolla is the best-selling car of all time).

The answer is China, the world’s largest auto market. Volkswagen has taken advantage of this burgeoning market, while Toyota has largely ignored it.

Chinese consumers make up 30% of new car buyers worldwide. Although sales dipped last year, China’s appetite for new cars continues to grow.

Europe, the world’s second-largest auto market, is Volkswagen’s home turf. One out of every four new cars bought in Europe is a Volkswagen product. Yet China remains Volkswagen’s best customer… It alone makes up 40% of Volkswagen’s sales.

In 1983, Volkswagen was the first foreign automaker to set up shop in China, becoming synonymous with quality, reliability, luxury and status. Today, Volkswagen is China’s best-performing foreign auto brand.

Through its local partners and import subsidiary, Volkswagen makes three of China’s best-selling cars. In fact, Volkswagen sold about four cars for every one Toyota. And its luxury marque, Audi, sold about six cars for every Toyota-made Lexus.

Volkswagen’s success in China is what helped it overtake Toyota. And the company has leaned into that success, becoming laser-focused on Chinese tastes.

Chinese consumers like big vehicles because they’re a sign of prestige and success, with SUVs making up half of China’s total auto sales. So Volkswagen built a whole lineup of SUVs to capture that market. A dozen China-exclusive SUVs will soon join the Touareg, Tiguan and Atlas.

Additionally, Chinese consumers bought more than half of the 2 million electric cars sold last year, indicating a strong Chinese market for electric vehicles (EVs). So Volkswagen will start rolling out a whole lineup of EVs next year. The ID.3, an electric hatchback, will lead the way in 2020, followed by an electric SUV aimed squarely at the Tesla Model X, China’s current electric SUV sales leader. It will debut in China before being made available to other markets.

More companies will look to capitalize on the power of China’s growing middle class by imitating Volkswagen’s model for success…

And Chinese consumers will be the new market to cater to in coming years. Their tastes will determine the future of not just the auto industry but also most other consumer industries.

Good investing,

James


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