(Yicai Global) April 7 -- Chinese carmakers have been losing money in recent years. To survive knockout competition in the next few years, they need to resolve the profitability issue as soon as possible, according to a managing partner of US consultancy McKinsey & Company.

To reverse the “blood loss,” Chinese automakers can explore various approaches such as cost- and value-oriented design, high-efficiency research and development, and identification of core technology stack control points and capacity building, Guan Mingyu told Yicai Global at a recent industry forum.

China accounts for about 30 percent of the global auto industry, but less than 5 percent of its profits, Guan pointed out.

The country’s auto market, the world’s biggest, is in a critical period of reshaping, Guan said, noting that competition in the next three years will enter an elimination round. The carmakers taking part in the latest price war aim to win the round, he added.

Guan believes that the Chinese brands that survive in 2025 will have a place in the global auto industry and that three to four of the world’s top 10 car companies will be Chinese in 2030.

The liveliness of China’s smart electric vehicle market is based on a severe profit overdraft at car companies, Guan pointed out, adding that weak profitability not only dampens investor enthusiasm but also hinders carmakers from developing long-term and sustainable competitiveness.

“China is a developing market, and it’s difficult for local firms to profit in this environment,” Peng Bo, managing partner at McKinsey Global, told Yicai Global. “They can achieve profitability after they form an ultra-stable structure following this elimination round.

“The European and US markets are relatively mature, so even if some foreign brands withdraw from the Chinese market, their profitability in the local market will remain stable,” Peng noted.

Global passenger car sales are expected to reach about 800 million between 2021 and 2030, of which 220 million units will be electric vehicles, according to a McKinsey forecast. Some 100 million EVs will likely be sold in China in the decade, contributing to nearly 50 percent of the global total.

Editor: Futura Costaglione