China’s automotive lubricants market is currently undergoing a significant transformation, driven by an array of factors that are reshaping its dynamics:
One significant factor is the decelerating export market. Global product demand has taken a hit due to the economic downturn and the rising inflation in other countries.
Additionally, China’s real estate market, which played a pivotal role in fueling domestic consumption, has experienced a notable downturn.
Moreover, the decrease in foreign investment in China has emerged as another contributing factor. The pandemic-induced shutdowns have prompted a shift in supply strategies, moving away from single-sourcing production and embracing nearshoring trends closer to North America and Europe.
As a result, the market’s demand for automotive lubricants is directly influenced by the country’s slowing economy. What implications does this have for the market landscape in China?
The decline in HDMO demand
The uncertain economy has slowed commercial truck sales from a blistering peak of 4.7 million vehicles in 2020, down to 2.9 million in 2022. While the 2022 figures are closer to pre-pandemic averages, the economic slowdown is expected to continue to drive a decline in new truck sales, with heavy truck demand falling more rapidly. Combined with an expected decline in off-highway vehicle sales, heavy duty motor oil (HDMO) demand growth is projected to decline over Kline’s 5-year forecast, according to our recently published Heavy-Duty-Motor Oil: China report.
The rapid growth of EVs in the Chinese market
China’s vehicle parc of internal combustion engine (ICE) is declining rapidly, while new energy vehicle (NEV) sales have outpaced many other developed nations and currently account for over 30% of new vehicle sales. This is driven by China’s desire to become an electric vehicle (EV) leader and is home to a large number of EV original equipment manufacturers (OEMs) and China’s policies that subsidize NEVs. However, vehicles with an ICE will still see growth, particularly plug-in hybrid electric vehicles (PHEV) and hybrid electric vehicles (HEV).
The Chinese market is witnessing a surge in the adoption of electric vehicles (EVs) which is poised to have a profound impact on the automotive lubricants industry. With EVs eliminating the need for traditional engine oil, the demand for such lubricants has witnessed a decline. However, it is important to note that EVs still require specialized lubricants for their transmissions, bearings, and cooling systems, opening new opportunities in these areas.
The implementation of emissions regulations
Despite the shift away from engine oil, it would be remiss to neglect its significance. China’s National VI emissions regulations are set to drive upgrades in service categories and a shift toward lower viscosity fluids. These regulations aim to enhance air quality and incentivize the adoption of cleaner technologies. Consequently, there will be a greater demand for more advanced API service category engine oils, such as API CK-4 and API SP lubricants, which are essential for National VI-compliant vehicles.
The Chinese market has demonstrated a remarkable willingness to embrace new platforms and channels, with the online channel emerging as the largest among the new avenues, as revealed in our upcoming PCMO Sales Channels in China study. Government regulations play a pivotal role in shaping the market, as exemplified by the shift in ride-share services that now require registration as commercial vehicles. This shift has led to a transition from owner-operator vehicles serviced at independent workshops (IWS) and franchise workshop (FWS) channels to rented/owned fleets of vehicles serviced in-house.
The growing protectionism of domestic brands
As the market evolves, there is a notable shift toward online channels, with e-commerce sales projected to experience rapid growth. Currently, independent workshops (IWS) maintain the largest market share, but the industry is witnessing consolidation in this space, accompanied by an upsurge in chain stores and e-commerce platforms. Moreover, the rise of protectionism in China has fueled the growth of domestic lube marketers like Sinopec and PetroChina. This protectionist stance has led to a preference for domestic brands, thereby impacting the dynamics of the market.
Looking ahead, the engine oil market in China is poised for continued evolution. Lubricant manufacturers must be prepared to adapt to the shifting landscape by investing in research and development. This investment is necessary to meet the demands of electric vehicles (EVs), enhance fuel efficiency, and ensure compliance with stringent emissions regulations. As China progresses toward a greener and more sustainable transportation sector, the lubricants market will play a crucial role in supporting this transition. While engine oil demand is expected to experience a decline, it will remain one of the largest volume markets globally. It is also important to note that the subsidies for new energy vehicles (NEVs) in China ended in 2022. This change in government policy could potentially impact the growth of the NEV market, introducing new dynamics and considerations for lubricant manufacturers operating in this space.
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