Is China falling out of love with Apple and Tesla?

The iPhone is the best-selling smartphone worldwide. But not in China. Many are ditching Apple for homegrown options. And the tech giant is not the only American brand taking a hit.

For years, the world’s second-largest economy was where US tech companies thronged, as China provided growth like no other nation. But now the ground reality is far different. Amid rising geopolitical tensions, sentiment towards the West has soured and American corporations are feeling the pinch.

We take a look at what’s changed in China and how Apple and Tesla are seeing a drop in sales.

The ‘forbidden’ Apple

Chinese smartphone users are embracing homegrown names, which has come as a shot in the arm for brands like Huawei.

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iPhone sales have plunged in China in the first six weeks of 2024, according to a report by the analyst firm Counterpoint Research. Apple is facing stiff competition from local smartphone firms like Huawei, Oppo, Vivo and Xiaomi.

The Tim Cook-led company came under particular pressure from Chinese tech giant Huawei , whose consumer business is experiencing a resurgence in China after the launch of its Mate 60 smartphone, which has 5G connectivity, reports CNBC.

Huawei and its spinoff Honor, which branched out of the tech giant in 2020 because of US sanctions, were the best-performing smartphones in the first six weeks of the year.

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Shipments of the Huawei smartphone unit rose 64 per cent year over year in the first six weeks of 2024, and that of Honor handsets by two per cent, according to Counterpoint Research.

The report said that Apple’s share of the Chinese smartphone market dropped to 15.7 per cent, putting it in fourth place, compared with second place in the year-ago period when it had a 19 per cent market share.

Apple “faced stiff competition at the high end from a resurgent Huawei while getting squeezed in the middle on aggressive pricing from the likes of OPPO, Vivo and Xiaomi,” Counterpoint’s senior analyst Mengmeng Zhang was quoted as saying by Reuters.

The change in buying habits can be attributed to uber-nationalism endorsed by Beijing and the government-led initiative to reduce the usage of iPhones among state employees.

At the recent Communist Party annual gathering in Beijing, the anti-Apple sentiment was on full display. Several participants told Financial Times (FT) that they use phones from Chinese brands.

Zhan Wenlong, a nuclear physicist and party delegate, was quoted by the publication as saying that people attending the meeting were encouraged to use domestic phones because “phones like Apple are not safe”.

Wang Chunru, a member of China’s top political advisory body, the Chinese People’s Political Consultative Conference, said he was using a Huawei device, according to the FT report. “We all know Apple has eavesdropping capabilities,” he said.

This sudden disdain for the iPhone comes as the campaign asking state agencies to stop using the Apple handsets, which kicked off last summer, has gained momentum.

Chinese agencies and government-backed firms across the country have ordered staff to stop bringing iPhones to work. By October-November last year, multiple state firms and government departments across at least eight provinces in China instructed employees to start carrying local brands, according to a report in Bloomberg.

It all started around last September when only a handful of agencies in Beijing and Tiajin began instructing their staff to leave foreign devices at home.

Now even school teachers have been told to use made-in-China brands. “Schools are told to use Chinese phones as well, to support Chinese companies,” Nong Jiagui, a teacher in rural Yunnan province, told FT.

However, some ordinary consumers are making the switch voluntarily gripped by a feeling of patriotism. “I’ve been waiting for a long time for a phone with a real domestically produced chip so I put down my iPhone and am supporting Huawei,” Liu said.

Apple has also started subsidising certain iPhone models by as much as 1,300 yuan (approx. Rs 15,000) last week through flagship stores on Tmall, Alibaba’s major marketplace platform. It had already offered iPhone discounts of up to 500 yuan (Rs 5,762) on its official sites last month. It remains to be seen if this will help it revive its fortunes in the country.

Gene Munster, a managing partner at Deepwater Asset Management, told Business Insider that the decline in Apple’s popularity did have something to do with “American products falling out of favour in China.”

Be it patriotism or enforced restrictions, Apple is forced to take a backseat in its biggest market outside the United States. Wall Street is taking notice as the tech giant’s share price has dropped by nine per cent this year.

Trouble for Tesla?

But Apple is not an isolated case. Telsa is also facing similar challenges in China. Its revenue has fallen by 22 per cent during the recent financial year.

The American electric vehicle maker suffered a huge slump in shipments from its Shanghai gigafactory last month, with 60,365 vehicles shipped, according to a Bloomberg report. That is 16 per cent lower than its shipments in January and 19 per cent lower than the same month last year, reveals data from the China Passenger Car Association.

There has been a slowdown in the electric vehicle (EV) market. While Tesla sales in China remained solid last year, there appears to be a slump in demand in the last couple of months. The slower sales during February’s Lunar New festivities in China was telling.

Telsa owners also have to cope with the growing number of areas their vehicles are prohibited from. Amid concerns that in-cabin devices in the cars could collect sensitive data, they cannot enter military and government complexes, reports FT. The Biden administration has similar concerns about Chinese smart cars.

When it comes to EVs, local makers like BYD are seeing a rise in demand. Their vehicles are cheaper than Tesla.

In January, BYD reported a 43 per cent rise in sales, according to CarNewsChina, reports Business Insider. It also cut the prices of its best-selling models by an average of 17 per cent.

Chinese smartphone maker Xiaomi is also entering China’s EV market. Its shares rose 12 per cent on Tuesday after it announced that it would start selling its much-awaited SU7 vehicles this month. With yet another local competitor on the horizon, Tesla’s challenges continue.

According to Daniel Kollar, an automotive expert at the consultancy Intralink, Tesla’s China performance had remained strong, but the company faced challenges from local competition, a renaissance of hybrid cars and security-related restrictions. “There are a lot of local alternatives to choose from in this space,” he told FT.

An emerging trend

Apple and Tesla are only the latest foreign companies to see a drop in sales as Chinese consumers take to local brands. Sales of Nike and Adidas clothing have yet to return to their 2021 peak, reports FT.

Amid this, Beijing is expected to continue its push for domestic products, especially when it comes to technology and energy.

The Wall Street Journal reported that a directive known as “Document 79” was ramped up to push out Western companies. It asks state-owned companies in several sectors, such as finance and energy, to “replace foreign software in their IT systems by 2027”, reports Business Insider.

The truth remains that China is a big market. Losing control over it is expected to hurt America.

With inputs from agencies