Western Tariffs Won’t Dim Outlook for Chinese Automakers’ Global Expansion, Economist Says

26 Jun 2024

The outlook for China’s automakers’ global expansion remains rosy despite the ongoing backlash against Chinese-made electric vehicles (EVs) from the European Union and the U.S., a senior economist at a government-backed institution said.

China became the world’s largest auto exporter in 2023 with shipments of 4.91 million cars, which marks a stark contrast to the period between 2013 and 2020, during which China’s car exports stagnated at around 1 million units per year, said Xu Changming of the State Information Center affiliated to the National Development and Reform Commission at an industry forum on Sunday.

That momentum is expected to continue, according to Xu, with Chinese automakers projected to sell up to 20 million cars in overseas markets around 2035. That figure includes exports and cars built in Chinese firms’ overseas facilities.

The turning point came in 2021 when Chinese auto exports skyrocketed to 2.02 million cars, with the growth momentum continuing in the next year with 3.11 million cars exported, Xu said.

This surge is partly attributable to a chip shortage during the Covid-19 pandemic, according to auto data provider AutoForecast Solutions. The pandemic forced many global auto giants to scale back their production capacities, giving opportunities to Chinese companies which quickly found alternatives to the affected chips.

At that time, established international automakers prioritized using their limited chips in high-profit models targeting the European and U.S. markets, leaving other markets to be filled by their Chinese rivals, according to Gong Min, chief automobile industry analyst at investment bank UBS AG.

China’s rise as the world’s top auto exporter was also driven by the strong demand for Chinese new-energy vehicles (NEVs) and the increased deliveries to Russia, where Chinese automakers capitalized on the withdrawal of their Western rivals due to the Russia-Ukraine war, industry experts said.

As the EU and the U.S. have taken action to protect their auto industries from Chinese imports, concerns are growing that Chinese carmakers’ global expansion may lose a step.

Last week, the EU announced a decision to provisionally impose extra tariffs on battery-electric vehicles shipped from China staring July 4 as part of an ongoing investigation into whether excessive state subsidies are enabling Chinese electric-car makers to undercut their EU rivals.

The tariffs on each company will vary depending on the level of cooperation with the probe, the European Commission said. SAIC Motor Corp. Ltd., which owns the British brand MG, will be hit hardest, with the levy on the state-owned company’s products set to increase by 38.1% on top of the existing 10%. Privately held Geely Automobile Holdings Ltd., the maker of Volvo and Polestar cars, will face an additional tariff of 20%, while EV giant BYD Co. Ltd. will face an extra 17.4%.

The EU’s decision came a month after the Biden administration said that it would quadruple tariffs on Chinese-made EVs to 100% this year from 25%, in a move said to ensure “the future of the auto industry will be made in America by American workers.”

Xu, however, shrugged off these protectionist practices, suggesting that Chinese automakers should further explore business opportunities in other markets like Africa and Southeast Asia to offset the losses caused by the tariff hikes.

Chinese carmakers are diversifying their export destinations. In 2023, China exported approximately 1.5 million vehicles to Asian countries, compared with around 1 million to Europe, 908,000 to Russia, 610,000 to North America, 393,000 to South America, 237,000 to Oceania and 230,000 to Africa, Xu said, citing industry data.

During Sunday’s forum, Jin Jun, the automotive industry leader for PwC Mainland China and Hong Kong, agreed with Xu, saying that Chinese automakers also need to further globalize their production and operations, while predicting that two or three Chinese carmakers will become global industry bellwethers in the foreseeable future.

Jin Tao, chairman and general manager of Chinese auto-parts maker Shanghai Rongnan Tech Co. Ltd., told the forum that he was optimistic yet cautious about the future of China’s auto exports, predicting that the total number of Chinese cars exported and produced at overseas manufacturing facilities is expected to reach a combined 12 million units by 2035, two-fifths lower than Xu’s estimate.

He warned that Chinese automakers could not easily replicate their success in China when expanding overseas, citing varying practices of employee management due to cultural differences.

In the first five months of this year, China exported about 2.3 million cars, up 31.3% year-on-year. Of the cars exported, around 519,000 were NEVs, up 13.7%, according to data from the China Association of Automobile Manufacturers.