There's a new king of the global auto market. The global shift to electric cars, signified by companies like Tesla and BYD, has helped China's carmakers potentially reach two important milestones, unseating once-dominant players and unnerving legacy automakers in Europe, Japan and the U.S.
Chinese carmakers exported 3.83 million passenger cars in 2023, a 62% increase from the year before, the China Passenger Car Association (CPCA) estimated during a press conference on Tuesday. That would mark the first time its exports have surpassed those of Japan—Japanese carmakers exported 3.5 million cars between January and November, according to Reuters. The CPCA estimated that 5.26 million vehicles in total were exported from China, compared to 4.3 million from Japan.
Chinese brands also outsold foreign carmakers inside China, taking 52% of the domestic market, up 4.6 percentage points from the year before.
Foreign carmakers struggle
China’s success is being driven by a domestic shift towards EVs. Consumers, aided by government subsidies, flocked to buying affordable hybrids and battery-powered vehicles. Yet foreign carmakers, particularly from Japan, were slow to launch new electric car models in China.
These companies are now struggling to keep their presence in the Chinese market.
On Tuesday, Volkswagen reported a 1.6% increase in its China sales, with a 23% rise in EV sales specifically. Yet that growth lagged the rest of the China auto market, which grew by 5.6% and 36% in the broader market and for electric vehicles specifically, according to the Financial Times citing data from the CPCA.
Volkswagen was once the largest car brand in China, but lost the top spot last year to BYD, the Chinese EV giant backed by Warren Buffett's Berkshire Hathaway. The German multinational pledged 5 billion euros ($5.5 billion) to shore up its strategy in China, and also invested $700 million for a 5% stake in Xpeng, a Chinese EV startup that makes Tesla-like premium models.
U.S.-based General Motors sold just 2.1 million cars in China last year, down from a peak of over 4 million cars sold in 2017, according to Bloomberg. By comparison, GM sold 3 million cars in the U.S. in 2017, and 2.6 million cars last year. It’s the first time GM has sold more cars in the U.S. than in China since 2009.
China presents other issues for GM. The U.S. manufacturer is trying to change its supply chains to ensure all its EVs sold in the U.S. still qualify for tax credits, following a rule change meant to exclude models that rely on China-sourced parts. Last week, GM promised to make up the difference for models losing the tax credit with a $7,500 incentive.
Japanese carmakers also reported declines in sales over 2023, like Mitsubishi's 60% drop in revenue from China between April and September. The company announced in September that it would suspend its manufacturing operations in China.
Going overseas
The Chinese EV boom may be slowing down, however. The CPCA forecasts 25% growth in Chinese EV sales in 2024, slower than the 36% growth recorded last year and the whopping 96% growth recorded in 2022.
A slower and more competitive domestic market is now pushing Chinese carmakers to focus even more on exports. On Tuesday, BYD announced that it would start selling cars in Indonesia next week, following previous expansions elsewhere in Southeast Asia as well as Japan and Europe.
BYD sold a record 3 million cars in 2023, 1.6 million of which were battery-powered vehicles. (The company also sells hybrids.) The Chinese company overtook Tesla last quarter as the world's top seller of fully-electric cars.
U.S.-based Tesla, BYD’s biggest rival in China and perhaps the only foreign automaker to succeed in the country’s new EV sector, sold around 948,000 China-made cars last year. Tesla sells cars made in its Shanghai Gigafactory both in China and in overseas markets.
Some foreign carmakers are deciding to partner with local EV companies to get a foothold in the fast-growing EV market. In addition to VW's investment in Xpeng, Stellantis—the company behind brands like Fiat and Jeep—is investing $1.6 billion into another Chinese startup, Leapmotor.
Chinese carmakers will export 5 million cars this year, UBS estimates. Thirty per cent of those will be battery powered vehicles, predicted Paul Gong, an analyst at UBS, at a media briefing Tuesday, according to the South China Morning Post.
Gong cited China’s “advantage in terms of technology” and “good command of some manufacturing techniques” as reasons for the country’s EV advantage.
Still, China’s automakers aren’t abandoning gas-powered cars. Part of China’s export boom is also explained with trade in internal combustion engine (ICE) vehicles to Russia, as Chinese carmakers rush to replace Western and Japanese automakers that pulled out of the country following the invasion of Ukraine in 2022, according to a report from the Center of Strategic and International Studies.
Attracting scrutiny
The flood of Chinese and China-made EVs is already worrying legacy automakers in Europe, Japan and the U.S.
In May 2023, Ford CEO Jim Farley said he saw China as the “main competitor” to his company instead of more established companies like GM and Toyota. Peugeot CEO Linda Jackson echoed those concerns that same month, citing Chinese automakers as the “biggest danger” to the Stellantis-owned brand.
The flood of affordable EVs is now attracting government scrutiny.
The European Union launched a probe last September to investigate whether electric vehicles manufactured in China receive an unfair level of subsidies from Beijing. "Their price is kept artificially low by huge state subsidies," Ursula von der Leyen, president of the European Commission, complained during a speech to the European Parliament.
Last week, Beijing retaliated by targeting a product where Europe, for now, still dominates: French brandy.
