Western protectionism will be put to the test by Chinese automakers. Thanks to effective supply chains, domestic electric-car firms like BYD are establishing their dominance over global brands like Tesla and Volkswagen. Sales in the People's Republic are stagnating, thus their desire to travel farther outside, notably to Europe, is becoming necessary. But the trip would be challenging given the growing anti-China attitude.
It marks a significant turning point. For the first time since the nation opened up to automobile manufacturers following its entry to the WTO , Chinese consumers purchased more local brands than global marques in the final two months of 2022. That transition was driven by electric automobiles. They make up approximately a third of all sales in China.
Yet significant government subsidies have run up, there is a price war, and consumer confidence in the $18 trillion society is low. Overall, the International Energy Agency anticipates a 30% increase in battery-powered vehicle registrations in China this year. According to Refinitiv, the number of new energy cars sold in the nation nearly doubled last year. The slowdown is occurring before many local companies have stable financial footing.
China already exports a big number of autos, surpassing Japan as the world's top exporter of automobiles due to the rising demand for electric vehicles. Even while nearly one in ten of the three million automobiles exported last year came from Tesla's enormous Shanghai Gigafactory, the other nine of the top 10 automakers were Chinese.
Some victories overseas were easy. According to official media, sales to emerging countries, especially those included in the Belt and Road plan, where Beijing has funded hundreds of billions of dollars, accounted for about half of the total in the first four months of the current year. Chinese brands expanded where their Western counterparts shrank. Russians bought more Chinese automobiles than the adored Soviet-era brand Lada in the initial quarter of 2023. There, Great Wall Motor, Geely and Chery still market their brands. The real prize, though, is driving to more affluent locations like Europe.
Escape hatch
Chinese businesses appear to be sufficiently competitive to succeed anywhere they go. Large supply chain economies of scale are one factor. About half of the world's batteries are produced by Contemporary Amperex Technology and BYD, which produces power cells for its own line of vehicles as well as for other companies.
As noted by Grant Thornton, this enables Chinese manufacturers to produce an electric vehicle for about 10,000 euros cheaper than their European rivals. Bernstein claims that a BYD car costing 38,000 euros in Europe is a cost-effective offering, despite the fact that the top line includes a 10% import tax, as much as 25% in sales tax, and other marketing and distribution charges. Bernstein points out that BYD sometimes charges twice as much for its Atto 3, a compact sport utility vehicle, in Europe as it does at home. The average electric vehicle in the People's Republic will cost 50% less in 2022 than it did in 2015, said JATO, a London-based research firm, whereas prices throughout the continent have increased.
Concerns about the quality of "Made-in-China" items are also being erased by new brands like Geely's Zeekr and Funky Cat's by Great Wall Motor. Chinese automakers now frequently receive five-star ratings from the European New Car Assessment Programme, which mandates that vehicles include safety measures above and above those required by law. They frequently also boast sophisticated infotainment systems and cutting-edge software. Politicians, however, favor domestically produced models.
The European Commission's trade defense division is looking at methods to stop the influx of Chinese electric car imports among a growing list of unwelcoming regulations. The Inflation Reduction Act in the US provides tax credits for vehicles with battery components produced or built in North America. In France, where almost 40% of electric-car incentive sales were paid out for Chinese-made vehicles in the first quarter, President Emmanuel Macron intends to encourage purchasers of models built in Europe.
The Chinese might progress by establishing factories in locations where they'd like to sell their goods and by forming strategic alliances. For instance, Chinese battery manufacturers spent over 12 billion euros last year to increase their presence in Europe. Their vendors are joining them in large numbers. In the US, Ford Motor wants to collaborate with CATL to establish a plant since it is evident that allowing China entry will be advantageous. Local operations might also somewhat balance the playing field in Europe since Chinese businesses would lose some domestic advantages like reduced labor costs.
However, it will be more difficult than in the past to combat rising protectionism. In the 1980s and 1990s, when Japanese automakers like Nissan Motor and Toyota Motor became more well-known in the West, the US and Europe implemented import restrictions. In response, the Japanese constructed their own manufacturing facilities in the area, and now they are well-known throughout the world.
A new generation of Asian automakers is now vying for recognition on the international stage. Much more than evaluations of their competence will determine how far China's automakers can penetrate the West.