Will Chinese Cars Dominate the Automotive Industry?

China’s auto industry is becoming a rising competitive force, posing a threat to traditional players like the United States, according to various industry experts. Interestingly, this change is happening even without China directly selling Chinese cars to American consumers. China’s car exports hit over 5 million units in 2023, surpassing Japan and making it the top global exporter. This surge includes vehicle sales from both old-guard companies such as SAIC and Dongfeng and newer entries like BYD and Nio.

This industry trend started around 2020, sending China from sixth to first place in the global ranking. In contrast, U.S. vehicle exports have been diminishing due to several automakers, including General Motors, scaling back international operations. As of 2022, U.S. auto exports were down 25% from the 2016 peak. Consequently, America dropped to sixth place in global vehicle exports in 2023, trailing Mexico, South Korea, and Germany.

However, the challenge isn’t just about the number of cars produced. Chinese car manufacturers are redefining the industry with their speedy production times, cost-effectiveness, and advanced technology. Many of these firms are building electric vehicles (EVs) at a profit and pace that some global automakers, including America’s GM and Ford, have struggled to achieve. The rise of these budget-friendly Chinese EVs is what’s causing Western carmakers to lose ground.

A key player in China’s auto revolution is BYD Co., which became the world’s largest EV seller in 2023, even outpacing Tesla. Tesla’s CEO, Elon Musk, acknowledged that Chinese car companies are his biggest rivals. “There’s a lot of people who are out there who think that the top 10 car companies are going to be Tesla followed by nine Chinese car companies. I think they might not be wrong,” he stated in November at The New York Times’ DealBook Summit.

The Middle East’s growing demand for affordable and reliable vehicles has led to a surge in the increased market share of Chinese cars, with an 80% increase since 2016, according to Mohamed Fawzi, McLaren Automotive’s regional director for the Middle East and Africa. Key players like Chery, Geely, and Great Wall Motors have capitalized on this trend, especially as the region pivots toward electric vehicles. Building trust in the Middle East has been a critical factor in their success. Chinese cars once held the reputation of being of lower quality and less reliable. However, Chinese manufacturers have put significant effort into enhancing the quality, performance, and safety of their vehicles, leading to increased acceptance in the Middle East.

Government support has been instrumental in the rise of the Chinese auto industry. Fawzi explained that from 2015 to 2020, Beijing boosted the country’s investment in car manufacturing by 30%, hitting $58.4 billion in 2020. These measures have benefited domestic production and attracted global car makers to join forces with Chinese companies.

“The Japanese carmakers came to the U.S. in the ’70s. They needed 50 years to reach the top of the market with some of the competitors that we know well. I don’t see any reason why this would not happen with the Chinese.”

Carlos Tavares, CEO of Chrysler parent Stellantis, via CNBC

The effect of China’s auto industry growth isn’t confined to its borders. Chinese companies have started to expand into Mexico, Europe, and other regions, primarily with affordable models and electric vehicles. By September 2023, Chinese companies represented 8% of Europe’s EV sales, and they could potentially increase their market share to 15% by 2025.

Despite the impressive strides, so far, no Chinese auto company has managed to successfully sell cars directly in the United States under its own brand. However, it should be noted that Chinese firms already have a presence in the U.S. market through supply chain connections and the ownership of brands like Lotus and Volvo.

As a result, China is now spearheading the electric vehicle (EV) industry, becoming the largest producer of these cars, selling 5.9 million units in 2022, a 500% increase from 2018, boosted by government subsidies and infrastructural investment. Dominating about 50% of the global EV market, Chinese EV brands are challenging the reigning champs like Volkswagen and Tesla, giving them a run for their money.

In 2022, EVs made up 25% of all new passenger car sales in China, jumping to a staggering 37% by September 2023. Industry experts from UBS are forecasting a bullish run for China — they expect China’s share in the global EV market to climb to 33% by 2030. This growth may result in Western car manufacturers losing their foothold, with their market share predicted to dip from 81% in 2023 to 58%.

China’s grip on the EV market doesn’t stop at selling cars; the country also dominates EV battery production — the most expensive component of an EV. China’s stronghold over the world’s lithium-ion battery capacity is above 80%, thanks to a robust supply chain, encompassing the mining and processing of vital elements like lithium, cobalt, manganese, and rare earth metals. Chinese battery packs are also significantly cheaper than those from North America and Europe. Plus, China is ramping up its innovation game, rolling out a new generation of EV batteries that use sodium, a more abundant and safer element than lithium.

With companies like Baidu, Tencent, and Alibaba pioneering in EV autonomous driving and connectivity, China’s global standing is making strides, and other nations are doing their best to catch up. For instance, in the U.S., the government’s Inflation Reduction Act allocated billions for battery manufacturing and EV factories. European countries like Germany, France, and Spain are also offering tax credits and aid packages to boost EV investments.

BloombergNEF projects a cumulative value of $8.8 trillion for all types of EV sales by 2030, escalating to a whopping $57 trillion by 2050 under a base case scenario. If the world moves away from conventional cars more quickly, this number could leap to $88 trillion by 2050.