In the fast-evolving landscape of the global automotive industry, the concept of “involution” hints at a scenario where competition becomes so intense that it eventually pushes companies to seek opportunities beyond their domestic marketsThis phenomenon mirrors historical trends observed in various societies across timeA modern illustration of this principle can be witnessed in China's burgeoning electric vehicle (EV) sector, which is poised on the brink of international expansion as it grapples with fierce domestic competition.
In China, the stakes are high as industry leaders voice their concerns about an increasingly competitive automotive marketLi Shufu, the chairman of Geely Group, epitomizes this sentiment by declaring that China's automotive market is the epitome of involution on a global scaleConcurrently, Zeng Qinghong, chairman of GAC Group, has raised alarms about unsustainable competition, asserting that "going deeper into involution is not a viable strategy, leading to diminished profits and ultimately jeopardizing the survival of companies." This grim acknowledgement sets the stage for a broader strategic shift among Chinese automakers.
The critical question then arises: how do Chinese auto manufacturers escape this quagmire of fierce domestic rivalry? The answer lies in the intrinsic principle of seeking new horizons beyond local borders
In 2024, a wave of Chinese auto manufacturers is gearing up to navigate the "Great Age of Exploration," signaling their intent to penetrate foreign markets in pursuit of growth.
A comprehensive report titled “2024 China Automotive Globalization Development Report,” co-authored by Roland Berger and the Huazhong University of Science and Technology, posits that the timing is ripe for Chinese auto companies to venture overseasAccording to Zheng Yun, a global senior partner at Roland Berger and head of automotive business in Asia, "China has all the necessary elements for a breakthrough in the globalization of its automotive industry, potentially birthing the next generation of world-class car manufacturers."
However, diving into international waters is not without challenges, as doing so often pits Chinese firms against entrenched interests in established automotive markets such as Europe and the U.S
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Traditional automotive powerhouses are quick to deploy trade protection measures, including hefty tariffs, to safeguard their domestic companiesConsequently, Chinese auto manufacturers are strategically adapting their approach to overseas expansion, focusing on product development, market penetration, and innovative modes of entry into foreign markets.
Notably, the transformation that Chinese manufacturers have undertaken through the rise of new energy vehicles has fortified their position, equipping them with the necessary resources and agility to maneuver in this competitive "offense-defense" landscape.
The last few years have seen a remarkable surge in the export of Chinese vehicles, marking China's ascendancy to the top of the automotive export ladderAlthough complete yearly statistics for 2024 are pending, preliminary data from the China Association of Automobile Manufacturers (CAAM) indicates that from January to November 2024, Chinese auto exports reached approximately 5.83 million vehicles, representing a 22.5% year-on-year growth and exceeding the total exports for 2023. In stark contrast, Japan, a major competitor, saw its exports decline by 4.3% during the same period.
This uptick in volume corresponds with a significant improvement in the average quality of exported vehicles, evident in rising average price points
Data shows that the export revenue for Chinese automobiles from January to November 2024 amounted to about USD 107.37 billion, which translates to an average vehicle price of around USD 18,000 – a substantial increase from just USD 5,000 in 2019.
According to Cui Dongshu, secretary-general of the China Passenger Car Association, the resurgence of new energy vehicles (NEVs) plays a pivotal role in this upward trajectory“NEVs are the core growth driver for high-quality exports from China, uplifting overall performance, with both volumes and average prices experiencing robust growth,” he expounds.
This assertion is reflected in the staggering rise of NEVs' share in Chinese exports, escalating from an inconsequential percentage in 2021 to 25% in 2023. This remarkable growth has propelled China ahead of South Korea, Germany, and Japan, establishing it as the world’s leading exporter of vehicles.
Yet, as we approach 2024, a noticeable softening in the market for pure electric vehicles has emerged, leading to a deceleration in growth rates for NEV exports
Interestingly, plug-in hybrid models are emerging as star players amidst this backdropData from CAAM shows that between January and November 2024, plug-in hybrids recorded cumulative exports of 246,000 units, representing a robust year-on-year increase of 180%. In contrast, pure electric vehicle exports fell to 894,000 units, down 10.8%, demonstrating a stark divergence in performance.
Industry experts, including Chen Shihua, deputy secretary general of CAAM, identify several obstacles impeding the widespread adoption of pure electric vehicles abroad, including insufficient global charging infrastructure and the impact of EU-imposed tariffs.
He Xiaopeng, CEO of XPeng Motors, corroborates this view, stating that while the domestic Chinese market has a robust charging network, the overseas market lacks comparable infrastructureReports indicate that by the end of 2023, the total number of public charging stations abroad totaled just 2.8 million, less than a third of China's total.
This context has prompted several emerging players in the EV market, such as XPeng, NIO, Zeekr, and Aion, to focus their strategies on expanding into the plug-in hybrid sector
NIO, known for its battery swap technology, is pivoting towards hybrid powertrains to establish a foothold in global markets, striving for a dual-channel approach.
Furthermore, the EU's countervailing duties, set to take effect from October 30, 2024, targeting subsidies for electric vehicles, do not affect hybrid modelsThis presents an opportunity for Chinese manufacturers to mitigate tariffs and unlock new avenues for growth, highlighting the shift in demand from pure electric vehicles to hybrids as a significant industry trend.
However, it is important to note that despite the looming challenges, China's comprehensive advantages in the NEV sector greatly facilitate the transition from electric vehicles to hybrid modelsWang Chuanfu, CEO of BYD, succinctly states, “The world’s most advanced plug-in hybrid technology is rooted in China.”
Shifting to the topic of trade protectionism, the repercussions of these policies on Chinese automotive firms' international ventures are profound
In fact, the recent data from CAAM indicates that in November 2024, China exported 83,000 NEVs, marking steep declines of 35.2% month-on-month and 14.1% year-on-year.
Such a significant decrease in export volume indicates that the effects of EU tariff policies are swiftly impacting the market, underscoring the need for adaptive strategies.
Historically, the EU has maintained a stringent stance on electrification, viewing its advancement as a critical challenge to its automotive sectorsAs a result, Europe has emerged as the second-largest electric vehicle market globally, following China, and serves as a vital destination for Chinese electric vehicle exportsData from CAAM indicates that in 2023, approximately 38% of the 1.203 million NEVs exported from China landed in the European market, equating to around 460,000 units.
Thus, the European market holds an irreplaceable allure for Chinese automakers, even in light of tariff hurdles
Two primary strategies have surfaced as avenues for navigation around these barriers: one, using hybrid vehicles as flagship exports to Europe, and two, establishing local production facilities on European soilMajor Chinese car manufacturers such as BYD, Chery, Geely, NIO, and XPeng have laid out clear plans for production facilities in EuropeHe Xiaopeng even asserted, “Increases in tariffs will not hinder XPeng’s global expansion plans.”
While these strategies showcase agility in circumventing current trade obstacles, they are merely temporary fixesThe danger of "decoupling" from global markets, along with potential supply chain disruptions, remains a persistent concern for Chinese enterprisesThe so-called “Global South” markets, however, are emerging as promising frontiers for Chinese automotive exports.
Recent CAAM data highlights the top five countries for Chinese NEV exports from January to November 2024: Belgium, Brazil, the United Kingdom, Thailand, and the Philippines
The Brazilian market, particularly, represents a significant opportunity, providing a vast automotive market with abundant growth potentialReports from the Brazilian outlet Poder 360 indicate that in the first half of 2024, Brazil imported 129,933 vehicles from China, a staggering 717% increase compared to the same period last yearThese figures account for 57.5% of total passenger vehicle imports to Brazil, firmly positioning China as the leading foreign automotive supplier.
Similar to Brazil, Thailand serves as a strategic hub for Chinese firms seeking to tap into the Southeast Asian marketThe favorable policies enacted by the Thai government in support of electric vehicle development, such as the "30-30" policy, demand that by 2030, 30% of domestic electric vehicle substitution must be achieved while also achieving over 30% capacity in NEVs.
According to Auto Life, a Thai automotive website, pure electric vehicle sales in Thailand surged to 76,300 units in 2023, marking a staggering 684.4% increase, with BYD's Atto 3 claiming the top spot among sales
Notably, eight Chinese electric vehicle models featured in the top ten, with Chinese brands capturing a commanding 80% market share in Thailand's electric vehicle landscape.
Clearly, the potential of the Global South market is extensive, presenting a welcoming environment for Chinese enterprisesEconomic analyst Gary Hufbauer emphasizes that amid trade barriers preventing Chinese NEV market penetration in developed nations, countries within the Global South are poised to embrace the influx of Chinese vehicles.
From a long-term strategic perspective, the narrative surrounding Chinese automotive exports is evolving toward localization and the establishment of integrated supply chainsAchieving sustainable competitive advantages necessitates a closed-loop system across the industry and supply chains.
This perspective resonates with leaders in the automotive sectorCui Dongshu noted that "a complete, efficient, and cost-effective NEV supply chain represents a key advantage for China's automotive sector, imperative for our foothold anywhere in the developed world and emerging markets alike."
Companies at the forefront of this trend have already taken action
As of the end of 2023, Chinese enterprises had established over 600 automotive manufacturing facilities across more than 80 countries and regionsAn example of this progressive strategy is CATL, the world’s largest power battery supplier, which holds a commanding market share of 36.8%. CATL’s international expansion can be witnessed in multiple factories across Europe, highlighted by its announcement to build a battery plant in Aragón, Spain with an investment of EUR 4.038 billion, set to start production in 2026.
Beyond European endeavors, CATL's reach extends to the burgeoning markets within the Global South, including battery cell manufacturing facilities in Indonesia, negotiations for production plants with the Thai government, and lithium mine acquisitions in Brazil.
Furthermore, BYD has not limited its local production strategy to just vehicle assembly
Reports indicate that BYD has invested heavily in establishing a battery plant in HungaryHowever, a more significant undertaking is the comprehensive industrial complex being developed in Brazil, encompassing an assembly plant, a parts factory, and facilities for processing lithium and iron phosphate, signifying a substantial investment into the local supply chain.
Brazil stands to gain immensely from this industrial migrationDuring last year's G20 summit, Brazilian President Lula acknowledged that the country's automotive output has recently set record highs, largely attributed to the engagements of Chinese firms in fostering Brazil's own NEV industry.
Despite these advancements, the pathway from merely exporting to fostering local production is fraught with hurdles, particularly concerning cultural nuances, navigating local laws, and other regulatory frameworksA recent incident involving labor issues at BYD’s plant in Brazil serves as a cautionary tale and highlights the importance of careful consideration in creating a stable presence abroad.
In summary, while challenges abound, the momentum of Chinese automotive companies pursuing international expansion remains robust