In Depth: China’s Auto Industry Reaches Turning Point as EV Exports Slow

China's automotive exporters, particularly in the electric vehicle (EV) sector, are facing significant challenges as Western nations implement tariffs to protect their markets. The European Commission has finalized additional tariffs ranging from 7.8% to 35.3% on battery-electric vehicles (BEVs) from China, attributing this to unfair advantages from state subsidies. These tariffs, supplementing the existing 10% import duty on cars, will last for five years, although there is potential for negotiations with individual exporters on pricing agreements to avoid further tariffs. [para. 1][para. 2][para. 3][para. 4][para. 5][para. 6]

The U.S. and Canada are also strengthening trade barriers against China-made EVs. The U.S. has announced a fourfold increase in tariffs on such vehicles from 25% to 100%, aiming to support its domestic industry. Similarly, Canada has introduced a 100% levy on Chinese EVs. These actions coincide with China becoming the world's largest auto exporter in 2023, driven by a surge in demand for Chinese new-energy vehicles (NEVs), which include electric, plug-in hybrid, and fuel-cell vehicles. However, due to international trade barriers, China's auto export growth is expected to slow, with full-year figures anticipated between 6 million and 7 million vehicles. [para. 7][para. 8][para. 9][para. 11]

The European market for China-made EVs has also seen significant changes. Dominated by brands like Tesla and Renault’s Dacia, Chinese companies such as SAIC’s MG and BYD are gaining traction, capturing a 7.9% share of Europe’s NEV market in 2023. However, SAIC’s MG has faced a notable decline in sales due to the newly imposed tariffs, which have impacted overall demand. [para. 12][para. 13][para. 14][para. 16]

Despite the challenges from increased tariffs, Chinese automakers continue to engage with the European market, evidenced by significant participation in international auto shows and entering strategic partnerships. GAC and Leapmotor, among others, are considering local manufacturing to mitigate the tariff impacts. For instance, Leapmotor is leveraging its partnership with Stellantis to navigate the European market and explore local manufacturing opportunities. [para. 18][para. 19][para. 20][para. 21]

Beyond Europe and the U.S., Chinese EV manufacturers are exploring other markets such as Thailand and Mexico. Thailand's favorable environment for electrification, bolstered by government incentives, makes it an attractive destination. However, Chinese brands face tough competition from established Japanese players. Mexico is another key market, serving as a strategic export hub due to its free trade agreements. Major Chinese auto brands plan to set up assembly plants in Mexico, which is China’s second-largest auto export destination. [para. 25][para. 26][para. 27][para. 29]

Domestically, the Chinese government is implementing measures to boost EV sales amid external challenges and competitive pressure within the local market. Incentives for exchanging older vehicles for new electric models have been introduced, potentially extended due to ongoing market pressures. The government is also considering limiting the number of automakers to reduce excessive competition and strengthen the industry. Such policies aim to stabilize the market as some domestic startups face financial difficulties. [para. 32][para. 33][para. 35][para. 36]

Overall, while global protectionist measures pose significant obstacles, Chinese EV makers are proactively seeking international expansion opportunities and reinforcing domestic markets to sustain growth and competitiveness.