Who are the main customers of Chinese-made vehicles?
Russia and Mexico are top buyers of Chinese automobiles
Official figures showed that China overtook Japan to become the biggest car exporter in the world in the first quarter of 2023, shortly after surpassing Germany as the second largest in 2022.
As both the largest automobile market and exporter, where were the Chinese cars exported to? How much is the potential of the Chinese market and car manufacturers?
Caijing Magazine, a China's economy study magazine, analyzed the latest trends in the car market and warned car manufacturers of the past mistakes made by Chinese exporters, and highlighted the significance of favorable foreign trade policies, cost-effective products, and innovative momentum in new technologies. Your Ginger River believes it is a worthwhile piece for anyone interested in the market to dive into.
Some highlights first:
In 2022, Russia imported approximately 117,000 passenger vehicles from China, a 40 percent increase compared to the previous year. China has become the main source of imported passenger vehicles in Russia.
Mexico's position as the second-largest buyer of Chinese automobiles among the top ten countries is surprising, since Mexico itself is a major automotive producer, ranking seventh globally in terms of production volume.
In Australia or Southeast Asia, Chinese automobiles possess an advantage in terms of price over European brands. They are gradually capturing consumers who used to buy from Honda, Toyota, Mazda, and other manufacturers, offering them affordable vehicles.
In Middle East countries, customized designs tailored to the local environment and affordable quality services are key factors contributing to the popularity of Chinese automobiles.
Although China ranks first in total automobile exports globally, it cannot be simply considered an automotive export powerhouse … Chinese automobiles still face the perception of being "disorganized, weak, and small" in overseas markets, and the negative perceptions of "low quality, low price, and copying" are deeply rooted.
In summary, stable supply chains, competitive pricing, advantages in NEV research and development, and preferential foreign trade policies are reasons for the export achievement of Chinese automobiles overseas.
However, the obstacles currently impeding the competitors will inevitably be overcome in due course. The question of how Chinese automakers can boost their competitiveness beyond just offering cost-effectiveness remains to be answered with time.
According to data from the China Association of Automobile Manufacturers, from January to May 2023, automobile companies exported 1.76 million vehicles, an 81.5 percent year-on-year increase. The export of NEVs reached 457,000 units, a 1.6-fold increase compared to the previous year.
To the untrained eye, it may seem like a spectacle, but it is important to note that during the same period, China's domestic automobile sales also reached 11.6 million units, indicating a thriving domestic market alongside the robust export, which is not commonly seen internationally.
Generally, a major automobile exporter must meet two conditions: having a well-developed industrial structure and strong production capacity; a domestic market that is not excessively large, to avoid overwhelming the country's production capacity. The simultaneous growth in both exports and domestic sales indicates that the Chinese automobile consumer market possesses significant purchasing power and the products manufactured have a strong global influence.
Now, the question arises: who is buying all these Chinese automobiles? Can such a massive export volume be sustainable? Overseas business environments differ from the domestic market, so what factors should be taken into account?
Throughout the history of global automobile exports, in the 20th century, due to the three oil crises, Japanese and Korean automobiles dominated the import market in Europe and America. Although there have been minor fluctuations, this dominance was maintained until today. However, China's export of NEVs has the potential to disrupt this pattern.
The surge in China's automobile exports is attributed to the favorable trading environment between import and export countries, the competitive cost-effectiveness of Chinese automobile products, and the development momentum gained from early investment in new energy and intelligent connected vehicle technologies. Nevertheless, it is important to be aware that China's automobile industry still has a long way to become an export powerhouse.
Top buyers of Chinese automobiles: Russia and Mexico
From January to April 2023, the top ten importers of Chinese automobiles were Russia, Mexico, Belgium, Australia, Saudi Arabia, the United Kingdom, Thailand, Spain, the United Arab Emirates, and the Philippines.
These countries are scattered across different regions, ranging from Western Europe to Southeast Asia, from the Middle East to Latin America. They include both traditional automotive powerhouses and rapidly developing emerging automobile consumer markets. What are the reasons behind this diverse customer base?
After careful analysis, the main reasons for this pattern can be attributed to favorable foreign trade policies, cost-effective products, and innovative momentum in new technologies.
Russia's situation is particularly unique. Previously, Russia's automobile manufacturing industry relied heavily on Western investment, component supplies, and partnerships. Due to the impact of the Russia-Ukraine conflict, many multinational automakers halted exports to Russia and ceased automobile production and spare parts supply in the country.
In March, Avtovaz, Russia's largest automobile manufacturer, announced that due to a shortage of components, the factory would begin its summer vacation earlier and extend the break. As a result, the automotive market in Russia became completely seller-driven, leading to a significant increase in vehicle prices.
In this context, Chinese car manufacturers maintaining a stable supply chain reaped the benefits. In 2022, Russia imported approximately 117,000 passenger vehicles from China, a 40 percent increase compared to the previous year. China has become the main source of imported passenger vehicles in Russia.
Data shows that in the past year, Russia has added 487 Chinese automobile dealerships. Currently, for every three automotive dealerships in Russia, one sells Chinese vehicles.
The advantage of lower tariffs highlights the cost-effectiveness of Chinese automobiles. This is particularly evident in the Australian and Southeast Asian markets.
Due to the free trade agreement between Australia and China, Chinese-made automobiles face lower tariffs compared to European vehicles. Similarly, the Regional Comprehensive Economic Partnership (RCEP) provides convenience for Chinese brands entering the Southeast Asian market.
For long, the Southeast Asian market has been dominated by Japanese automakers. With the implementation of the RCEP, Chinese car manufacturers have started enjoying preferential policies for Japanese companies, allowing tariff-free circulation of components within the region. For example, Chinese automakers that have established factories in Thailand can extend their supply chain to all RCEP member countries, with zero tariffs on components.
In Australia or Southeast Asia, Chinese automobiles possess an advantage in terms of price over European brands. They are gradually capturing consumers who used to buy from Honda, Toyota, Mazda, and other manufacturers, offering them affordable vehicles.
If policies act as lubricants, then products and technologies serve as the foundation for survival. Chinese car manufacturers have taken the lead in the transformation towards new energy, aligning with the global market opportunities for green and low-carbon transportation.
Thailand, for example, has proposed the "3030 Vision," aiming to have zero-emission vehicles account for 30 percent of new car production by 2030. Based on China's automobile export data from January to April 2023, Thailand has already surpassed European countries, such as the United Kingdom and Spain, in importing new energy vehicles from China.
Thailand is not the only country in which China leverages the advantages of new energy products. China has made inroads into the European market, a region known as traditional automotive powerhouses.
Globally, Europe is one of the most proactive regions in terms of "banning vehicles burning fossil fuels" and pursuing "carbon neutrality." This is driven by the considerations of building ecological environments and the painful past experience of energy crises. Numerous European countries have given green light to the development of new energy vehicles, providing tax incentives and rights of way.
However, due to the cost of the industrial chain, new energy vehicles in Europe are relatively expensive, and the pace of electrification for domestic European car manufacturers lags behind Chinese counterparts. This has provided an opportunity for Chinese car manufacturers to expand overseas.
Based on China's automobile export data from January to April 2023, the proportion of imported Chinese NEVs in the United Kingdom and Belgium exceeds that of traditional energy vehicles.
In Europe, some Chinese car manufacturers have adopted approaches to explore the market. For example, Lynk & Co. introduced a "subscription model" in Europe, allowing consumers to have monthly usage rights for a car at a relatively low price of 550 euros. Everything is included in the package, eliminating additional concerns for the consumers. They can pay on a monthly basis and terminate the contract anytime. Currently, the number of members in Europe has exceeded 200,000.
Mexico's position as the second-largest buyer of Chinese automobiles among the top ten countries is surprising, since Mexico itself is a major automotive producer, ranking seventh globally in terms of production volume.
There are two reasons why Chinese car manufacturers expanded in Mexico. Firstly, it is a vibrant and emerging consumer market, making it suitable for early market positioning. Secondly, establishing production bases in a country neighboring the United States, the world's second-largest automotive market, offers significant advantages. Chinese car manufacturers and automotive component suppliers are expanding their presence in Mexico, not only for exporting complete vehicles but also for local production and supply chain development.
According to the North American Free Trade Agreement (NAFTA) signed by the United States, Canada, and Mexico in 1992, companies that establish factories in Mexico and meet a certain percentage of component procurement from the three North American countries are allowed to export to the United States with zero tariffs.
As the country closest to the U.S. market, Mexico has become one path for the Chinese automotive industry to enter the U.S. market. Moreover, Mexico has advantages in the automotive supply chain. In recent years, leading U.S. automotive companies have shifted some of their production capacity to Mexico, which has a complete chain of local automotive component suppliers, good industrial foundations, and low labor costs. All of these benefit Chinese car manufacturers aiming to cultivate the American market, with the need to first address issues related to localization production, logistics, and supply chain.
Chinese automobiles are gradually gaining a foothold in the Middle East due to their price advantages. Tarek Mustafa, an automotive industry analyst in Egypt, stated that Chinese vehicles are increasingly prominent in the Middle East market due to their improved product quality, timely and attentive after-sales service, progressive technological research and development, and deep understanding of customer needs and quick response.
In Middle East countries, customized designs tailored to the local environment and affordable quality services are key factors contributing to the popularity of Chinese automobiles.
Liu Xinlu, director of the Arabic School of Beijing Foreign Study Univeristy, said countries in the Middle East, producing oil or not, all consider the development of green economies and the utilization of new and renewable energy as fundamental strategies for sustainable development. In this context, NEVs have become a new hotspot and growth point in the Middle East market.
In terms of the total sales volume of Chinese brands overseas, Saudi Arabia ranks third. In 2022, Chinese brands sold a total of 100,482 vehicles in Saudi Arabia.
Chinese car manufacturers have conducted extensive research on the Middle East market and made improvements to their vehicle safety and performance based on the driving habits of local residents.
By taking Saudi Arabia's high temperatures, humid climate, and customer preferences into account, the Chinese brand Yutong has made systematic technological improvements, such as dedicated accessories for pilgrimage vehicles, optimization of cooling and refrigeration systems, and more. Their product coverage includes pilgrimage vehicles, customized school buses, high-end group vehicles, VIP business vehicles, among others.
Yutong ensures the availability of spare parts through its Dubai parts center and local parts service network. They provide reliable services to customers by deploying resident service personnel, forming professional service teams, and developing all-weather service plans during pilgrimage seasons.
In terms of export destinations, Europe, North America, Asia, and Australia account for the majority of Chinese automobile exports, and Europe is the main driving force, together with significant growth in the market share of North America. Export growth in countries such as Australia, the United Arab Emirates, Saudi Arabia, and the Philippines has been notable, while the export volume to underdeveloped regions in Africa and South America is gradually decreasing.
The glory and concerns associated with the growth
Throughout the history of China's automobile exports, it took 55 years to increase exported vehicles from 1 to 1 million units, 10 years to reach from 1 million to 2 million units, and just one year to reach from 2 million to 3 million units. This indicates that China's automobile exports are accelerating.
Currently, new energy vehicles are leading the way. China has both technological advantages and industrial chain resilience in key areas of NEV manufacturing. Combined with the advantage of manufacturing costs and intelligent manufacturing, China boasts strong competitiveness.
In the past, the oil crisis allowed Japanese and Korean automobile brands to dominate the European and American markets for decades. Now, Chinese automobile brands have the potential to replicate that history.
According to data from the China Association of Automobile Manufacturers, from January to May, among the top ten exporting companies, BYD exported 69,000 vehicles, a year-on-year increase of 14.2 times; Chery exported 319,000 vehicles, a year-on-year increase of 1.8 times; Great Wall Motor exported 99,000 vehicles, doubled the amount of one year earlier.
Currently, Chinese automobile exports are increasing in both quantity and price. "Since last year, the unit price of Chinese exported cars has been increasing, especially NEVs. As far as I know, the unit price of Chinese exported NEVs has been maintained at around $30,000 per vehicle," said Xu Haidong, deputy chief engineer of the China Association of Automobile Manufacturers.
While enjoying rapid growth, Chinese automobile exports must focus on high-quality and sustainable development.
This requires systematic support. Taking SAIC Motor Group, the top exporter in terms of volume from January to May, as an example, it has established a complete automotive industry chain covering production, research and development, sales, and after-sales services worldwide. It also has three major research and innovation centers, three design centers, four production bases, and knock-down (KD) factories. SAIC Motor Group has also opened multiple self-running international routes to build export capabilities.
Soft power is also needed. Guan Mingyu, global director and Greater China automotive sector leader at McKinsey & Company, mentioned that companies face various challenges when going abroad. The experiences gained in the Chinese market cannot be directly replicated in other places. To succeed in other countries, companies need top-level thinking and systematic design.
This requires a dual approach to strengthening internal and external capabilities, including studying destination countries' laws and regulations, industry ecosystems, partnership relationships, and business culture. Internally, companies need a comprehensive set of measures in terms of market, governance structure, organization, and talent recruitment. "The key lies in talent resources," said Wang Qian, general manager of LinkedIn China Talent Solutions, who emphasized the need to optimize the management models of headquarters and frontline departments, enhance brand reputation to attract top talent, and help talent integrate with local cultures.
It is important to be rational. Although China ranks first in total automobile exports globally, it cannot be simply considered an automotive export powerhouse.
This is because, in major automobile-producing countries, exports account for 35 percent to 50 percent of their domestic production, while in China, this proportion was only 11 percent in 2022. Additionally, the aforementioned sales volume calculation does not include the production and sales volume of Japanese and Korean brands whose factories are located in other countries.
At the same time, domestic Chinese automobile brands still need upgrading. For example, the MG brand under SAIC Motor has higher prices and sales volumes in Commonwealth countries compared to domestic sales. This is because it was originally a British brand acquired by SAIC Motor, and these countries have a favorable perception of it.
Chinese automobiles still face the perception of being "disorganized, weak, and small" in overseas markets, and the negative perceptions of "low quality, low price, and copying" are deeply rooted.
"Chinese car companies cannot adopt a ‘fisherman's approach’ when entering foreign markets, casting a wide net and catching for whatever they catch," said Li Xianjun, director of the Automotive Development Research Center at Tsinghua University, when sharing his previous research experience with journalists. More than a decade ago, he learned that a car company sold only 30,000 vehicles in a total of 67 countries, which was quite disappointing. Automobiles rely on economies of scale, and scattering resources across so many countries makes it difficult to build relationships and address post-sales issues.
"When going global, automobiles should learn from the experience and lessons of motorcycle exporters," said Zhang Hongbo, secretary-general of the China Motorcycle Association. More than 20 years ago, Chinese motorcycles were the first to go international and compete in Southeast Asian markets. However, price wars squeezed reasonable profit margins, affecting research and development, after-sales services, and product quality, allowing Japanese motorcycle brands to regain market dominance. This demonstrates that while being the "price butcher" and engaging in "internal competition" can serve as an initial strategy, winning the market relies on technology, quality, and service.
In summary, stable supply chains, competitive pricing, advantages in NEV research and development, and preferential foreign trade policies are reasons for the export achievement of Chinese automobiles overseas.
However, the obstacles currently impeding the competitors will inevitably be overcome in due course. The question of how Chinese automakers can boost their competitiveness beyond just offering cost-effectiveness remains to be answered with time.