How China became a car-exporting juggernaut.

"CAR ENTHUSIASTS tend to fall into one of two camps: those who fawn over the power and speed of German automotive engineering; and those who think Japanese cars are superior, admiring their reliability and value for money.

For decades the two countries have jostled for position as the world's leading car exporter. But the pair's dominance is coming to an end.

Already the world's largest car manufacturer, China is on track to overtake its rivals in exports, too.

Until just a few years ago, attempts by Chinese carmakers to expand into foreign markets had stalled. In 2015 China exported under 375,000 cars a year, fewer than India, and about as many as Germany and Japan shipped in a single month. But in around 2020, the country changed gears. In 2021 China exported nearly 1.6m cars. By 2022 it hit 2.7m. International sales are set to rev up further in 2023. Customs data show that the country shipped nearly 2m cars in the first six months of the year, or more than 10,000 a day.

China's nascent auto industry mainly exported to poor countries, but now many Western consumers are buying Chinese-made cars for the first time. Exports to Australia tripled year on year in the first half of 2023, to more than 100,000 cars; sales to Spain rose 17-fold to nearly 70,000 vehicles. But many of these cars are Western-branded. Roughly a tenth of vehicles exported in 2022 came from Tesla, an American electric-car brand. MG, which started as a British marque, and Volvo, a Swedish carmaker, are now owned by Chinese companies. Their models also make up a large chunk of the cars sent overseas.

The country's expertise in electric vehicles (EVs) is partly responsible for the surge in exports. For all its manufacturing might, China never mastered internal-combustion engines, which have hundreds of moving parts and are tricky to assemble.

The arrival of battery-powered vehicles, which are mechanically simpler and easier to build, helped China catch up. State investment in the EV technology, an estimated 676bn yuan ($100bn) between 2009 and 2019, put the country in pole position. Today battery-powered vehicles account for a fifth of car sales in China and a third of exports. In Japan and Germany only 4% and 20% of exports, respectively, are electric.

Ukraina’s events have also turbocharged Chinese exports to Russia. After sanctions on Russia in February 2022 most Western carmakers ceased their Russian operations. Their exit allowed their Chinese rivals to capture market share. In the first half of 2023 Russia imported nearly 300,000 Chinese cars worth $4.5bn, a six-fold increase on 2022. In July Chinese cars accounted for nearly 80% of imports, according to Autostat, an analytics firm.

China's export juggernaut looks unlikely to slow soon. AlixPartners, a consultancy, estimates that foreign sales of Chinese-branded cars could reach 9m vehicles by 2030, double Japan's exports in 2022.

Although these homegrown brands are still relatively unknown in the West, the cars, which tend to be cheap—on average Chinese-made vehicles cost roughly 40% as much as German-made ones—are popular in emerging markets such as Brazil.

There are still speed bumps ahead. Chinese EV-makers may be chalking up big sales, yet few are making money. The industry is propped up by state subsidies, recently renewed after slowing sales growth. But subsidies may not last forever.

Chart sources: UN Comtrade; government statistics.” [1]

1. "How China became a car-exporting juggernaut." The Economist, 12 Aug. 2023, p. NA.