Summary of Key Points
In the first half of this year, the Chinese automotive market exhibited a stark contrast between a "domestic winter" and an "overseas boom": domestic sales plummeted by 21% (the worst record since the popularization of family cars, even worse than during the 2020 pandemic), while exports surged by 65%, accounting for 33.9% of total sales (one out of every three vehicles sold was exported). This helped to mitigate the overall decline in sales to just 4%. For the first time, more new energy vehicles were exported than fuel-powered cars, and hybrid models became extremely popular overseas. Leading automakers such as Chery and BYD have seen their overseas sales become a major driver of growth, with an increasing number of companies establishing factories abroad to overcome tariff barriers.
Detailed Analysis
A Parallel World: Domestic Market in Freezing Decline, Overseas Market in Booming Growth
Why is the domestic market in such a poor state? In the first half of the year, domestic sales amounted to 9.92 million units, a year-on-year decrease of 21%. Not only did fuel-powered car sales drop by 27.8%, but new energy vehicle sales, which had been on the rise, also fell by 13.4%. This is due to the near saturation of family cars in China and increased economic pressures, leading to lower consumer willingness to buy vehicles.
In contrast, the overseas market is booming: exports reached 5.096 million units, a year-on-year increase of 65%, with exports exceeding one million units for the first time in June. More importantly, selling cars overseas is much more profitable. The domestic automotive industry's profit margin is only 3.4% (and has even decreased by 20%), while overseas profits are 3-4 times that of the domestic market. For example, BYD's Wang Chuanfu stated that "stable prices overseas are greatly beneficial for profitability." Exports have become a lifeline for the entire industry.
New Energy Vehicle Exports: A Historic Overturn
In the first half of this year, new energy vehicle exports reached a milestone:
- In April, new energy passenger vehicles accounted for more than fuel-powered cars for the first time (52.7% vs 47.3%);
- In June, new energy vehicles also surpassed fuel-powered cars in total vehicle exports (50.4% vs 49.6%);
- Although the cumulative exports of new energy vehicles (2.355 million) were slightly lower than those of fuel-powered cars (2.741 million), the growth rate was significantly higher: new energy vehicles grew by 120%, while fuel-powered cars only grew by 35.5%. It is certain that new energy vehicles will overtake them in the second half of the year.
New energy vehicles contributed 64% to the increase in exports—meaning that out of the additional 2 million units sold, 1.3 million were new energy vehicles.
Hybrids: Cold in China, Hot Overseas
The domestic hybrid market (including extended-range hybrids) has cooled down this year, with sales falling by 27.6% and extended-range hybrids by 19.4%, compared to a 6.6% decline for pure electric vehicles. However, overseas demand for hybrids is skyrocketing: 922,000 hybrid vehicles were exported, a year-on-year increase of 140%, accounting for 39% of new energy vehicle exports (compared to just 100,000 units last year, accounting for 8.4%).
Why are hybrids so popular overseas?
- Practicality: Charging infrastructure is poor in many emerging markets, and hybrids offer the advantage of saving on electricity for commuting while still being able to use fuel for long-distance travel, making them more suitable for local conditions.
- Policy: The EU has imposed high tariffs on Chinese pure electric vehicles (up to 45.3%), but hybrids are temporarily exempted (only subject to a 10% basic tax), so automakers are pushing hybrids to Europe. However, the EU is preparing to impose tariffs on hybrids as well, and this favorable situation may not last long.
Leading Automakers: Overseas Markets as the Main Driver of Growth
For top-tier automakers, overseas markets are no longer just a backup option but the main driver of growth:
- Chery: Exports account for nearly 70% of total sales (939,000 units), with new energy vehicle exports growing by 164%, helping the company return to high-speed growth.
- BYD: Overseas sales account for 40% of total sales (792,000 units); domestic sales fell by 39%, but overseas sales have made up for the decline.
- Geely: Domestic sales dropped by 22.6%, but exports of 474,000 units helped to mitigate the decline, with new energy vehicle exports increasing from 30% last year to 58%.
- Tesla's Shanghai Factory: Exports increased by 126% to 229,000 units in the first half of the year, rising from tenth place to seventh in global rankings.
New entrants like ZeroRun and Xpeng are also expanding into overseas markets: ZeroRun made its debut in the top ten list of exporters, and Xpeng aims to double its exports to 90,000 units.
Localized Production: A Necessary Strategy to Overcome Tariffs
As tariff barriers increase (e.g., the EU's tariffs on pure electric vehicles), automakers cannot rely solely on vehicle exports. They are beginning to establish factories abroad:
- BYD: Adopting a multi-tier strategy—building wholly-owned factories in mature markets (Thailand, Hungary); using CKD (completely knocked-down components) in emerging markets (Indonesia, Malaysia); and forming partnerships in Uzbekistan.
- Geely: Collaborating through equity purchases (e.g., acquiring 49.9% of Proton's shares) in mature markets, and using CKD or partnerships in emerging markets.
- Chery: Partnering with European and local brands for licensed production; using CKD in emerging markets.
- New Entrants: ZeroRun is upgrading factories with partner Stellantis, while Xpeng uses outsourcing (e.g., Magna's Austrian factory).
Localized production can help avoid tariffs, but it comes with challenges, such as maintaining sufficient sales volumes and addressing labor and environmental issues, which pose higher risks for smaller automakers.
Conclusion
The Chinese automotive market has managed to survive thanks to exports, but this is just the beginning. Tariff barriers are rising, and local protectionism is intensifying. The window of competitive advantage based on cost-effectiveness will not last forever. In the future, success will depend on the ability to localize products, brand influence, and the depth of supply chains. China's automotive industry is transitioning from a "100-meter sprint" to a "marathon."