MNI: China Car Exports To Remain Strong

China’s car exports will remain a significant contributor to export growth in 2023, after the country passed Germany to lag only Japan for foreign auto sales by volume in 2022, fuelled by demand for cheap electric vehicles and as domestic firms shift units abroad amidst a fierce price war at home.

Exports soared 70.6% to 994,000 units in Q1 y/y, almost five times the 204,000 units shipped in Q1 2020, according to the China Association of Automobile Manufacturers (CAAM). The export surge came as overall domestic sales dropped 13.4% in the first three months of the year, as the country’s recovery after relaxing Covid controls remained anaemic.

Some 24% of the exports were of electric vehicles, made by local and foreign brands including Tesla, with around 30% of Germany’s electric car imports coming from China in Q1.

“Car exports will not slow down significantly this year, as there is little competition abroad for New Energy Vehicles (NEV) around the EUR40,000 category and huge demand,” said Tu Le, founder of consultancy Sino Auto Insights.

“Tesla’s Shanghai plant has a capacity for about 1.2 million vehicles per year,” Le said. “They sold 430,000 cars last year in China, with clear plans to export huge volumes in the coming years.”

On top of healthy foreign demand, Le noted Chinese authorities' recent decision to delay the start of a ban on the sale of higher-emitting cars will only further heat up domestic competition.

“Car exports have increased partly because the domestic price war intensified,” Le said.

Domestic demand should pick up later in the year as the government is expected to reintroduce NEV subsidies, but exports will remain strong no matter what, according to Le.

Low shipping costs are also supporting Chinese sales to Europe, said Namrita Chow, research analyst at the Association of European Vehicle Logistics, adding that calls from some EU car industry leaders such as Stellantis CEO Carlos Tavares for higher tariffs on Chinese-made vehicles may lead to some of the country’s brands setting up factories abroad.

“We are aware of China-based OEMs already making plans to shift some production to Europe in anticipation of import tariffs,” Chow said. “They know higher tariffs are a threat and are preparing measures to maintain their market share in Europe.”

China’s car industry is likely to be a bright spot in the country’s overall export performance. While total exports jumped 10.6% y/y to USD1.12 trillion USD from January to April, analysts say a weak trade outlook for 2023 as a whole was factored into the around 5% target for economic growth set by Beijing in March.