Chinese vehicle makers look to international markets for growth, but domestic government pressure and trade barriers may slow expansion.

Total light vehicle (car and van) production in China in 2023 was around 21.5m and there is expected to be a fall of around 1m, possibly more depending on how Q4 pans out, to around 20-20.5m this year. In terms of the leading domestic players, BYD is some way out in front, and should make around 3m units this year, possibly more. This would be close to x10 the volume of Chinese branded vehicles made by SAIC which – once JV production with VW especially is stripped out – is the 12th biggest Chinese manufacturer.

“The days when Chinese vehicle production was dominated by Volkswagen, GM and other international companies are over” – Ian Henry

After BYD comes Geely (c1.6m units expected this year across its many brands), Chery and Changan (both c1.1m), GAC (c600,000), FAW (c550,000) and Great Wall (also close to 550,000). These seven companies together should make around 8.5m vehicles this year, or more than 40% of Chinese output; the top 12 Chinese companies, all of which should make more than 300,000 this year, are expected to make a total of nearly 10.5m, or nearly 51% of total Chinese vehicle production. The days when Chinese vehicle production was dominated by Volkswagen, GM and other international companies are over. Now attention turns to which Chinese players will survive long term, not just domestically but also on the global stage.

BYD to become global player in the automotive industry
One thing is already clear: BYD, the world’s largest electric vehicle manufacturer, is going to be a global player, although what role it can play in North America following the election of President Trump for a second time is unclear. Outside China it has factories or plans to open factories in Europe, Asia, South America and Africa, but inside China its scale is beginning to worry observers and quite probably the authorities too.

“Consolidation will dominate the next phase of automotive industrial evolution in China” – Ian Henry

In Q2/2024, BYD reported a 33% rise in profits while smaller players Li Auto and Xpeng reported disappointing figures. Li Auto’s earnings by contrast fell by over 50%. This and recent results of other smaller Chinese companies have led Alix Partners to suggest that by the end of decade fewer than 20 Chinese electric vehicle brands will be profitable, however even that could be seen as optimistic. The 20th largest Chinese car company (currently Link Tour) is on target to make fewer than 30,000 vehicles this year. Sustaining a long-term profitable position on such low volumes is questionable. In practice it may well be that many of the smaller companies, especially those currently producing fewer than 100,000 units a year, will disappear. Consolidation will dominate the next phase of automotive industrial evolution in China. Whether that consolidation will feature mergers and acquisitions is another matter; it is probable that consolidation will develop as smaller players close, whether voluntarily or through financial collapse.

Leading Chinese vehicle makers see big increases in EV and hybrid sales
After BYD, Geely will likely be the second Chinese player in the long run. Signs of these companies’ leadership positions becoming entrenched were clear in the September sales reports; BYD reported a 46% rise in deliveries in September (driven by plug-in hybrids as much as electric vehicles), to over nearly 420,000 units, the first time the company had delivered more than 400,000 vehicles in a month. Hybrids rose 86% year-on-year, while electric vehicles only rose by 9.1%. Meanwhile at Geely, total sales in September rose 21% to nearly 202,000 less than half BYD’s volumes; for the first nine months of the year, Geely sales had risen by 32% to nearly 1.5m units and at Geely electric vehicles sales doubled, while plug-in hybrids rose 29%; petrol-powered models saw a drop of nearly 4% year-on-year.

 “BYD now employs over 900,000 people which makes it one of the largest employers in the country” – Ian Henry

Even with monthly sales at BYD having exceeded 400,000, meaning a running rate for the year to close 5m per year, BYD continues to expand and is adding labour. BYD now employs over 900,000 people which makes it one of the largest employers in the country. Employment has grown there by nearly 6% since August alone. More than 110,000 work in technology and R&D, making its it the largest car company globally as measured by R&D department size.

While BYD, Geely and Chery are consolidating their positions at home, they are not ignoring the need to build their presence overseas; relying just on the domestic market is not a recipe for long term success. And despite the Chinese government’s wish for Chinese companies to retain technology at home, expansion overseas will be necessary; to some extent this will be driven by the need to avoid, or circumvent, barriers to Chinese exports. These barriers centre on tariffs which the EU and indeed the US government under Joe Biden has been willing to impose at penal levels. In the EU this can be more than 30% on top of the standard 10% import tariff; and in the US, the Biden administration has levied an additional 100% on top of the US’ standard 2.5% import duty, although the 102.5% total is applied only on Chinese EVs. ICE vehicles from China face a lower 27.5% tariff at present, although with the re-election of President Trump, the tariff environment is once again likely to change.

BYD itself has announced two European factories, in Hungary and Turkey, and has been considering sites in Mexico. However, it is understood to have now paused plans for the latter until there is more clarity, when President Trump officially takes office, given the issue of tariffs and the likelihood that the US will not allow Chinese VMs unfettered access to its market by producing vehicles in Mexico.

BYD looks to boost worldwide vehicle sales to 4m units
BYD plans to raise sales to more than 4m vehicles worldwide, adding around 1/3 to its sales volumes and this would rank it close to Ford which is currently sixth in the global rankings of vehicle manufacturers. BYD is also reportedly suffering from a lack of capacity for a couple of its best-selling models, the Qin L and Seal 06 DM-i. In the longer term, BYD wants to achieve at least half of its global sales from markets outside China. So, while the Chinese authorities have recently asked Chinese VMs to slow down expansion internationally, BYD – a wholly independent company – is likely to ignore this; partially- or wholly-government-owned manufacturers such as Dongfeng, may have no choice but to comply with government wishes.

Analysts have suggested that BYD’s 50% international sales target may not be achieved until the end of the 2020s but the company is likely to have the resources (i.e. scale) to wait and grow steadily. In the interim, European sales may be slowed by the EU’s decision to add supplementary tariffs on Chinese EVs, in BYD’s case of 17%. However, in the short term the OEM will get around this by switching exports to PHEVs, which are not subject to the supplementary tariffs before its European factories come on stream from 2026. BYD already has an operational factory in Thailand and will build factories in Brazil and Indonesia. It also plans to have 100,000 EVs used by Uber for its ride-hailing services.

The second largest Chinese group is Geely, which includes controlling stakes in Volvo and Polestar, as well as its own eponymous brand and newer marques like Zeekr. Geely production in China in 2023 was nearly 1.5m and could approach 2m this year (more than 950,000 deliveries took place in H1). It is also a highly profitable company, reporting a 47% rise in revenue in H1/2024 to 107.3 billion yuan, while net profits rose a remarkable 575% to 10.6 billion yuan.

As well as growing within China, Geely – like BYD – is expanding overseas. In September it signed an agreement to assemble up to 75,000 units a year from CKD kits in Vietnam for the Geely and Lynk & Co brands. This follows its acquisition in 2017 of a 49.9% stake in Proton in Malaysia where it assembles four Geely models, also from kits, for sale as Protons. Another key Asian market for Geely is Korea where the company has taken a 34% stake in Renault’s manufacturing operations there; it has added Polestar production to the Korean plant’s output as a means to get around tariffs on Chinese exports to the US and the EU, although whether the Chinese content of these vehicles will prevent US tariffs still being applied is not clear at this time.

“Number 3 in the Chinese rankings is Chery which has been one of the biggest vehicle exporters from China in recent years, especially to emerging markets across Latin America and Africa” – Ian Henry

At home, Geely is putting resources into its premium brand Zeekr, which will feature the company’s new battery charging technology. This will allow Zeekrs, which feature an enhanced LFP battery, to charge from 10% to 80% in less than 11 minutes using a proprietary fast charger. This kind of improvement in electric vehicle performance may be retained in China for now (assuming Geely goes along with the Chinese government’s wish), but this could well give the company a major advantage when offered in Europe, irrespective of the trading climate. As electric charging infrastructure continues to fall behind consumer expectations and is undoubtedly contributing to the slowdown in EV take-up in Europe, features such as that now offered on Zeekrs will be increasingly important. At present Zeekrs are only made in China but could well be added to the Korean factory line-up and could also be considered for production in Europe where they could offer a route for Volvo to fill its capacity, which is growing with a new factory under construction in Slovakia.

Chery to further leverage its JV with Jaguar Land Rover
Number 3 in the Chinese rankings is Chery which has been one of the biggest vehicle exporters from China in recent years, especially to emerging markets across Latin America and Africa. It will open a factory Vietnam in 2025 following an investment of US$800m and it has taken over the former Nissan factory in Barcelona and is hoping to make up to 150,000 units a year there, although the start of production there has been delayed until mid-2025. In the meantime, it is assembling vehicles in Russia, utilising factories vacated by western companies after Russia invaded Ukraine.

To fund the next phase of its expansion, Chery Group is planning to float its automotive unit on the Hong Kong stock exchange, potentially valuing the company at around 50 billion yuan (c$7.1 billion). One of the areas it will expand following this expected floatation is its joint venture with Jaguar Land Rover. This JV at Changshu on the coast of China east of Nanjing has made several Jaguar and Land Rover models. The Jaguar models have either now stopped or will do so soon, and the Land Rover models are also coming to the end of their product life cycles. The JLR vehicle line-up allocated to China has never fully utilised this facility, so a new approach will be tried here; JLR will license the Freelander name (which was used for the model which preceded the Discovery Sport) for Chery to make a new range of electric SUVs. Initially intended for the Chinese market, the new Freelander range – which JLR describes as a future royalty stream – is also due to be exported beyond China, but when this will start and where the vehicles will be exported to is not known.

Changan is the fourth of the Chinese vehicle companies making more than one million units a year at home where it has recently started production at its “Digital Factory” producing the Nevo E07, which is also sold as the Qiyuan in China. This is a joint venture plant with Huawei and is highly robotised. Like other Chinese VMs it is also expanding into Asia, first into Thailand where it is building a 200,000 units’ a year factory to start production in late 2025. It plans to sell in Europe too, under the Deepal brand, but having set a global objective of 450,000 units for this brand outside China for 2024 it has yet to appear in Europe, so this may be a case of a company adhering to the Chinese government’s wishes and retaining Chinese technology at home; Changan is, unlike BYD and Geely, a state-owned company.

Currently, BYD, Geely, Chery and Changan all produce over 1m units a year in China, and all should have the scale to enable them to survive long term; Changan’s output is likely to fall this year, based on H1 volumes, but its state-owned position means it is also likely to survive. Below the 1m pa level however, the situation is less clear. As noted above, GAC, FAW and GWM all make over 0.5m units a year, but whether they have the base volume and range to establish themselves and remain as major players, especially outside China, may be more open to question.

GWM has some interesting designs and models which appear to have been well-received initially in Europe, i.e. Ora and Wey. It also has a production joint venture with BMW for electric Minis which will help underpin its operations and finances. It is expanding into Malaysia with a contract manufacturing partner, and opening its own plants in Brazil, Thailand and Vietnam. This should help to lay the foundations for its long-term future as an international player, with reduced reliance on the domestic market.

GAC, which has had Mitsubishi and Honda as partners in the past and which has opened a new EV JV factory with Honda this year, has also opened a new factory of its own in Changsha in Hunan province. This plant sees a car come off the end of the production every 53 seconds when running at full tilt and has an annual capacity of 200,000 units a year. Described as a black light factory, this is highly automated and operates in the dark in key areas of production with no human involvement. Geely has a similar “dark” factory in Xi’an. In GAC’s factory, which produces the Aion SUV, extensive use is made of AI and simulation modelling. This is GAC’s third factory in China, with a total production capacity of 600,000 units; it also has a small plant in Thailand which has a 50,000 units annual capacity.

First Auto Works (FAW)ß, started life as Audi’s production partner and by July 2024, this had produced 28m vehicles, mostly Audis and Volkswagens or derivatives thereof. The FAW group has five production locations, in Changchun, Foshan, Chengdu, Qingdao and Tianjin; some of its production is also for Toyota. FAW branded products are expected to total around 550,000 this year, a rise from c360,000 in 2023. And while very focused on the domestic market, FAW is not ignoring international business opportunities. It started production of its small Bestune NAT micro-EV in China and will also produce these vehicles in Egypt. Bestune, formerly Besturn, was once FAW’s main domestic brand, but only 120,000 Bestune models were made last year with the build of the rest of FAW’s production being larger Hongqi vehicles. The NAT is designed to reverse this situation and return Bestune to its position as FAW’s main brand. As well as making cars, FAW is planning to be a major producer of batteries in a JV with BYD; it is opening a 45 GWh factory in Changchun which will make new generation blade batteries, supplying c600,000 vehicles a year, the first of which will be for FAW’s Hongqi large vehicle range.

JVs will be important for survival in China’s competitive automotive industry
Below the 0.5m a year level come Lixiang, Dongfeng, Huawei, JAC and SAIC. SAIC’s volumes of c300,000 pa refer to its own brands which include the former British marque MG, but the company also makes many more vehicles in JVs with VW and GM. Lixiang, or Li Auto as it is commonly referred to, is a private company which has recently launched on the Hong Kong stock market and has international ambitions. It has recently taken over a surplus Beijing Auto factory as it has found its sales limited by production bottlenecks; a key aspect of its floatation in Hong Kong was to raise money to expand production capacity.

Dongfeng and SAIC are partly state-owned companies which have relied on JVs with international vehicle companies for their original technology and early growth phases. The reliance on international partners continues to this day; for example, Dongfeng has recently opened a new JV factory for EVs with Honda. It is also now seeking to grow on its own; however, its ambitions to develop outside China, with a possible plant in Italy, have been stalled by pressure from the Chinese government to delay or even cancel expansion outside the country.

Dongfeng made nearly 500,000 vehicles in 2023 but with far fewer, c410,000, projected this year, it is trying to balance its growth ambitions with the demands of the Chinese government. Huawei is coming up fast behind. This phone and technology company started car production in 2021 with the Seres brand, making just 25,000 cars in 2023, however, it is on course to make close to 400,000 units this year and is likely to overtake Dongfeng soon. It will certainly do this if its plans for a JV with BAIC to make 120,000 units of a high specification model, Stelato S9, are successful. This is designed to compete against the Mercedes EQS, which sells at much more lower volumes worldwide; if the EQS’ volumes are a guide, it is questionable whether 120,000 units per year for the Stelato S9 is a realistic expectation. This ambitious production plan begins in December 2024. Huawei will also partner with FAW to make autonomous vehicles next year, but whether these will be Huawei or FAW branded vehicles is not yet clear. Huawei also plans a JV with small truck maker JAC; this will reportedly make a luxury MPV designed to compete with Rolls Royce.

“Xpeng, with VW as a shareholder-investor, may make the grade and survive, but for the others the future is less clear” – Ian Henry

Lower volume manufacturers face a challenging future
Below this come a number of small domestic brands, including Stellantis’ partner Leapmotor (which may well be a long term player in the global industry through its partnership with Stellantis) and others, such as BAIC, Brilliance, Hozon, Xpeng and WM, some of which have been around for many years but which have failed to develop scale in their own right, and remain stuck around 150,000 units per year. Xpeng, with VW as a shareholder-investor, may make the grade and survive, but for the others the future is less clear. And finally, we have a multitude of Chinese brands, most of whom have a limited presence in China and none beyond. Whether the likes of Jiangsu Jemmel, Link Tour, Dayun, Jiangling, Fujian, Weichai, Feifan and others really have a future in the industry is open to debate. As the top 10-12 Chinese companies firm up their positions domestically and internationally, there will be some casualties along the way, even among the larger companies. Amongst the smaller players, we can expect many more companies to fail and for there to be far fewer Chinese vehicle manufacturers in the long run. As noted above, Alix Partners suggest there may be only 20, however, the degree of concentration already evident, with the top 10-12 accounting for over half of Chinese production, and with the bulk of the balance accounted for by international players, the future for the smaller Chinese VMs is less than rosy. The threats of even more tariffs and other trade remedy actions against China by the USA under the second Trump presidency place another dark shadow over a crowded supply side of vehicle companies in China.