China Trends
China Trends
China's surging NEV sector
Chinese carmakers exported 3.83 million passenger cars in 2023, up 62%, according to the China Passenger Car Association (CPCA). The massive growth was propelled by a surge in the exports of new energy vehicles (NEVs), which soared 77.6% to more than 1.2 million units last year.
Join today’s China Trends and delve into an exploration of China's NEV landscape with us.
HOST
Hi, everyone. Welcome to China Trends. Let's stay on top of trends shaping our future. Today, we're glad to have Liu Jia as our guest. Ms Liu is an analyst of Electronics & Automotive from Nomura Orient International Securities. Welcome, Ms Liu, thank you for coming.
LIU JIA
Thank you for having me here today.
HOST
According to the China Passenger Car Association (CPCA), Chinese carmakers exported 3.83 million passenger cars in 2023, a 62% increase from the year before, which is amazing and also marks the first time its exports have surpassed those of Japan. China's rapid rise to the top can be attributed to its world-beating EV industry, the improved quality of Chinese-made cars, and the desire of domestic automakers to seek better probability abroad and offset cost pressure at home. I wonder, what's your view?
LIU JIA
Actually, China has become the world's largest car-sale country since 2009, which was largely attributed to the increased sales of foreign brands and joint-venture brands. But now China's global competitiveness, which is driven by electrification and smart technologies, puts Chinese car makers at one of the top of the world. In 2023, Chinese domestic brands claimed a 56 % market share in China, which is 18 percentage points up from 2020. Additionally, China's auto exports doubled in 2021 and maintained momentum since then, reaching nearly 5 million vehicle exports in 2023, which secures the world's top level.
HOST
So more specifically to the developed markets. China's auto exports to developing markets climbed to around 30 % of total exports in the first quarter of 2023 from only 12 % in 2018. So what are the reasons behind this?
LIU JIA
It's mainly due to the substantial growth in exports to Europe, which consists of 38 % of total exports in the first 10 months of 2023. This surge is largely attributed to the high demand for new energy vehicles in the European market.
HOST
So there are some of China's homeland Chinese domestic brands that are so successful like BYD so what makes companies like BYD so successful?
LIU JIA
I think technology is first. As you know, the electric cars and smart technologies they offered gave the consumers interesting experiences.
So I think it's fundamental that the new trend of electric cars gives people an appealing experience.
HOST
The trend is that more Chinese OEMs (Original Equipment Manufacturers) like to establish plants overseas like in Thailand and Brazil. So compared with expanding exports, which will be the mainstream way for Chinese OEMs to increase their overseas sales ratios?
LIU JIA
I think, in the short (term) to midterm, exports will remain the primary method. If we review the history of Japan's auto exports, the export-to-domestic production ratio rises from single digit to about 50 % finally. Our current ratio is around 16 %. And there is still a large room for growth. In the long term, I think building factories overseas will be the ultimate way to achieve global operations, also as exemplified by Japanese car makers, which consists 70 % of their overseas production to their global output.
HOST
There is a belief that manufacturers like BMW enjoy such a protective model because of their reputation of brand power. So will this be the same rule in the NEV market?
LIU JIA
I think brand recognition is very important for a car company to appealing its consumers, but also, as I have already mentioned, technology also plays an important role in the new trend. So I think foreign companies like BMW, and Mercedes, as well as Chinese domestic companies, they both have a chance to earn their market share in the future.
HOST
Thank you. The battery technology is one of the key parts for the NEV vehicles. So how do you believe that innovation in areas such as extending battery life, charging speed, or energy density will impact the new energy vehicle industry?
LIU JIA
I think battery technology will develop towards a safer, longer battery life and shorter charging time in the future. Innovations, such as using composite current collectors updated electrode materials, and high-voltage faster charging, will enhance the lithium battery performance. These innovations will aim to eliminate the consumers’ concerns about the battery quality or battery performance and boost the penetration rate of the new energy vehicles.
HOST
There's another thing I like to know your opinion. Geopolitical tensions, trade wars, and data security-related rules and laws... Do they have an impact on the NEV market?
LIU JIA
I think we have already made some trade frictions, such as the U.S. Inflation Reduction Act, and the EU anti-subsidy investigations, which indeed impacted exports. Japanese car-makers also faced similar challenges in the 1980s, yet successfully solved the problem. I think learning from their experiences, top-level negotiations are crucial and the establishment of trade alliances can help to create a fairer business environment. In addition, building factories overseas and cooperating with foreign counterparts, such as cross-shareholding or establishment of joint ventures, will also help us to prevent trade restrictions.
And I believe China's leadership advantage in smart electric cars, especially in quality and cost, enables us to face these challenges in the ever-changing world.
HOST
You've talked about the advantages of the Chinese NEV brands expanding in the overseas market. Now what are the difficulties if these Chinese brands want to tap into the overseas market? What will be the key factors for the companies if they want to succeed in the overseas market?
LIU JIA
Yes, I think challenges in expanding overseas markets include trade restrictions, as we have already mentioned, and brand recognition and cultural differences. The key factors for us to succeed in overseas operations involve a strong product, a clear branding position, and global management capability.
HOST
Speaking of the future of the NEV, what are the developmental trends of the NEV exports in the future? Or what's your outlook for the Chinese brands going abroad or exports in 2024?
LIU JIA
We anticipate new energy vehicles will become a driving force in China's auto exports. The proportion of electric cars in total exports is expected to rise from the current 28 % to about 35 % by 2024. And I think the main countries that we export our new energy vehicles will be Europe and Southeast Asia, where the governments strongly support the development of NEVs.
HOST
Our last question for experts like you is, if our audience wants to plan to buy a car for their family this year, would you recommend buying a new energy one or a petrol one? And why?
LIU JIA
I think it depends. Despite the significant trend towards electrification with a domestic penetration rate of about 35 % in 2023, we can see the petrol ones still have their market and the choice between a new energy one and a petrol one depends on factors such as the city's charging infrastructure and your preference for the smart experience that the new energy vehicles offered. And I think if it is convenient for your family to charge your cars and you prefer the smart cockpit or the autonomous driving experience, I think buying a new energy vehicle would be a good choice.
HOST
Thank you for joining our China Trends and hope you enjoy today's episodes, see you next time.
LIU JIA
Thank you, see you.