China’s Ministry of Commerce promised loan benefits in its announcement this month, saying it would support electric vehicle companies in overseas expansion. “China has already fallen into overproduction,” said Ming Xunli, an auto analyst at Bank of America. “Automakers expected huge demand in China over the past few years and believed this demand to continue.” Earlier, Chinese electric vehicle companies have achieved explosive growth over the past few years, selling more electric vehicles to China than Europe and the United States combined, thanks to state subsidies.
However, the Chinese government withdrew subsidies to purchase electric vehicles for consumers early last year, and China’s growth rate for electric vehicles last year was 21%, far below the previous year’s record (74%). The growth rate of electric vehicle sales in the U.S. and Europe last year was 47% and 37%, respectively. In addition, Chinese consumers closed their wallets last year due to slowing economic recovery. Chinese automakers, which had increased investment in electric vehicle-related facilities, are on alert due to increased inventories. According to Bernstein Research, a multinational market research firm, Chinese automakers are expected to add 5 million units of production capacity between 2023 and 2025. Most of them are electric vehicles, and sales of electric vehicles in China are expected to increase by about 3.7 million units during the period. BYD, China’s largest electric vehicle maker, is expected to produce 4 million vehicles a year in China by the end of this year, 1 million more than last year’s sales. As a result, competition among companies to cut prices has intensified. According to the CPCA, discount rates for Chinese passenger electric vehicles soared to an all-time high of 8 percent as of the end of last year. U.S. and European governments are wary of the influx of cheap Chinese cars. European Commission President Ursula von der Leyen mentioned Chinese electric vehicles in a speech late last year and claimed that “there has been overproduction in China for sure, and that the production will be exported overseas.” According to Bernstein, Chinese companies are able to earn an additional 5 to 10 percent of margin when exporting overseas rather than domestic sales. In September last year, the EU started investigation into unfair subsidies for Chinese-made electric vehicles in order to prevent low-cost Chinese vehicles from being aggressive. The U.S., which is engaged in a trade war with China, is already blocking Chinese electric vehicles from entering the market by applying a tariff of 27.5 percent. Chinese companies are planning to enter the U.S. by building an electric vehicle factory in Mexico, which is tied to a free trade agreement with the U.S. It is also trying to brand itself as Chinese by building factories in and around Europe. BYD’s Uzbekistan plant is the first overseas manufacturing plant to start deliveries this year, while a second one in Thailand will start in July. BYD plans to open more factories in Brazil and Hungary in the coming years.
SOPHIA KIM
US ASIA JOURNAL
