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China Becomes the World’s Largest Auto Market but Growth Is Slowing, Business and Industry Trends Analysis

The continuous growth of the middle class is creating a vast and lucrative market for automobiles and trucks worldwide.  China’s most affluent residents have been eager buyers of expensive imported cars, while a mass market is growing for inexpensive, China-built family cars and vans.  In addition, consumers in rural areas are buying their first vehicles, which are typically small, low-cost domestic cars or vans.  Beijing’s accession to the World Trade Organization brought about a steep reduction in tariffs on vehicle imports.  For 2022, the China Association of Automobile Manufacturers (CAAM) reported 26.86 million new vehicles sold in China.

Chinese Dominance of the EV Supply Chain
The Chinese leader in battery manufacturing is CATL (Contemporary Amperex Technology Ltd).  As of 2023, China produced about 75% of the batteries used in the world’s EVs.  A disruption in supply from China would bring nearly the entire global production chain to a halt.  While batteries can be manufactured in other nations, they require certain components that are also dominated by China.  For example, as of 2023, China had about a 50% global market share in capacity for processing and refining lithium, cobalt and graphite, according to “China Briefing” analysists, and 70% or greater share in production capacity for needed cathodes and anodes.  For the U.S. market, America’s federal government is attempting to rectify this situation, but it will take significant amounts of both time and money.  Recent congressional acts in the U.S. offer huge incentives for manufacturers of batteries and EVs, and for consumers who purchase them, as long as an increasingly stringent percentage of the batteries are manufactured in the U.S. (or in certain approved nations).  As a result, foreign manufacturers have been pouring money into developing new battery plants in the U.S.

     Major automotive companies such as GM, Toyota, Honda, Volkswagen and others are exporting large numbers of vehicles into China.  These companies have also invested directly in manufacturing operations within China through government mandated joint ventures with Chinese firms.  GM operates several automotive joint ventures in China including Shanghai General Motors (a partnership with Shanghai Automotive Industry Corp.) and Shanghai GM (Shenyang) Norsom Motors Co.  As of 2022, GM had a number of manufacturing plants in China, largely in partnership with state-run Shanghai Automotive Industry Corp. (SAIC).
BMW has a manufacturing facility in China located in Shenyang.  The German automaker is partnering with Chinese firm Brilliance in a joint venture called BMW Brilliance Automotive Co., Ltd.
China still offers relatively low costs, although wage rates have been growing substantially.   A number of U.S. auto parts companies operate manufacturing plants in China.
A number of local Chinese manufacturers are vying for market share.  Geely, which began as a refrigerator builder, first made and sold cars in 1998.  In March 2010, a much larger Geely agreed to purchase Ford Motor Company's Volvo Cars unit for $1.8 billion.  China currently exports automobiles to 190 countries and regions.
For the U.S. and European markets, there is the potential for exports from Chinese factories allied with industry leaders such as GM, Ford, Toyota, Honda and Volkswagen.  For years, Chinese automakers have been on the receiving end of Western automotive know-how, which will come back to haunt the Westerners.  As Chinese cars and trucks hit the global market, China’s manufacturers will be in direct competition with their partners.  For example, SAIC, which has partnered with GM and Volkswagen, plans to sell its products in Europe as well as the U.S.  Extremely low-priced, Chinese-built models could eventually have a major impact on sales of U.S. and European cars, but only if consumers can be convinced that they represent high quality and reliability.
Chinese manufacturers are branching out into production and sales outside of China.  SAIC, for example, it promptly sold out of its MG Hector SUV (which is made by the firm’s Indian subsidiary MG Motor India).  SAIC has also opened plants in Indonesia and Thailand, from which it is exporting vehicles throughout southeast Asia.
Meanwhile, China has become one of the world’s largest importers of oil, thanks to rapidly rising demand for gasoline.  Watch for the Chinese Government to become a leading innovator in alternative fuel vehicles.  For example, the city of Beijing converted its entire 120,000 vehicle bus fleet to run on compressed natural gas.  Automakers in China, including BYD, are already pioneers in the manufacture of electric vehicles.

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