China’s auto industry has been a success story in recent years, with car exports emerging as a bright spot in an otherwise slowing economy. Between 2021 and 2024, the number of cars shipped from China surged by 300%, propelling China past Japan to become the world’s largest car exporter by units. However, this rapid growth now faces significant challenges. Trade barriers and outright bans in major markets like the US threaten to stall export momentum. Slumping export growth will put pressure on Chinese automakers, potentially leading to industry consolidation. But incumbent carmakers shouldn’t celebrate too much—even with slower export growth, Chinese carmakers are transforming into formidable global competitors in the auto market.
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Six factors contribute to the apparent slowdown or early peak in export growth:
Rising trade barriers: Both advanced and emerging economies are erecting a growing number of trade barriers against Chinese passenger vehicle exports (Figure 2). This underscores that the principal constraint on China’s vehicle exports is demand-related rather than supply-side.
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Inventory pressure: Our analysis of Marklines and Chinese customs data reveals that Chinese OEMs’ overseas sales have severely fallen behind exports since mid-2022. Chinese OEMs now hold nearly a year’s worth of unsold inventory abroad, much more than the two months of average retail sales inventories in China or the US (Figure 3). As firms frontload exports ahead of tariff hikes (or recycling fees in Russia) and adopt premium pricing strategies, inventory levels have surged since late 2023, especially in regions raising trade barriers. In the EU, they have reached a record 28 months,1 driven by weak electric vehicle (EV) demand and high Chinese EV prices (compared to China’s domestic prices). In Brazil, EV inventories hit 22 months after exporters frontloaded exports ahead of tariff increases, while inventories of Chinese exporters in Russia reached 16 months.
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Competition from Chinese overseas plants: While Chinese OEMs (with the exception of Geely’s acquisitions of Volvo and Proton) have traditionally concentrated production in China, this is changing rapidly. By 2027, we expect Chinese OEMs to increase their overseas production capacity by 1.5 to 2 million vehicles. A major driver of this growth is BYD, which has announced seven new overseas plants in recent months. These plants, some built due to growing trade barriers, will increasingly compete with Chinese exports. This is already evident in Thailand, where Chinese exports declined as Chinese OEMs’ local production ramps up.
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Joint venture (JV) constraints: Many producers suffering the most overcapacity are mass volume JV brands between Chinese and Western automakers. Our own calculations2 indicate that their CUR is far from healthy at only 36%. Foreign luxury brands, large private Chinese OEMs, EV startups, and even SOEs fared much better with CURs of 90%, 72%, 66%, and 64%, respectively. JV companies may hesitate to aggressively pursue third-market opportunities by exporting from China because they would directly compete with their own operations in ASEAN, Latin America, and Europe. They would also have to share profits from those efforts with their Chinese JV partners.
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Saturation of Russia’s market: China-based exporters have capitalized on low-hanging fruit in markets with high demand but limited supply, such as Russia, which has accounted for nearly 20% of China’s total car exports in 2024. Western OEMs exiting Russia in the wake of the Ukraine conflict and associated sanctions created a temporary vacuum that Chinese automakers filled. However, market opportunities in Russia are finite and cannot provide endless growth going forward. Carmakers expect sales in Russia to drop in 2025 due to extremely high interest rates.
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Slowing EV adoption: Outside of China, the growth of EV sales—both battery EVs (BEVs) and plug-in hybrids (PHEVs)—has slowed to 8% year-on-year through September 2024, down from 44% in 2023 and 23% in 2022. This is problematic for Chinese OEMs that have been more successful in capturing EV than ICE market shares globally. Chinese OEMs ex-China EV market share rose from 13% in 2023 to 17% in 2024, while their ICE vehicle market share has remained nearly flat at 4.7%. In this context, PHEV sales could offer some relief. These have fared slightly better than BEV sales in several overseas markets in recent months and are also less dependent on charging infrastructure, often a key obstacle to BEV adoption.