Introduction

Introduction

For Chinese automakers, the new wave of overseas expansion plans is filled with expectations to drive the entire industry forward.

How significant is internationalization for the upward development of Chinese automakers?

Relying on the intense competition in the new energy industry, Chinese automakers have moved beyond their past state of immaturity and weakness against foreign giants. However, as the market landscape continues to evolve rapidly with new entrants, finding a viable development path is crucial for most Chinese automakers pursuing sustainable growth.

We never deny that the current landscape of the Chinese automotive industry, characterized by intense competition, has been a fast track for technological advancement. In just a few years, Chinese automakers have decisively shed the labels of backwardness and poor quality, demonstrating the significant achievements of this relentless internal competition.

However, against this backdrop, it is evident that from January to August this year, the average profit margin of the Chinese automotive industry fell below 5%, reaching only 4.7%, lower than the 6.2% average profit margin of downstream industrial enterprises. It must be acknowledged that if Chinese automakers wish to compete with highly profitable automakers like Volkswagen and Toyota, focusing solely on the domestic market will not suffice.

In recent years, Chinese automakers have not been idle in their overseas expansion efforts. Leading automakers like Great Wall, BYD, Chery, and Geely have either leveraged the unique features of their products to gain recognition in specific markets, expanded their sales base through early entry into third-world countries, or earned foreign exchange by exporting their technology and products through acquisitions and collaborations. These efforts are often commendable.

On the other hand, given China's achievements in overseas expansion, I believe that the internationalization process of major automakers should not be limited to earning money to subsidize the intense domestic competition.

As the historic Paris Motor Show, with its deep roots in European automotive culture, is currently underway, regardless of the heavy tariffs imposed by the EU on Chinese automobiles entering the region, it is time for Chinese automakers to fully enter mature automotive markets like Europe and the United States, using Paris as a stage. Only when Chinese automakers earn the praise of consumers in these markets will they have truly achieved the rise of the Chinese automotive industry.

Overseas expansion is essential for becoming an automotive powerhouse

A few years ago, riding the wave of the booming new energy industry, many Chinese new energy automakers ventured into Europe, hoping to establish a foothold under favorable policies. However, as we have seen, Chinese startups like Aichi and Hycan, which had previously sold vehicles in Europe, collapsed before the market could heat up. I dare say that these so-called overseas expansion cases not only failed to positively impact the image of Chinese automakers but also exposed the Impatience and restlessness nature of the industry's development by treating Europe as an easy target.

With such shortcomings, how can today's Chinese automakers address and mitigate the negative voices? Perhaps this year's Paris Motor Show can provide some answers.

One noticeable aspect of this year's Paris Motor Show is the absence of "freeloaders" among the participating Chinese automakers, a sign of purification on the surface. Deeper analysis reveals that Leapmotor, backed by the Stellantis Group, has opened the door to the European automotive market with the debut of the B10, while Xpeng has expressed its determination by announcing the presale of the P7+ in Paris.

Meanwhile, GAC Group has officially launched its "European Market Plan," encompassing market expansion, green mobility, service networks, and cultural integration. The company is actively exploring the establishment of a technology center in Europe, aiming to build a comprehensive local ecosystem based on long-termism and win-win cooperation. GAC Group aspires to become a trusted partner in the European industry and a reliable brand for European consumers.

Beyond the renewed push by Chinese automakers to enter the European market, these actions highlight that the goal of leading Chinese automakers' overseas expansion is no longer solely to make money.

How difficult is the European market? Do Chinese companies really understand? Undoubtedly, they do.

Flashback to August 2006, when 2,000 Shuanghuan CEO vehicles purchased by Italian buyers were shipped from China to Europe. Three months later, Shenyang Brilliance Jinbei Automobile Co., Ltd. and German HSO Auto Europe GmbH signed a contract in Bremen City Hall to appoint a general agent for the export of "Zhonghua" sedans to Europe.

Some might argue that if even Shuanghuan and Zhonghua, which have long since collapsed, managed to enter the European market nearly 20 years ago, opening the door to the European market today should be even easier.

However, the root of the problem lies in the fact that these subpar Chinese automakers left only a poor image in Europe. To put it bluntly, regardless of the diversity of European demand, it is always a formidable task for outsiders to achieve qualitative change in a market with a strong automotive industry system.

Indeed, with the rapid development of the automotive industry and the strong empowerment of the new energy sector, emerging brands with a strong Chinese heritage, such as NIO, Lynk & Co., and Polestar, have the capability to re-enter Europe and attempt to erase the past negative image. However, a rational analysis reveals that for Chinese automakers to truly establish themselves in Europe, the efforts of a handful of companies alone are far from sufficient. Leading Chinese automakers need to develop more development-oriented plans to address this challenge.

Just a few days ago, the European Union imposed tariffs on electric vehicle imports from China. Specifically, Tesla faces an additional 7.8% tax, while BYD, Geely, and SAIC Motor are subject to countervailing duties of 17%, 18.8%, and 35.3%, respectively. Other electric vehicle manufacturers that participated in the investigation but were not individually sampled face a 20.7% tariff.

Despite the many voices of opposition, it is clear that China's aspirations to enter mature automotive markets in Europe and the United States are being suppressed. Nevertheless, after years of exploration and industry reshuffling, the underlying strength of Chinese automakers has changed significantly.

From quick profits to brand building, the objectives of an increasing number of Chinese automakers entering Europe have fundamentally shifted. Take GAC Group, which has just announced its European strategy, as an example. Its decision to enter Europe against the odds suggests that making money is no longer its top priority.

There is nothing to fear in this new wave of overseas expansion

Given the current era, it is not unreasonable to say that Chinese automakers have earned substantial profits in Europe in recent years, leveraging their industrial advantages in new energy vehicles.

Last year, SAIC Motor sold over 300,000 vehicles in Europe, with MG-branded electric vehicles consistently ranking among the top ten in sales in 15 European countries since March 2023, eventually becoming the "compact electric vehicle sales champion" in Europe. In 2024, Chinese automakers sold a cumulative total of 512,000 vehicles in Europe in the first half of the year. Despite the imposition of tariffs by Europe, most Chinese automakers face severe market challenges. Nevertheless, the market potential remains, and it is unlikely that any automaker would choose to easily abandon the European market.

Furthermore, unlike past rash entries into Europe, Chinese automakers have accumulated competitive technological reserves amidst the new energy wave. This means that they are not intimidated by European automakers when entering the market.

As Feng Xingya, General Manager of GAC Group, stated when announcing the company's European plan, "In today's rapidly evolving global automotive industry, we hope to bring more choices to European consumers' travel lives through open and humble collaboration with the European industry and integration into local markets."

Given the existing market demand, Chinese automakers are more inclined to focus on cooperatively growing the highly discerning European market rather than simply competing for market share.

Going forward, it is predictable that several European countries, led by Italy and France, will attempt to hinder Chinese automakers' entry into the European market due to financial interests.

On October 14, Carlos Tavares, CEO of Stellantis, specifically pointed out that the EU's tariffs on Chinese electric vehicles would accelerate the closure of European automakers' factories. This is because the tariffs would incentivize Chinese automakers to build factories in Europe, exacerbating overcapacity issues in European factories.

The underlying message is clear to anyone with discernment: Whether or not Chinese automakers establish factories in Europe, European countries heavily reliant on the automotive industry will always find reasons to curb their development.

However, as the automotive industry evolves, with electrification as the focus of the next stage of development, facing challenges head-on holds significant meaning for Chinese automakers armed with technological prowess.

Consider the latest electric vehicles from French automakers Renault, Peugeot, and Citroën. Apart from their distinct French design, these vehicles lack notable highlights in terms of hardware and software. Compared to Chinese electric vehicles like the Xpeng P7+ and Aion V, which debuted at the same time, they do not offer significant advantages.

Prior to the EU's latest tariff regulations, we witnessed Chinese automakers like Chery, which rely heavily on overseas markets for profits, cautiously approaching the issue of Chinese automakers entering Europe. After participating in the recent Goodwood Festival of Speed, they have developed their own perspectives on entering the heart of the European market.

Overall, as many speculators among Chinese automakers are being weeded out by the market, experienced automakers like GAC Group are beginning to take concrete actions to challenge European automotive giants. I believe that the story of Chinese automakers' overseas expansion is entering a new chapter.

While pursuing profits, Chinese automakers must also consider how to use technology to attract customers and enhance brand premium. Only by doing so can Chinese automakers narrow the gap with top international automakers. Recognizing this, entering Europe against the odds is precisely the best arrangement for Chinese automakers.