On October 26, BYD held a launch event for its new electric pickup truck, the SHARK 6, in Cambodia, and also introduced BYD's DM technology.

The SHARK 6 is a pickup truck model specifically designed by BYD for the overseas market, priced at USD 56,800 (approximately RMB 400,000). It is also BYD's first new energy pickup truck, and unlike previous strategies, this model was first launched overseas and has not yet been released domestically, making it an "exclusive overseas model". This is the first time BYD has launched a model overseas that is not available domestically, demonstrating BYD's emphasis on its overseas business

Image source: BYD official

Since August 2022, BYD's overseas business team has been flying to various parts of the world, simultaneously entering the passenger vehicle markets of Thailand, Japan, Norway, Israel, and Australia. Subsequently, it initiated plans to launch models in Europe, India, Mexico, and Brazil.

Today, we will use BYD's SHARK 6 as a starting point to discuss the overseas expansion of Chinese automakers.

Let's start with the numbers. In 2023, China's new energy vehicle exports accelerated, reaching 5.22 million units, surpassing Japan for the first time to become the world's largest automobile exporter. By January-July 2024, according to data released by the China Passenger Car Association (CPCA), China's automobile exports reached 3.48 million units, an increase of 25% year-on-year, with new energy vehicle exports also growing by 25% to 1.17 million units.

This naturally leads to the misconception that Chinese automakers have risen to prominence overseas.

The "hellish difficulty" of Chinese automakers expanding overseas

While the overall export volume and growth rates are encouraging, there is still a long way to go before Chinese automakers can be considered fully established overseas.

The first major challenge facing Chinese automakers is tariffs.

In June 2024, the United States announced that it would increase tariffs on automobiles imported from China from 25% to 100%. Later, in August, the European Commission disclosed a draft decision to impose final countervailing duties on pure electric vehicles imported from China, with tariffs ranging from 17% to 36.3% depending on the automaker. Even Tesla vehicles made in China would be subject to a 9% tariff.

Less than a week after this decision was disclosed, the Canadian Ministry of Finance announced that a 100% surcharge would be imposed on electric vehicles imported from China starting from October 1. This is the most extensive and severe measure targeting Chinese electric vehicle models to date.

It is evident that Europe and the United States have formed a "tariff siege" against Chinese automakers. However, established European and American automakers like BMW, Mercedes-Benz, and Volkswagen are strongly opposed to these tariff hikes, which is somewhat counterintuitive. As the Chairman of BMW put it, protectionism is bound to trigger a chain reaction, with tariffs being met with tariffs. Therefore, European automakers fear both Chinese automakers entering their markets and offending China, leading to retaliatory tariffs on their own products.

Image source: BYD official

Secondly, there is the "domestic content" of exported models.

Simply put, the current export volume contains a certain level of "water." The current export volume includes vehicles directly exported by joint venture brands, such as Ford China serving as Ford Motor Company's "export hub" and producing and exporting vehicles in China. This portion is also included in the overall export volume.

For example, over half of SAIC Motor's 1.208 million overseas sales last year were contributed by the MG brand. Since MG was originally a British brand acquired by SAIC, many Europeans still consider it a European brand.

Moreover, the primary force driving overseas expansion remains gasoline-powered vehicles. Last year, the ratio of gasoline-powered vehicle exports to new energy vehicle exports was approximately 3:1. In the first quarter of this year, the total export volume was 1.324 million units, with 307,000 being new energy vehicles.

While the numbers look promising, a closer examination reveals that it's not yet time for Chinese automakers to pop the champagne corks in celebration of their overseas success.

Has the overseas market changed in the era of electrification?

With the implementation of stringent tariff policies in Europe and the United States, Southeast Asia and parts of Asia, with their relatively relaxed policy environments, have become important stepping stones for Chinese automakers expanding into overseas markets.

Earlier this year, Wang Chuanfu, Chairman of BYD, received President Shavkat Mirziyoyev of Uzbekistan at BYD's Global Headquarters. Local media reported that the two had a pleasant conversation. After all, in the eyes of most countries, BYD is a "walking GDP generator."

In addition to BYD, Xpeng Motors announced the successful launch of its right-hand drive G6 model in Singapore; ZEEKR announced its entry into Malaysia, Japan, and South Korea in 2025; and Chery Automobile celebrated the delivery of its 3,000th Chery OMODA E5 model in Indonesia since the beginning of the year in Jakarta, Indonesia.

According to data from the Indonesian Automotive Industry Association, Chinese brands accounted for 43% of electric vehicle sales in Indonesia in the first half of 2024. According to the Thai Automotive Institute, about 76,000 electric vehicles were registered in Thailand in 2023, accounting for 12% of total vehicle registrations. The top four brands were all Chinese, with eight out of the top ten being Chinese brands.

Image source: BYD official

However, no matter how successful the Southeast Asian market may be, its limited capacity cannot fully accommodate China's vast automotive production capacity or satisfy the ambitions of companies like BYD.

According to a Southeast Asian automotive research report, 3.36 million vehicles were sold in the Southeast Asian market in 2023. In comparison, Guangdong Province sold 2.914 million vehicles in 2023, suggesting that the entire Southeast Asian market may only be on par with a single Chinese province in terms of automotive sales.

Therefore, the Southeast Asian market is not a long-term solution. Under trade protection policies, establishing factories in Europe and the United States is the long-term plan. However, as mentioned earlier, the policy environments in Europe and the United States are indeed unfriendly. Nevertheless, there is a potential breakthrough country for Chinese automakers: Mexico.

Mexico is a member of the North American Free Trade Agreement (NAFTA) and enjoys zero-tariff treatment with the United States and Canada. According to the latest United States-Mexico-Canada Agreement (USMCA), to qualify for preferential tariffs, automobiles must have 75% of their components manufactured in Mexico, the United States, or Canada.

Therefore, by establishing factories in Mexico, Chinese automakers can better leverage this trade agreement and reduce costs for entering the North American market. Leading Chinese automakers such as BYD and Chery have also set their sights on Mexico. Public information reveals that BYD plans to invest USD 1 billion in an electric vehicle factory in Mexico in 2024, while SAIC Motor MG announced plans to establish a factory and R&D center in Mexico in August this year. Other automakers such as Chery and Dongfeng have also announced plans to build factories in Mexico.

Cui Dongshu, Secretary-General of the CPCA, commented on this trend: "Mexico is an important window market for Chinese automobile exports. It can serve as a transit point for exporting to other countries in North and South America. One of the main reasons for Chinese automakers to establish factories in Mexico is to leverage this location to expand into North and South American markets.""On October 24, the CPCA released the latest data showing that among the top ten countries in terms of China's total vehicle exports from January to September 2024, Mexico ranked second with cumulative exports of approximately 353,400 units, while Russia ranked first with approximately 850,000 units. "As China's second-largest automobile export market, Mexico itself has enormous market potential," Cui Dongshu analyzed.

However, establishing factories involves more complex considerations, such as local policies, transportation convenience, and labor costs, which could all pose challenges. From vehicle exports to automaker expansion overseas, from joint ventures to independent factories and even overseas expansion of component supply chains and financial credit, this process cannot be achieved overnight.

Although challenging, the playbook is clear: to succeed in overseas markets, Chinese automakers must first secure a seat at the table.

Closing Remarks

In his last public remarks about BYD before his death, Charlie Munger said:

"Every company has encountered many troubles and losses. They (BYD) have also encountered terrible troubles, made the wrong type of vehicles, and made many mistakes. Fortunately, they are at the forefront of the electric vehicle industry.""This statement also applies to China's new energy automakers, who are now collectively moving forward towards the vast sea of stars.

Regardless, it is inevitable that Chinese automakers will venture overseas. Having undergone rapid domestic growth, they are now carrying their ambitions into the fiercely competitive global automotive market, declaring to their predecessors, "The game has begun."

Cover image source: BYD official

Source: Leitech