Earlier this year, China overtook Japan as the world’s largest exporter of new cars. This marks a big global economic shift.
Historically, Japan and Germany have dominated the export charts, which helps to explain why German and Japanese cars tend to have such high reputations around the world. But industry reports from the first quarter of 2023 show that China exported about 1.07 million vehicles to the rest of the world, compared to Japan’s 950-odd thousand. This is likely to accelerate in coming years.
What has caused this shift?
After the second world war, Europe and America led the way in car production and development. America was largely taken up in meeting massive domestic demand, with less attention paid to global markets, while Europe was generally more export-focussed.
Car production was seen as a key way to help Germany rebuild its economy. Mercedes-Benz and Volkswagen emerged as hugely successful companies at the high and low ends of the car market, respectively.
Japan followed the German example of using the car industry to create economic growth, which led to the Japanese car industry emerging as a successful export business for the country – although it took decades to come to fruition, having started decades behind the Europeans and Americans.
Communist powers like China and the Soviet Union were largely closed off to global exports and imports. Combined with generally poorer populations who couldn’t afford their own cars, the Chinese and Russian automotive industries failed to develop in the same manner as their Western counterparts.
China’s opening up in recent decades has seen its attitudes shift. The country could certainly build cars cheaply, but bridging the technological gap to compete with established car companies in terms of quality and design was a huge challenge.
Government intervention helped, forcing foreign car companies to partner with local Chinese companies. In short, if you wanted to sell a large number of cars in China then you had to build cars in China through Chinese-owned companies. This led to almost every major Western car company establishing partnerships with local firms, and opened a lot of doors for Chinese companies to learn more about developing better cars.
As Chinese car manufacturing has improved, Western brands have started to sell their Chinese-built models around the world, rather than only in China and other developing markets. For example, the BMW iX3 electric SUV is being made exclusively in China, while several Volvo models and all Polestars currently come from China.
But it’s the current global shift towards electric vehicles that has presented Chinese car companies with an opportunity to leapfrog Western brands and take a global lead.
How did China become a leader in electric vehicles?
While Western car companies threw billions of pounds into meeting ever-stricter environmental requirements for petrol and diesel engines around the world, Chinese firms were investing heavily in electric power.
This was partly self-serving and partly opportunistic. As recently as a decade ago, cities like Beijing and Shanghai suffered from ever-increasing pollution problems. Rember the Beijing Olympics in 2008? The government banned half the city’s cars from driving each day before and during the Games, to help reduce pollution and make the city look better on TV.
The Chinese authorities realised that relying on better fossil-fuel engines wouldn’t solve the country’s urban pollution problems. Electric motors, on the other hand, produce no tailpipe emissions and provided China with a much faster route to cleaning up its cities.
While Western companies (and governments) largely saw electric cars as theoretical future technology, China’s leaders made it a present-day reality, directing enormous resources to the development of an entire EV industry.
So instead of individuals like Tesla founder Elon Musk having to blaze an electric trail against enormous opposition in America, China made it a national priority to develop electric vehicles – also realising that the rest of the world was waking up to the same problems but would take longer to act.
The changing reputation of Chinese cars
As EVs require fewer mechanical components and are easier to make, China has excelled with these vehicles in its own market before tackling exports. Previously, Chinese brands struggled to secure enough sales to justify their presence elsewhere, but this is gradually changing.
Chinese vehicles used to have a reputation for poor safety standards but modern Chinese cars are now regularly achieving five-star Euro NCAP ratings, equal to the best European manufacturers (and better than others…).
Such is the Chinese expertise in electric vehicles, German powerhouse brands Volkswagen and Audi have recently announced plans to purchase Chinese EV platforms for future models instead of developing their own.
One ongoing hurdle for Chinese car companies to overcome is negative consumer sentiment towards the Chinese government, which has been heightened in recent years over trade disputes and the country’s support for Russia’s invasion of Ukraine. In fact, start-up premium Chinese brand Omoda specifically launched in Russia 12 months ago to exploit the withdrawal of Western car manufacturers from the Russian market.
In the short term, these negative attitudes about China could affect its success in wider Europe. However, similar sorts of criticisms were launched at Japanese car companies in the 1970s and 1980s, with ill-feeling lingering from the second world war, and these were eventually overcome. While the two situations are not necessarily similar, the longer-term acceptance over time should be the same.
The Chinese brands competing for your attention
Over the past two years several Chinese car manufacturers have started selling their products, or are set to come to the UK soon, including the likes of BYD, Nio, GWM Ora, Omoda and Aiways.
Although there might be concerns over the Chinese government, these new brands are significantly undercutting European and American companies on price. Often buyers are unaware of the origin of a vehicle and instead, price points and performance are the deciding factors.
How European are those Euro car brands really?
As well as home-grown brands, Chinese companies have been buying up more familiar European names. Here in the UK, the best-known example of this is British brand, MG. After the Rover-owned company collapsed in the mid-2000s, it was bought by the Chinese state-owned SAIC Motor and resurrected with a range of new petrol, hybrid and electric family cars. Initially, some vehicles continued to be assembled in the Midlands, but eventually all production was transferred to China. SAIC also owns Maxus (formerly the British LDV van company) and has joint venture projects with Volkswagen, Audi and Skoda.
Other Chinese companies have been making big moves in the global automotive industry as well. The largest player is Geely, which has its own brand in China but also now owns: Volvo, its performance sister Polestar, London Electric Vehicle Company (makers of the iconic London Taxi), Lotus, Proton, and Lynk & Co. Geely also owns 50% of Smart, and is a significant shareholder in Mercedes-Benz and Aston Martin.
Whilst Volvo is still headquartered in Sweden, its vehicle manufacturing is spread across Europe, China (our main image at the top of this page) and America. Its EV spin-off Polestar is also based in Sweden but all of its cars are currently made in China. Due to trade restrictions on Chinese products, Polestar also plans to begin manufacturing in America in 2024.
The new Smart #1 was engineered by Mercedes-Benz but is built by Geely in China. It’s closely related to the upcoming Volvo EX30 (which will also be built in Volvo’s production facilities in China). Future Smart models are expected to follow a similar pattern.
Even brands that are not backed by Chinese companies are setting up manufacturing facilities there. Tesla has a gigafactory in Shanghai which supplies vehicles to Japan and Europe. It can produce up to 1.25 million vehicles annually and has scope to increase its capacity. In fact, Teslas produced in China have consistently proved to be better-built than the same cars produced in America.
Of course, outsourcing production away from your home country is nothing new. German brands Volkswagen, BMW and Mercedes-Benz have all been building cars in South Africa and the USA for decades, while Jaguar Land Rover has a factory in Slovakia that can build more cars than it currently assembles in all three of its UK factories combined. Thought your new Defender or Discovery was proudly ‘Built in Britain’? Nope…
Major car companies are global monnoliths, and will move production to wherever gives the best results for the least money. And at the moment, that means a lot of cars are built in China.
Crucial links in the supply chain
In addition to building entire cars, the other area where car companies from all over the world are increasingly reliant on China is in their supply chains. Many automotive components are made in China, regardless of whether your car is badged as ‘Made in the UK’ or ‘Made in Germany’, and this is increasing year-on-year.
As well as electric powertrains, China has built up considerable expertise and manufacturing prowess in electronics. It’s almost a guarantee that the phone, tablet or computer that you’re using to reading this article was built in China, and the same applies to the crucial electronic components that keep your car running.
Summary
Regardless of whether your next is from a Chinese brand, it may well be manufactured there. Even if it’s not, there’s a very good chance that a huge number of components that make up your car will be sourced from China.
Over the years, Chinese-made vehicles have come on leaps and bounds in terms of quality and safety, as evidenced by Euro NCAP results, so these vehicles no longer represent poor quality cars.
Instead, you’ll need to decide to what extent concerns around the Chinese government will factor into your buying decisions. But don’t assume that snubbing a Chinese brand in favour of a familiar European brand will actually achieve that result…
Additional reporting by Stuart Masson.
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