Chinese car manufacturers are expanding their offerings abroad

Chinese automakers and auto parts makers are increasingly diversifying their overseas production bases to meet growing global demand and address rising supply chain security concerns, with central European countries and Mexico emerging as hot spots, experts and business executives say.

Their growing international presence shows they want to meet growing demand from foreign customers who need quick response and on-time deliveries from parts suppliers in the face of deglobalization and geopolitical tensions, experts said.

Their comments come after recently intensifying trade frictions, including increased U.S. tariffs on imports of Chinese products such as electric vehicles, and the European Commission’s June 12 decision to impose additional tariffs of up to 38.1 percent on imports from July. Chinese electric cars.

“In the context of deglobalization, foreign customers are shifting their focus from cost minimization to supply chain security, thereby favoring suppliers able to produce parts close to their plants. Central European countries and Mexico are popular investment destinations due to their strategic location, favorable policies and proactive efforts to attract Chinese manufacturers,” said Chen Shihua, deputy secretary general of the China Automobile Manufacturers Association.

“Both regions also boast good industrial bases with established names that have already started operations and need good quality automotive parts and systems, attracting Chinese automotive players and niche companies,” Chen said.

From July, Serbia will implement a free trade agreement with China that will keep more than 90 percent of trade between the two countries tariff-free. Sectors such as automotive, lithium-ion batteries and photovoltaics will benefit first.

In Hungary, a low corporate tax rate, the establishment of German vehicle production bases, as well as a stable and favorable policy for accepting foreign investment also make it a popular destination for Chinese car and parts manufacturers.

“Several Central European countries, including Poland, Slovakia and Hungary, are the main destinations for Chinese companies looking to open branches abroad,” said Wang Binlian, director of overseas projects at Zhejiang Shuanghuan Driveline Co Ltd.

The Shenzhen Stock Exchange-listed automatic transmission manufacturer has invested EUR 122 million in the first phase of the project in Hungary. In the coming months, it is also planned to sign a long-term investment cooperation agreement with the local government.

Wang said: “For us, Poland has a logistics advantage over Hungary because our customers (car manufacturers) are mainly located in Germany, Sweden and Belgium. This makes it convenient for us to transport our products by land from Poland.

“However, we chose Hungary because of its friendliness towards Chinese companies. Our top priority is a stable investment environment, even if this results in slightly higher logistics costs. Moreover, Hungary’s cultural similarities to China enable us to successfully adopt Chinese management systems.

“Moreover, Hungary is a central hub for moving European production east, with major companies such as Audi and BMW establishing factories. The Hungarian government is also actively encouraging the development of its car manufacturing sector.”

Zhang Taixin, director of Halms Hungary KFT, the overseas branch of Zhejiang Huashuo Technology Co Ltd, agreed. Huashuo produces various forms of auto parts. Construction of the plant in Hungary began in April 2022, with production starting in March 2023.

Zhang highlighted the recent energy modernization in Debrecen, Hungary, where Halms is headquartered. The move was reportedly aimed at supporting car and auto parts makers and providing them with reliable energy supplies, as well as incentives and subsidies from local authorities to attract foreign investment.

“We envisage establishing a strong research and development center at headquarters, complemented by powerful global manufacturing and production facilities. We use our global production capacity to eliminate imbalances in regional markets, thereby avoiding market fragmentation that does not benefit producers or consumers,” Zhang said.

Outside Central Europe, Mexico has become a top destination for Chinese carmakers and parts suppliers. Local media report that the Chinese company BYD, also the world’s largest manufacturer of new energy vehicles, is looking for a location in Mexico for a new factory.

Listed companies in Tesla’s “supply chain,” including auto parts makers Ningbo Huaxiang Group, Ningbo Tuopu Group and Xusheng Group, have already started or accelerated plans to set up factories in Mexico, following Tesla’s plan to set up its own manufacturing plant in Mexico. Mexico.

Xusheng Group stated that the aim is to quickly respond to the needs of local customers in terms of technical and after-sales services and achieve fast product delivery.

Chinese car brands have already started to make their presence known in Mexico. The latest data from the Mexican Automobile Distributors Association showed that sales of Chinese brands such as BYD, JAC and Geely in Mexico reached 129,329 units last year, up 63 percent year-on-year. Their market share in Mexico increased to 19.5%, up from 6.4% in 2019.

“Global consumers prefer Chinese NEVs because they fill supply gaps in some regions, driven solely by market demand. China’s NEV development provides technical support and policy references for the global NEV industry, contributing to global green development,” said Fu Bingfeng, deputy secretary-general of the China Association of Automobile Manufacturers.

While some Western politicians and media have argued that China is creating excess capacity and dumping low-priced products abroad, aided by government subsidies, experts and business executives have argued that this view is unfounded, saying that the growing overseas reach of Chinese electric vehicle makers and car parts is due to the profitability of its products, better quality and efficient after-sales service.

“Some foreign media have wrongly attributed China’s recent export growth to overcapacity, wrongly labeling it as ‘dumping.’ In fact, the good export performance of Chinese vehicle brands is due to better product quality, technological progress and improved business services,” Fu said, emphasizing that the NEV production capacity utilization rate in China is currently above 70 percent, which is within a reasonable range.

According to CAAM, approximately 1.8 million vehicles were exported in the first four months of this year, an increase of 33.4%. Every year. Of these, 421,000 were NEVs, an increase of 20.8% year-on-year.

In response to accusations that Chinese companies accept government subsidies, Lin Boqiang, director of the China Institute of Energy Policy Studies at Xiamen University, stated that competition in China’s electric vehicle market is extremely fierce and is not sustained or protected by subsidies.

“As we delve into the industrial development of new energy fields, major economies including the United States and the European Union have offered subsidies to the industry to support its development,” Lin said.

He said the EU’s anti-subsidy move is a political maneuver to limit the development of China’s industry, as Chinese industry fears that China’s electric vehicle industry will quickly dominate the global market, leaving little room for it.

China-EU cooperation can benefit both sides as both sides have provided market space for each other. In 2022, Chinese brands’ share of electric vehicle sales in the EU increased to 3.7%, up from just 0.4% three years ago.

Meanwhile, the share of European new energy vehicles in the Chinese market also increased, from 2.4%. in 2019 to 6.1 percent in 2022, BJNews reports, citing the European Automobile Manufacturers Association and the China Passenger Car Association.

Companies recognize this commercial advantage. European carmakers, especially German manufacturers with a strong presence in the Chinese market, have expressed strong opposition to the announcement of EU tariffs on electric vehicles produced in China, saying such a move could backfire.

Top executives at BMW and Volkswagen warned in May that imposing EU import tariffs could upend the Green Deal plan and hurt carmakers who import cars made in China.

Norbert Wiest, CEO of SW China, the Chinese subsidiary of German machine tool manufacturer SW Group, said: “It is logical that the Chinese automotive industry is global. Throughout industrial history, every rapidly growing and significant economy has become global.

“As the automotive industry developed, Japan expanded its operations around the world. Despite initial challenges, Japan succeeded in its second attempt by improving efficiency, technology, and reducing costs through mass production, similar to China. German OEMs (original equipment manufacturers) have also been very successful in exporting parts to China.

“Many of SW’s customers in China are first-tier suppliers serving OEMs directly. Their main reasons for expanding overseas are to follow global customers such as Tesla in Europe and North America. These innovative companies have also contributed to global technical developments in the field of electric cars and benefited companies involved in the supply chain.”