China is on track to becoming the top car exporter worldwide this year, surpassing Japan, as reported by Financial Standards. This change signals a significant shift from the long-standing leadership of European, American, Japanese, and South Korean car manufacturers.
However, China’s rise in the global car export scene is accompanied by serious issues within its own auto industry. These problems could potentially disrupt car markets worldwide.
A significant problem in China’s car industry has emerged due to a major difference between what Chinese factories produce and what people in China actually buy. This mismatch has occurred partly because industry leaders made incorrect predictions about three important trends, according to Business Day.
First, they didn’t foresee the quick drop in sales of cars with internal combustion engines. Second, they underestimated the huge rise in the popularity of electric vehicles.
Third, they didn’t realize that fewer people would want to own their own cars as shared transportation options became more popular, especially in China’s growing urban areas, as reported by the Financial Times.
‘Massive overcapacity’ of vehicles in factories across China
Bill Russo, the former leader of Chrysler in China and founder of Automobility, said that there is a significant problem of “massive overcapacity” in China’s car factories. He mentioned that there is an excess of twenty-five million vehicles that are not being used.
China is set to overtake Japan as the world’s biggest car exporter. Germany is already well behind. pic.twitter.com/1IJJrhpTw9
— Philipp Heimberger (@heimbergecon) September 14, 2023
Over the years, China has received strong support from government policies and private sector investments, which have made the country highly competitive in the automotive industry.
Chinese car manufacturers, such as the electric vehicle leader BYD, are now selling more vehicles than foreign automakers and are expanding their presence in international markets to fuel their growth.
China’s yearly car exports, which exceeded South Korea’s in 2021 and Germany’s in 2022, are projected to surpass Japan’s this year, as indicated by data from Moody’s.
However, when we look at the number of cars sold in China, it reached its highest point in 2017, according to data from Automobility. This aligns with the slowdown in the growth of China’s middle-class population and broader economic challenges.
2.8 million Chinese vehicles exported by end of July 2023
The issue of overcapacity is impacting Chinese companies such as Chery, SAIC, BYD, Geely, and Changan, as well as an increasing number of foreign automakers.
Analysts have noted that companies like Tesla, Ford, Nissan, and Hyundai are adjusting their Chinese factories to focus more on exporting their cars to other markets.
By the end of July of this year, China had already exported 2.8 million vehicles. This includes 1.8 million vehicles with gasoline engines, which is a 74 percent increase compared to the previous year.
This growth is happening because more Chinese consumers are choosing electric vehicles (EVs) and used cars over new gasoline-powered ones, as reported by Business Day.