The rapid growth of electric cars (EVs), changing consumer tastes, and new production dynamics have all contributed to a seismic shift in the global auto sector. Two recent events, one in China and one in the United Kingdom, provide insight into the current seismic shifts.
China’s EV Manufacturing Boom: A Global Game Changer
In a historic turning point, China is poised to become the world’s largest car exporter in 2023, surpassing even automotive powerhouse Japan. This monumental shift signifies the end of an era dominated by European, American, Japanese, and South Korean automakers.
However, China’s domestic auto industry faces a number of structural issues that could have repercussions on international automotive markets, which may explain why the country has become an export leader in the automotive sector.
There is a huge gap between the ability of Chinese factories to produce vehicles and the demand for them in the domestic market. This discrepancy can be attributed in part to the fact that industry leaders have failed to adequately account for three crucial trends: the meteoric fall in sales of internal combustion engine vehicles, the meteoric rise in popularity of electric vehicles (EVs), and the declining need for privately owned vehicles as shared mobility gains traction among an increasingly urbanised Chinese population.
According to Bill Russo, the former head of Chrysler in China and the founder of advising business Automobility, this overestimation has led to a staggering “overcapacity” crisis, with an estimated excess of 25 million vehicles sitting underused in China.
Years of supporting industrial policy and large private sector investments have contributed to China’s ascent in the global competitiveness of the auto industry. To the point where they are beating their foreign competitors, domestic manufacturers like EV champion BYD are now looking to expand into international markets.
In 2021, China’s exports of vehicles surpassed those of South Korea, and in 2022, they surpassed those of Germany. They are on course to increase their exports this year to more than double those of Japan. Sales volumes in China peaked in 2017, which coincided with a deceleration in the expansion of the middle class and larger economic issues in the country.
Overcapacity is affecting an increasing number of international manufacturers in addition to domestic heavy hitters like Chery, SAIC, BYD, Geely, and Changan. Tesla, Ford, Nissan, and Hyundai are just some of the companies adapting their Chinese factories to serve overseas markets.
The number of vehicles exported from China increased by 74% from the previous year to 2.8 million in July of this year, with 1.8 million of those being petrol-powered vehicles. The trend towards EVs and used vehicles among Chinese buyers likely accounts for the increase.
China’s automotive sector has been predicted to undergo a wave of reorganisation due to overcapacity and slowing sales growth, although this has not yet happened.
The difficulties faced by established manufacturers are vividly illustrated by China’s changing automotive scene. As an illustration, two of Hyundai Motor Company’s four Chinese factories have been converted into export facilities, while the remaining two are available for sale. It’s a complicated undertaking, especially considering Hyundai already has factories in India, Vietnam, Indonesia, and Brazil. Profitability from exports, especially of petrol cars, remains questionable, and low utilisation rates in China have contributed to widening losses in recent years.
However, the outlook for Chinese vehicle exports is bright. AlixPartners, a consulting firm, predicts that Chinese manufacturers’ exports will hit 9 million units by the end of the decade, increasing their worldwide market share from 16 per cent in 2022 to 30 per cent in 2030.
China’s vehicle exports have traditionally gone to developing economies, but Europe has become a major destination. This trend is predicted to accelerate as European demand for affordable Chinese electric vehicles grows.
About 20% of EVs marketed in Europe are now made in China, with Tesla’s Shanghai factory now shipping cars over the Atlantic.
How the UK’s Automotive Logistics Industry Benefits from China’s Electric Vehicle Production Boom
Despite the apparent disconnection between China’s rapid expansion of EV production and the UK auto industry, the latter will be affected directly and indirectly.
Increased Demand for Components: As Chinese EV manufacturers expand their production for domestic and international markets, there is a heightened demand for automotive components and parts. This creates opportunities for UK suppliers to export components to Chinese assembly plants.
Logistics and Shipping: The surge in Chinese EV exports necessitates efficient logistics and shipping networks. UK logistics companies specialising in international automotive transportation may find increased business opportunities in managing the flow of vehicles from Chinese factories to global markets.
Market Dynamics: China’s impact on the global EV market can influence consumer preferences and global supply chain dynamics. As Chinese EVs become more prevalent worldwide, the UK’s automotive industry may need to adapt its strategies and offerings to align with changing market trends.
Global Partnerships: As Chinese manufacturers seek international partnerships and collaborations, there are opportunities for UK-based companies to engage in joint ventures, technology exchanges, or research initiatives in the EV sector.
In summary, despite its immediate geographical distance, China’s remarkable surge in EV manufacturing has multifaceted implications for the UK’s automotive logistics and supply chain. By staying attuned to these developments and adapting to the evolving global automotive landscape, the UK automotive sector can position itself to benefit from the opportunities created by China’s growing prominence in the EV market.
Comments