China’s auto industry
China’s auto industry: EV surge, exports and global manufacturing
China leads global vehicle, EV and battery production, but overcapacity and weak domestic demand are driving exports, overseas factories and a looming industry shake-out
In 2024 China’s automotive industry produced close to 30% of the nearly 80m vehicles made worldwide; it is the largest manufacturer of vehicles, producing more than twice as many units as the USA. It is also the largest exporter of vehicles, but Chinese companies are now expanding manufacturing in Europe, across South-East Asia and South America and not simply exporting there. It is no longer just a national industry. China’s automotive sector plays a global role, and its market power will increase in the years ahead.
China has seen the emergence of numerous companies with low levels of plant utilisation and challenging financial structures
Production overcapacity looms
The domestic Chinese passenger car market itself however has not kept pace with the growth in vehicle production capacity, especially as the switch to EVs accelerates in China faster than in most other markets. As a result, China has seen the emergence of numerous companies with low levels of plant utilisation and challenging financial structures. The Chinese government is concerned that many of the smaller companies with low production volumes will fold, followed by inevitable industry consolidation and shake-out. So, the Chinese automotive manufacturing sector is on the brink of change; reflecting this, domestic and international players in China are increasingly looking at export markets beyond China for growth. And, in the face of rising tariffs on electric vehicles models imported into the EU, Chinese companies are now expanding their production footprints outside China more rapidly than they are doing inside China.
China also leads the automotive battery industry, with dominating positions in the supply chain, including critical minerals mining and processing. After the recent trade dispute between the US and China, with tariffs and reciprocal tariffs to the fore, “peace” or at least an industrial truce appears to have come into force. In a period during which the US and China have fought for industrial supremacy – mainly through tariffs and reciprocal tariffs – China turned to export controls on rare earths and critical minerals to bring the US to the negotiating table. In late October it looked as if “peace” had been secured in this area; and while rare earth and critical mineral exports from China, to the world and not just the US, now appear to be secure from export controls, China’s position as the number one supplier of battery materials and critical minerals remains supreme (four of the largest battery companies are Chinese, with only LG of Korea breaking into this elite group), while China controls more than 75% of almost all key raw materials and refined minerals for both batteries and electric motors. Even though “peace” may be the order of the day in these supply chains, China’s leading position will not change anytime soon.
McKinsey has described the country’s electric vehicle boom, especially for domestic brands, as arguably “the most powerful symbol of China’s dual industrial and consumer transformation.”
The Chinese car market
China is the leading EV market, most of which is supplied from local production. Chinese demand for domestic brands’ electric vehicles is one of the most notable developments in recent times. McKinsey has described the country’s electric vehicle boom, especially for domestic brands, as arguably “the most powerful symbol of China’s dual industrial and consumer transformation.” McKinsey notes how EVs had a 46% share of the Chinese passenger vehicle market in 2024, up from just 4% five years earlier. In Q3/2024, EVs saw their share tip over 50% and once full year figures for 2025 have been compiled it is likely that EVs’ share will approach 60% and exceed this ratio soon after.
Domestic Chinese car companies hold 58% of the local passenger vehicle market, against 33% in 2019. However, domestic brands have a share approaching 90% of the EV market, versus less than one-third of the non-EV market. International brands, such as Volkswagen and Toyota, have major Chinese manufacturing operations, however, these have fallen behind in this transformation.
The success of some new entrants such as Xiaomi, as well as more established players like BYD, Chery and Geely with its multiplicity of brands, suggests that international brands will lose even more share in China as the EV trend continues. This in part explains the decisions by international brands to use their Chinese operations as export bases; if they cannot sell as many (ICE or electric) vehicles as they would like to sell inside China, they have little economic alternative but to try to use these heavily invested-in assets as supply points for the rest of the world.
Historically, Chinese consumers were keen to buy European or US or Japanese imports. Younger generations of car buyers are more nationalistic when it comes to vehicle purchases
Market shift as domestic brands favoured over imported vehicles
In parallel, there has been a decline in imports into China. Historically, Chinese consumers were keen to buy European or US or Japanese imports. Younger generations of car buyers are more nationalistic when it comes to vehicle purchases, not least because of the integration of smart phones and related technology into Chinese brands’ cars. Data for the first half of the year suggests imports are down by more than one third, with US vehicles especially badly hit, partly due to reciprocal tariffs imposed the Chinese authorities after President Trump started levying tariffs of 100% or more on all Chinese vehicles. Although these tariffs have been cut back, and a trade truce, possibly even an agreement, between the two countries is getting close, there is not much expectation that imports into China will bounce back anytime soon. Vehicle companies affected include BMW which has traditionally exports many large SUVs from Spartanburg to China, and both GM and Ford have had a modest market for their large SUVs and pick-ups in China.
