Chinese carmakers are facing a dilemma as their plans to build overseas production facilities to overcome tariff blows in the US and European markets are being held back by authorities in Beijing for security and geopolitical reasons.
China has delayed approvals for BYD and Geely Auto to produce cars in Brazil and Mexico, according to a Reuters report last week, with officials cautioning the electric vehicle (EV) producers about trade and investment risks arising from policies pursued by US President Donald Trump.
While the latest tariff war was unlikely to discourage their global expansion, Beijing wants carmakers to adopt a more cautious approach and be selective in choosing their destinations, analysts said.
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“I think Chinese policymakers are encouraging it,” said Cosimo Ries, an analyst at Trivium China. “But they want these decisions to be made in a more strategic way, by rewarding some countries that are more favourable towards China in a geopolitical setting and being more punitive to those countries that are not.”
Beijing’s intervention in Geely and BYD’s plans is not peculiar. Last November, Leapmotor scrapped plans to produce a second EV model at its partner Stellantis’ plant in Poland in favour of factories in Germany and Slovakia, after China urged EV makers to halt investments in countries that supported extra tariffs on Chinese-made EVs.
Besides market size, potential and business environment, Chinese carmakers were now considering other factors like diplomatic ties with China when choosing overseas plant locations in the future, said Paul Gong, head of China auto research at UBS Investment Bank.
Chinese authorities are also worried that excess production capacity at home will plague markets abroad if their expansion plans are too aggressive. While Chinese-made EVs accounted for about 70 per cent of global sales last year, only half of the nation’s EV production capacity was utilised, according to Goldman Sachs.
Carmakers from BYD to start-up Hozon Auto operate about 30 factories outside the mainland, according to a study by the Post last month. Their combined annual manufacturing capacity was 2 million units in markets including Southeast Asia, Latin America and Europe.
The Trump administration’s so-called reciprocal tariffs could wreak havoc on economies in those regions and deter local consumers from making purchase plans, according to Cui Dongshu, general secretary of the China Passenger Car Association.
Since Chinese carmakers and supply chain vendors are at the forefront of EV innovation, authorities overseeing the manufacturing and commerce sectors, as well as the economic planning agency, are wary of potential technology leaks as leading EV players set up factories overseas.
BYD’s plan to build a plant in Mexico and Chery Automobile’s discussions with the Italian government about setting up a factory there are believed to have been frozen for now as a result of Beijing’s intervention.
Still, mainland Chinese carmakers and automotive supply-chain vendors are likely to stay on course with the go-global drive, as they promote Chinese EV technology and manufacturing heft worldwide.
Currently, Southeast Asia, Latin America, the Middle East, Europe, Australia and New Zealand are major export markets for Chinese-made cars. When building overseas factories, Thailand is often the first choice, followed by Brazil and Hungary.
Meanwhile, tensions between China and the EU have eased as they started talks on setting floor prices for Chinese-made EVs, German newspaper Handelsblatt reported last week. It marks a key turning point in ties since the EU imposed up to 45.3 per cent tariff on EVs from China in October.
“The two sides are officially shifting from legal battles to exploring market-based solutions,” Wang Shuai, analyst at Industrial Securities, said in a report on Monday. “The negotiations have eased trade tensions and set an example for cooperation in other areas, such as solar energy and lithium batteries.”
Besides delaying overseas factory plans, Beijing is also pushing efforts to boost production and consumption at home to mitigate the tougher international trade environment.
China wants to “rigorously develop domestic circulation and make it a long-term strategic priority to boost domestic demand”, Premier Li Qiang said at a symposium in Beijing this month, hours after Trump launched his series of tariff hikes on Chinese goods.
2025 could be a good year for Chinese carmakers who want to focus on the domestic market, said Zhang Xiang, who heads a research centre at the Jiangxi New Energy Technology Institute.
They could sidestep geopolitical risks and take advantage of various state incentives to boost consumption, including car purchases, he added.
More from South China Morning Post:
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