China's Underused Car Factories Are Flooding the World With Exports

Bloomberg

17-07-2025

The surge in Chinese car exports is reshaping automobile markets around the world, flooding countries with affordable vehicles and triggering a price war that's rippling through showrooms from Mexico to Malaysia.
President Xi Jinping's government is showing signs it wants to move away from the cutthroat competition that's dragged on profits. Even the People's Daily, an outlet controlled by the Communist Party, said earlier this month it sees no winner from the rivalry. But for China's automotive industry, confronting a structural crisis rooted in overcapacity, the momentum may be irreversible.
Chinese-made cars are taking over the streets in parts of South America while cheap but super high-quality electric vehicles from automakers like BYD Co. are winning over thousands of consumers in Europe.
'Chinese automakers are eyeing higher profit margins overseas,' Ron Zheng, a partner at global consultancy Roland Berger GmbH, said. 'Regional markets will take a hit but the price competition isn't likely to be as intense as in China.'
To understand the global impact, one needs to first start in China, the world's biggest automobile market. There, only about 15% of some 70 active automakers tracked by Gasgoo Automotive Research Institute last year had a factory utilization rate of 70% or more, a benchmark widely considered as the minimum viable for profitability and sustainability in a mature market.
Many automakers fell far short of the benchmark utilization rate in 2024
BYD, the world's largest new-energy vehicle producer, has maintained stable production levels, consistently pumping out cars and running its factories at utilization rates of between 80% to 85% from 2022 to 2024.
Several key foreign manufacturing joint ventures, however, have witnessed significant declines in production rates, notably the SAIC-GM alliance, a grouping between state owned SAIC Motor Corp. and US automaker General Motors Co., and GAC-Honda, a tie up between Guangzhou Automobile Group Co. and Japan's Honda Motor Co.
Read more: GM Is Pulling Back in Chinese Car Market It Once Pioneered
Tesla Inc., which makes the Model 3 electric sedan and Model Y sport utility vehicle at its Shanghai plant for domestic consumption and export to other parts of Asia and Europe, ranked No. 1 in terms of capacity utilization, at 96%. Rising star Xiaomi Corp. was second, with the overwhelming popularity of its initial offering, coupled with order hikes for its recently debuted YU7 SUV, requiring a swift ramp up in production.
Xiaomi doesn't sell its EVs abroad, yet. But amid a cooling domestic economy and intensifying competition, many other Chinese exporters are aggressively pivoting to exports, sending their cars to all corners of the globe, except the US, where tariffs make it unpalatable. China is now the world's biggest automobile exporter, surpassing Japan and Germany.
'Established automakers are voicing concerns about the impact of Chinese exports on their revenue streams,' Chris Liu, Shanghai-based senior analyst at Omdia, said. 'The pressure to protect local jobs, profit structures and budgets will only grow.'
Many Chinese Cars Go to Middle East, Latin America
The value of total exports nearly tripled to $37.3 billion in 2025 from 2022
The extent of this export surge is vividly illustrated by recent trade figures. During the first five months of 2025, Chinese car exports reached new peaks, with shipments to the United Arab Emirates alone totalling $2.7 billion, a 551% increase from 2022 and underscoring the Middle East's burgeoning demand for Chinese vehicles.
Beyond the Gulf, a diverse array of nations is fuelling China's export boom. Mexico, a key player in the North American automotive landscape, imported $2.4 billion worth of cars while Russia, despite geopolitical complexities, remained a significant market, taking in $2.2 billion.
Chinese automakers are now projected to capture 30% of global car sales by 2030, up from 21% in 2024, with the most substantial gains expected in emerging markets such as Southeast Asia, the Middle East and Africa, and South America, according to consultancy AlixPartners.
But foreign markets aren't always a safe fallback. Geopolitical winds and upfront costs for setting up overseas sales may prevent weaker players from exporting, meaning 'only the stronger companies are able to,' AlixPartners' Shanghai-based Managing Director Stephen Dyer said, noting that the average capacity utilization rate for the top five Chinese exporters in 2024 was 57%, better than the overall industry.
At home, the price war shows little sign of easing.
BYD Is Leading the Price War
Change in car prices among China's top 15 brands since 2023
Despite cementing its position as the world's highest-volume maker of pure battery cars and plug-in hybrids and selling around 4.3 million vehicles last year, BYD is spearheading multiple rounds of price cuts in a discounting war that started in China in early 2023.
That's intensifying the battle for market share and making survival increasingly precarious for those smaller players that lack scale.
Read more: China Vows to Address 'Irrational Competition' in EV Sector
Shenzhen-based BYD has slashed prices on average by 32%, data compiled by the China Automotive Technology and Research Center show.
Its ability to cut deep without unduly impacting its own finances stems from its extensive vertical integration — BYD makes its own batteries and chips and is therefore shielded from many supply chain snarls—and poses a formidable advantage, Bernstein analysts led by Eunice Lee said.
Competitors attempting to replicate it will 'face a long and costly journey.' 'While technically capable of delivering higher short-term margins, management has opted for a more disciplined approach, balancing near-term profit with expansion,' Lee said.
More broadly, analysts at HSBC Holdings Plc don't see any let up in the price war, particularly over the warmer months.
'As summer usually sees low seasonality, we expect the pricing environment is likely to remain under pressure, given lukewarm overall demand and consumption trading down,' they wrote in a June 19 note. 'The industry is currently deep in the process of consolidation and has yet to reach the inflection point.'
In a notable divergence from the prevailing downward trend, some brands are holding sticker prices steady. Tesla models have even recorded a modest 3.8% price increase over the past two years.
Meanwhile, the consolidation crunch may only just be beginning. Back in 2009, BYD stood tall as almost the only EV player of scale but by 2025, hundreds of players crowded the market.
Intense Price War Pushes Carmakers to Consolidate
As smaller players fold and competition intensifies, bigger brands are taking market share — but the consolidation has yet to peak
Many startups have faltered within the last few years and the phase out of government subsidies in 2018 further tempered the influx of new entrants. However, despite these headwinds, fresh players continue to emerge, signalling that the market's anticipated consolidation is far from complete.
As of May, BYD remained the undisputed leader, commanding around 27% of China's retail EV sector, but there are still about 120 other brands vying for 37% of the market.
And the ultimate shakeout may take longer in China. For one, there's the involvement of local governments, which often prolong the operations of some carmakers, even though they may be running at very low production rates, because those companies were directly or indirectly backed by authorities.
'The consolidation has not yet truly begun,' said Dyer, noting that local automakers' impact on employment and car parts supply networks are both vital channels for economic growth. 'In the end, it will slowly consolidate because car making is a truly cash-burning business. We expect to see maybe a dozen survivors.'
With assistance from Chunying Zhang, Jin Wu and Yasufumi Saito
Edited by Katrina Nicholas and Yue Qiu
More On Bloomberg