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The Chinese automotive industry has seen significant developments and transformations over the years. While the period from 1949 to 1980 witnessed slow progress in the industry due to restricted competition and political instability during the Cultural Revolution, the landscape started to shift during the Chinese economic reform period, especially after the government's seventh five-year plan prioritized the domestic automobile manufacturing sector.
Foreign investment and joint ventures played a crucial role in attracting foreign technology and capital into China. American Motors Corporation (AMC) and Volkswagen were among the early entrants, signing long-term contracts to produce vehicles in China. This led to the gradual localization of automotive components, and the strengthening of key local players such as SAIC, FAW, Dongfeng and Changan, collectively known as the "Big Four".
The entry of China into the World Trade Organization (WTO) in 2001 further accelerated the growth of the automotive industry. Tariff reductions and increased competition led to a surge in car sales, with China becoming the largest auto producer globally in 2008. Strategic initiatives and industrial policy such as Made in China 2025 specifically prioritized electric vehicle manufacturing.
In the 2020s, the automotive industry in mainland China has experienced a rise in market dominance by domestic manufacturers, with a growing focus on areas such as electric vehicle technology and advanced assisted driving systems. The domestic market size, technology and supply chains has also led foreign carmakers to seek further partnerships with Chinese manufacturers. In 2023, China overtook Japan and became the world largest car exporter. However, the industry also faced heightened scrutiny, tariffs, and other restrictions, especially in the area of EVs due to allegations of Chinese industrial overcapacity and significant state subsidies.
Before 2010, the traditional "Big Four" refers to the four major state-owned car manufacturers, SAIC, FAW, Dongfeng and Changan. Other Chinese car manufacturers, both from public and private sectors, like Geely, BAIC, BYD, Chery, GAC, Great Wall, JAC and Seres emerged as the major players with the expansion of Chinese automotive industry.
Central government controlled state-owned manufacturers
FAW (China First Automobile Works Group Corporation, Chinese: 中国第一汽车集团有限公司) is a Chinese state-owned automotive manufacturing company headquartered in Changchun which is directly under the control of central government of China. Founded on 15 July 1953, it is the oldest car manufacturer of the People's Republic of China. Currently FAW sells products under their different brands including Hongqi, Jiefang, and Bestune. FAW also operates joint ventures with Toyota, Volkswagen and Audi.
Dongfeng (Dongfeng Motor Corporation, Chinese: 东风汽车集团有限公司) is a Chinese state-owned automobile manufacturer headquartered in Wuhan, Hubei, which is directly under the control of central government of China. Originally known as Second Automobile Works when it was founded in 1969, FAW and SAW were the two major manufacturers before the Reform and Opening-up of China. It current owns Voyah, M-Hero, Aeolus, Forthing, Dongfeng Nammi and operates joint ventures including Cummins, Honda, Nissan, Infiniti, and Stellantis (PSA Peugeot Citroën).
Changan (Chang'an Automobile Group, Chinese: 重庆长安汽车股份有限公司) is an automobile manufacturer headquartered in Chongqing, and is a subsidiary of China South Industries Group Corporation, an enterprise under the control of central government. It is the oldest automobile manufacturer in China which can be traced back to 1862 of Qing Dynasty. Changan designs, develops, manufactures and sells passenger cars sold under the Changan Auto, Deepal and Kaicene brand. Changan operates joint venture companies Avatr, Ford and Mazda.
Local government controlled state-owned manufacturers
SAIC (Shanghai Automotive Industry Corporation, Chinese:上海汽车集团股份有限公司) is a Chinese state-owned automotive manufacturing company headquartered in Shanghai. It is controlled by the municipal government of Shanghai. SAIC sells vehicles under a variety of brands including IM, Rising Auto, Maxus, MG, Roewe, Wuling, Baojun, and Yuejin. Joint venture brands include Buick, Chevrolet, Iveco, Škoda, Volkswagen, and Audi.
GAC (Guangzhou Automobile Corporation, Chinese: 广州汽车集团股份有限公司), is a Chinese state-owned automobile manufacturer headquartered in Guangzhou and controlled by the municipal government of Guangzhou. GAC sells passenger cars under the Trumpchi and Aion brand operates foreign joint ventures with Honda and Toyota.
JAC (Anhui Jianghuai Automobile Group Corporation, Chinese: 安徽江淮汽车集团股份有限公司) is a state-owned enterprise based in Hefei, Anhui Province and controlled by the Provincial Government of Anhui. It owns the brands of JAC, JAC EV, Sehol.
Chery (Chery Automobile, Chinese: 奇瑞汽车股份有限公司), a Chinese state-owned automobile manufacturer based in Anhui and controlled by the municipal government of Wuhu. It sells cars under the Chery, Exeed, Jetour and iCar brands. It also has a foreign joint venture with Jaguar Land Rover for the production of Jaguar and Land Rover cars in China.
Notable privately owned manufacturers
BYD (BYD Auto, Chinese: 比亚迪汽车有限公司), is an automobile manufacturer based in Shenzhen, founded by BYD Company which are known for their batteries. It is currently the largest electric vehicle manufacturer of the world. It operates brands such as BYD, Denza, Fangchengbao, and Yangwang.
Geely (Zhejiang Geely Holding Group, Chinese: 浙江吉利控股集团有限公司), is the one of the biggest privately owned automobile manufacturer headquartered in Taizhou, Zhejiang. Currently one of the fastest growing automotive groups in the world, Geely is known for its ownership of the Swedish luxury car brand Volvo Cars, its performance counterpart Polestar, and the British sports car company Lotus. In China, their passenger car brands include Geely, Livan, Lynk & Co, Zeekr, Volvo Cars, Polestar, Lotus, LEVC, Farizon, Radar, Ji Yue and operates joint ventures with Proton and Smart.
Li Auto (Beijing Car And Home Information Technology, Chinese: 北京车和家信息技术有限公司) is a startup manufacturer founded in 2015. It is specialized in developing and manufacturing premium range-extender electric vehicles and has rapidly grown into a major player in Chinese automobile market.
State-private mixed ownership manufacturer
Seres (Seres Group, Chinese: 赛力斯集团股份有限公司), is one of the first state-private mixed ownership manufacturer in China. Headquartered in Chongqing, it is currently co-owned by the founder's family, the state-owned company Dongfeng and municipal government of Chongqing. It used to be famous for producing light commercial vehicles and budget passenger vehicles but is transforming to produce premium electric vehicle since 2021 after partnering with Chinese tech giant Huawei. It owns the brands of Seres, AITO, Fengon, Landian and DFSK.
Nio (Shanghai Nio Automobile, Chinese: 上海蔚来汽车有限公司) is an EV startup manufacturer founded in 2014 and headquartered in Shanghai. The company is noted for its battery-swapping stations and premium EV.
Xpeng (Guangzhou Xiaopeng Motors Technology, Chinese: 广州小鹏汽车科技有限公司) is an EV startup manufacturer founded in 2014 and headquartered in Guangzhou. Together with Nio and Li Auto, it is one of the first EV companies in China. Volkswagen Group has invested and acquired 5% of stake of Xpeng since 2023.
Leapmotor (Zhejiang Leapmotor Technology, Chinese: 浙江零跑科技股份有限公司) is an EV manufacturer hounded in 2015, headquartered in Hangzhou. Stellantis has invested and acquired 20% of stake of Leapmotor since 2023.
Hozon (Zhejiang Hozon Auto New Energy Automobile, Chinese: 浙江合众新能源汽车有限公司), is an EV manufacturer headquartered in Hangzhou. It is a state-private mixed ownership manufacturer which is invested mainly by Chinese tech company Qihoo 360 and three local governments of Yichun, Tongxiang and Nanning. It produces vehicles under the Neta brand.
Xiaomi Auto (Xiaomi Automobile Co., Ltd, Chinese: 小米汽车有限公司) is the subsidiary of Chinese consumer electronics giant Xiaomi that produces EVs. It was founded in 2021 in Beijing and launched its first product, the Xiaomi SU7 in 2024. Xiaomi is currently the only Chinese tech company that is directly involved in automotive manufacturing.
Following the Chinese economic reform, from 1994 to 2018, Chinese automotive policy mandated that foreign carmakers had to establish joint ventures with a Chinese counterpart to produce vehicles in the country, with the Chinese partner owning at least 50% of the venture. This measure was implemented to protect local manufacturers and provide it with the chance to bridge the technology gap and develop their brands.
On April 17, 2018. The National Development and Reform Commission (NDRC) of China announced that foreign ownership limits on automakers would be phased out over a 5-year period. On 28 July 2018, China lifted foreign ownership restrictions on new energy vehicle production, which benefited American electric car manufacturer Tesla, Inc. The company established a plant in Shanghai, becoming the first foreign automaker to open a wholly-owned manufacturing facility in China. The liberalization was followed by commercial vehicles in 2020 and passenger cars in 2022. The rule that prohibited foreign automakers from setting up more than two joint ventures in China was also lifted in 2022. Therefore, it became legally possible for the foreign automakers to buy out local partners from joint ventures. In 2022, BMW and Volkswagen had acquired 75% stake in their joint ventures.
Foreign manufacturers
The following are foreign manufacturers that operate in China either through wholly-owned manufacturing plants or joint ventures where they own more than 50 percent of the shares.
Tesla
Gigafactory Shanghai (Tesla is the first and currently the only 100% foreign-owned car manufacturer in Chinese mainland)
China's automobile industry can be traced back to the early origin of Changan Automobile in 1862 when Li Hongzhang set up a military supply factory, the Shanghai Foreign Gun Bureau. The first automobile in China was purchased from Hong Kong in 1902 by Yuan Shikai and gifted to Empress Dowager Cixi. It was later put on display in the Summer Palace Museum. During the early twentieth century, major western automobile manufacturers such as the Ford Motor Company, General Motors, and Mercedes-Benz had plants operating in Shanghai.
However, the Second Sino-Japanese War hampered the progress of the Chinese auto industry, as seen by the relocation of the Changan Automobile factory from Shanghai to Chongqing in the wake of the city's bombing and attack. After the foundation of the People's Republic of China (PRC) in 1949, plants and licensed auto design were established in China with assistance from the Soviet Union in the 1950s, marking the beginning of the country's automobile sector. However, the Chinese automotive industry did not exceed 100–200 thousand automobiles produced per year during the first 30 years of the PRC.
China's annual automobile production capacity first exceeded one million in 1992. By 2000, China was producing over two million vehicles. After China's entry into the World Trade Organization (WTO) in 2001, the development of the automobile market accelerated further. Between 2002 and 2007, China's national automobile market grew by an average 21 percent, or one million vehicles year-on-year. In 2009, China produced 13.79 million automobiles, of which 8 million were passenger cars and 3.41 million were commercial vehicles and surpassed the United States as the world's largest automobile producer by volume. In 2010, both sales and production topped 18 million units, with 13.76 million passenger cars delivered, in each case the largest by any nation in history. In 2017, total vehicle production in China reached 28.879 million, accounting for 30.19% of global automotive production. In the first half of 2023, China overtook Japan to become the world's largest exporter of automobiles, exporting 2.34 million vehicles compared to 2.02 million for Japan.
As of at least 2024, China is the world's largest market both in terms of automobile sales and ownership.
Historic production data and notable milestones of Chinese automobile industry
Surpassing the United States as the world's largest automobile producer
2010
18,260,000
24.2%
The largest number of production by any nation in history
2015
24,500,000
27.43%
Became the world largest EV producer
2017
29,020,000
30.19%
2022
27,021,000
31.8%
Surpassing Germany as the world's second largest car exporter
2023
30,161,000
33.8%
The highest production record in history, surpassing Japan as the world's largest car exporter
Historic sales volume of Chinese brand passenger vehicle
Year
Chinese brand passenger vehicle sales
Domestic share of Chinese brand passenger vehicle
Global passenger vehicle sales
Global share of Chinese brand passenger vehicle
2010
6,273,000
45.6％
58,239,494
10.77%
2011
6,112,200
42.2％
59,897,273
10.20%
2012
6,485,000
41.9％
63,081,024
10.28%
2013
7,222,000
40.3%
65,745,403
10.98%
2014
7,518,000
38.1%
67,782,035
11.09%
2015
8,737,600
41.3%
68,539,516
12.75%
2016
10,529,000
43.2%
72,105,435
14.60%
2017
10,847,000
43.9%
73,456,531
14.77%
2018
9,890,000
42.1%
70,498,388
14.03%
2019
8,470,000
39.2%
64,033,463
13.23%
2020
7,749,000
38.4%
53,915,928
14.37%
2021
9,543,000
44.4%
56,437,803
16.91%
2022
11,766,000
49.9%
57,485,378
20.47%
2023
14,596,000
56%
65,272,367
22.36%
Early industrialization (1928 to 1949)
The first Chinese built motor vehicle was a truck called the Ming Sheng. It was designed by Daniel F Myers and a prototype was made at the Liao Ning Trench Mortar Arsenal, Shenyang. The prototype was completed on May 31, 1931, for Zhang Xueliang. Prior to production commencing, the factory was bombed during the Japanese invasion of Manchuria and production never commenced. A fellow general, Yang Hucheng, patronized the inventor Tang Zhongming to make a new type of automobile engine powered by charcoal. In 1932 Tang founded the Chung Ming Machinery Co. Ltd. in Shanghai to produce the engines. Charcoal powered vehicles were mainly used during the Second Sino-Japanese War because of fuel shortages. Tung oil was also used during the war as a petroleum substitute. The number of automobiles in China had been growing steadily which was close to 70,000 vehicles in 1937. However, due to the war, car ownership volume plummeted to 16,000 in 1940, which was only 23.8% of 1937. It was not until 1947 that car ownership volume returned to pre-war levels.
After the establishment of the People's Republic of China (1949 to 1980)
The development of the Chinese automobile industry following the Chinese Communist Revolution was relatively slow due to the lack of free market competition and turbulence of the Culture Revolution. Except for a degree of development in the 1950s with assistance from the Soviet Union, the Chinese automobile industry remained closed and lagging behind until the period of Chinese economic reform under Deng Xiaoping. Most domestically produced vehicles were primarily the Jiefang trucks for military or industrial department and the Hongqi sedans used by a limited number of government officials. The concept of private cars had not yet emerged in China during this period.
The first Chinese production vehicles were trucks made by the First Automobile Works in 1956, called the Jiefang CA-10. This was followed on March 10, 1958, by the 2½ ton light duty truck (NJ130), which was based on the Russian GAZ-51, was produced in Nanjing. The truck was named Yuejin (meaning "leap forward") by China's First Ministry of Industrial Machinery.
In June 1958, the Nanjing Automobile, previously a vehicle servicing unit of the People's Liberation Army, began making China's first domestically produced light-duty trucks. Production continued until the last truck (NJ134) rolled off the assembly line on July 9, 1987. Cumulative production was 161,988 units (including models NJ130, NJ230, NJ135 and NJ134). The first production automobiles were the Dongfeng CA71, Hongqi CA72, Feng Huang (later known as the Shanghai SH760) all from 1958.
Economic reform (1980 to 2000)
The passenger car industry was a minor part of vehicle production during the first three decades of the People's Republic China. As late as 1985, the country produced a total of only 5,200 cars. Cars were almost entirely purchased by danweis (work units – private car ownership was virtually unknown at the time, in spite of the Sun Guiying story).
Impact of foreign cars
As domestic production was very limited, import totals rose dramatically, despite a 260 per cent import duty on foreign vehicles. Before 1984, the dominant exporter of cars to China had been the Soviet Union. In 1984, Japan's vehicle exports to China increased sevenfold (from 10,800 to 85,000) and by mid-1985 China had become Japan's second biggest export market after the U.S. The country spent some $3 billion to import more than 350,000 vehicles (including 106,000 cars and 111,000 trucks) in 1985 alone. Three taxi companies in particular thirsted for Japanese cars, such as Toyota Crowns and Nissan Bluebirds.
As this spending binge began to lead to a severe trade deficit, the Chinese leadership put on the brakes through the adjustment of import and foreign exchange policies. Customs duties on imported goods were raised in March 1985 and a new "regulatory tax" was added a little later. In September 1985, a two-year moratorium on nearly all vehicle imports was imposed.
Joint ventures
In July 1979, China adopted its first Law on Joint Venture Using Chinese and Foreign Investment. This law was effective in helping to attract and absorb foreign technology and capital from developed countries like the United States, facilitated China's exports to such countries, and thereby contributed to China's subsequent rapid economic growth.
Jeep Cherokee, made by first joint venture of China, Beijing Jeep.
While limiting imports, China also tried to increase local production by boosting the various existing joint venture passenger car production agreements, as well as adding new ones. In 1983, American Motors Corporation (AMC, later acquired by Chrysler Corporation) signed a 20-year contract to produce their Jeep-model vehicles in Beijing. The following year, Germany's Volkswagen signed a 25-year contract to make passenger cars in Shanghai, and France's Peugeot agreed to another passenger car project to make vehicles in the prosperous southern city of Guangzhou. These early joint ventures did not allow the Chinese to borrow much foreign technology, as knock-down kit assembly made up the majority of manufacturing activities; tooling may not have been allowed to slip past borders.
Volkswagen Santana, made by SAIC-VW, once was the most popular family sedan from 1990s to 2010s.
The Seventh Five-Year Plan and supply chain localization efforts
In April 1986, the Chinese government's seventh five-year plan recognized automobile manufacturing as a "pillar industry." It has guided the industry ever since.
The Chinese automotive industry gradually moved away from the manual workshop model and embraced Western advanced technologies and quality control management. Over the course of a decade, through digestion and absorption, the localization rate of Chinese automotive components significantly increased. In 1997, the localization rate of the SAIC-VWSantana, one of the most popular sedan in China then, jumped from 60.09% six years prior to over 90%, with key components like the car body, engine, transmission, and front and rear axle assemblies all achieving localization. The localization rate of the FAW-VWAudi 100 reached 93%, while the Jetta achieved an 84.02%. The localization rate of the Citroën Fukang by FAW exceeded 80%. The improvement in the localization rate of complete vehicles was made possible by the emerging prowess of complementary enterprises in the industry chain. Diesel engines from Yuchai Machinery Factory and automotive glass from Fuyao had their beginnings during this period.
Several enterprises entered the automobile industry since 1994. Some of them are originated from the defense industry, such as Changan, Changhe, and Hafei; some were developed from state-owned companies, such as BYD, Brilliance, Chery, and Changfeng Motor. Others are private-owned companies, such as Geely Auto and Great Wall Motor.
Growth and expansion (2000 to 2020)
World Trade Organization admission
Geely Haoqin, first vehicle produced by Chinese private manufacturer Geely in 1998.
With China's admission to the World Trade Organization in 2001, automotive tariffs began to be substantially reduced, leading to a decrease in the prices of imported cars. Foreign automotive giants brought a multitude of their latest models into China. According to WTO regulations, starting from 2006, the import tariffs on complete vehicles in China were lowered from the previous 30% to 28%. In 2010, they were further reduced to 25%. Tariffs on automotive components like transmissions, shock absorbers, radiators, clutches, and steering units decreased from 13.5% to 12.9% and eventually to 10%.
China's entry into WTO brought about increased competition from domestic and foreign automotive brands. Amidst this intense competition, the prices in the domestic automotive market continued to decline. The annual average reduction in car prices has exceeded 8%, with a particularly significant decrease of 13.5% in 2004.
Criticism of technology transfer policies
In 2010s, allegations of forced technology transfer arose in the western automotive sector and beyond. The criticism centered around the government's joint venture policies which required technology transfer in exchange for access to the country's sizable domestic market. Criticism grew following the government's eleventh five-year plan, which adopted a more focused approach to technology transfer in advanced technology. In 2010, foreign automakers complained about a Ministry of Industry and Information Technology plan which they said compelled sharing of critical technologies in electric vehicles.
Steve Girsky, the Vice Chairman of General Motors, told reporters that neither SAIC nor the Chinese government have requested Volt technology. According to The New York Times, General Motors was asked to disclose key technological information on the Volt. German economist Daniel Gros suggested that costs to Western companies imposed by technology transfer are "vastly overstated."
The Chinese government has consistently denied allegations of impropriety, stated that technology transfer is in line with WTO rules. In 2017, the Ministry of Commerce stated that the establishment of joint ventures by foreign companies in China is a voluntary behavior and that there is no law in China that forces foreign investors to transfer technology. Yu Yongding, a member of the Chinese Academy of Social Sciences, said that foreign companies clearly understand what benefits they can get through partnerships with Chinese companies, which means such cooperation is mutually beneficial.
In 2019, in an effort to attract further foreign investors and respond to criticism, the National People's Congress passed a law making forced technology transfers illegal.
Rapid growth
Wuling has been the most popular minivan brand during 2000–2020. Wuling Hongguang achieved a record-breaking annual sales of 750,000 in the Chinese market in 2014.
The Chinese automotive market experienced explosive growth after 2000. This growth is closely tied to China's economic development and the rise of the middle class. An increasing number of Chinese households can afford cars, leading to a surge in sales. China's automobile production grew from two million vehicles in 2000 to 29 million vehicles in 2017. During that time, its global market share rose from 3% to 30%. By 2017, there were 300.3 million registered vehicles in China.
Intensified competition
In the 2010s, with the rapid growth of China's automobile production, China became the country with the most diverse range of automotive brands globally. Competition in China's automobile market significantly intensified during this period.
Haval H6, best-selling SUV for 100 consecutive months, still holding the highest monthly sales record of 80,000 units in Chinese market.
Apart from mainstream joint venture brands dominating the mid-to-high-end market, there was a substantial presence of local state-owned and private small and medium-sized automotive companies. However, after 2018, an increasing number of these smaller brands became 'zombie company' state, with many suspending production and operations, as market-driven consolidation accelerated. The number of Chinese automotive brands increased from just over 20 in the early 1990s to 84 in 2019.
On February 29, 2016, the Ministry of Industry and Information Technology shut down 13 automobile manufacturers that did not meet mandatory production evaluations for two consecutive years.
The "corner overtaking" strategy with new energy vehicles
In 2009, the State Council of the People's Republic of China issued the "Automobile Industry Adjustment and Revitalization Plan," which emphasized "Using new energy vehicles as a breakthrough, strengthening independent innovation to establish new competitive advantages." It explicitly outlined China's plan to use electric vehicle. This strategy is commonly referred to as the "corner overtaking strategy" in the Chinese automotive industry. In 2010, China's sales of electric vehicles were only 5,000 units. By 2015, the sales had surged to 331,000 units. In 2015, the Xi Jinping Administration launched the Made in China 2025 industrial policy that prioritized electric vehicles. Since 2016, China has maintained its position as the world's leader in terms of the total stock of electric vehicles and annual additions. The annual growth rate of production and sales of electric vehicles has consistently remained at around 50%. In 2020, electric vehicles sales reached 1.367 million units, accounting for more than 50% of global market share.
Maturation and global advantage (2020–present)
Since 2020, the Chinese automotive industry has entered a phase marked by the maturation and advancement of technology among local manufacturers. As a result, there has been a notable increase in the market share held by local manufacturers within the domestic market. Additionally, many foreign brands have sought partnerships with Chinese automakers to capitalize on their technological advancements and supply chain capabilities.
Increasing share of local manufacturers
According to the China Passenger Car Association (CPCA), in the first half of 2020, the market share of local brands in the Chinese automotive market was at slightly more than 30 percent, with German and Japanese brands then at around 30 percent and 25 percent respectively. Two years later, in October 2022, the share of local car brands in China reached 51.53 percent. It was the first time in history that the monthly share of local car brands in China exceeded 50 percent. In contrast, the dominance of foreign brands are gradually declining. The share of German brands fell to 19.25 percent and Japanese brands fell to 18.94 percent in October 2022. Throughout 2023, the market share of local brands has remained at around 50 percent. These changes were attributed to the rapidly increasing popularity of new energy vehicles, and the failure of foreign brands to catch up with the shift.
Li Auto manufacturing plant in Beijing. The company took over the plant from Beijing Hyundai which have had decreasing sales.
As a result of these market dynamics, some joint ventures that were already facing challenges during the era of traditional fuel-powered cars are further marginalized. In May 2023, Zhu Huarong, chairman of Changan Automobile, predicted that "in the next 2–3 years, it is conservatively estimated that 60%-70% of brands will face closure and transfer." Between 2018 and 2023, eight joint venture manufacturers opted to withdrew the Chinese markets. Other joint ventures with significantly decreased sales are scaling back their production capacity by closing and selling their underutilized manufacturing plants. The remaining production capacity has been acquired by their Chinese joint venture partners.
In August 2023, BYD chairman and CEO Wang Chuanfu called on local Chinese car manufacturers to "unite" to take on foreign manufacturers, responding to the severe price war in the Chinese market throughout 2023. The call was welcomed by the CEOs of Nio and Li Auto.
Phasing-out of foreign joint ventures/brands during 2010–2020s
Since late 2022, the Chinese automotive industry has experienced a significant price war characterized by aggressive price reductions by carmakers to attract customers and increase market share, amid an economic slowdown and production overcapacity. Tesla initiated the subsequent price war by offering two substantial price cuts on its Chinese-made models in October 2022 and January 2023. By 2023, Reuters reported that over 40 carmakers in China in both internal combustion engine and electric vehicle segments followed suit to maintain their market position. Brands resorted to extreme measures by offering deep discounts and other incentives, while pressing auto suppliers to reduce costs. The competitive climate also caused a heightened focus on innovation and value-added features in vehicles. However, there are concerns from analysts, journalists and executives in the industry about its long-term effects on the overall health and stability of the Chinese automotive industry.
In mid-2023, Bloomberg News reported most top Chinese automakers except BYD and Changan suffered a decline in profits as a result, hitting its lowest since the beginning of the COVID-19 pandemic in 2020. BYD that specialized in electric vehicles became an outlier as it experienced record profits and deliveries in this period, securing its position as a key player in the market. The market dynamics also drove the share of Chinese automakers to an all-time high, accounting for slightly over 50% of the market. However, the market dynamics in China also led to overcapacity, especially in EVs, which prompted Chinese carmakers to increase exports and expand sales overseas.
China's automobile industry has been accelerating its transformation towards electrification, which led to overcapacity of internal combustion engine vehicles. In 2023, China's light vehicle production capacity was 48.7 million units, with a capacity utilization rate of 59%.
Declining sales and profits also affected foreign joint venture brands. In March 2023, SAIC-Volkswagen reduced prices on its ID.3 electric cars by 18 percent. Toyota implemented workforce reductions at GAC Toyota, eliminating around 1,000 jobs. Additionally, Hyundai sold two of its plants, while Mitsubishi Motors left the market completely in that year. Layoffs were also observed at GAC Honda, Volkswagen, Volvo, Tesla, and Kia.
The Chinese government has attempted to mitigate the negative impacts of the price war through various measures, such as subsidies for electric vehicle purchases and initiatives to promote the adoption of new energy vehicles in rural areas. In July 2023, sixteen manufacturers, including fifteen Chinese carmakers and Tesla, signed an agreement facilitated by the China Association of Automobile Manufacturers (CAAM) to avoid "abnormal pricing" practices and prevent a price war. However, just two days later, CAAM retracted the "abnormal pricing" clause due to concerns about violating China's antitrust laws. This move quickly ended the temporary "peace" and triggered another round of price cuts.
Technological innovation
A Nio Power Battery Swap station in China. Nio pioneered the battery swapping capability.
Amidst the fierce domestic competition in China's domestic market, Chinese automakers have established the building blocks for growing competitiveness in EV technology, software, digitalization, factor cost and supply chain areas. China's domestic brands lead the market in the development and implementation of advanced assisted driving systems, capitalizing on their early-entry advantages in the electric and intelligent vehicle sector.
According to investment bank Goldman Sachs, newly opened Chinese car plants are the most robotized of such facilities worldwide.
Supply chain advantages
China has invested heavily in refinery capacity and has the majority of it in the world when it comes to critical components like cobalt, nickel sulfate, lithium hydroxide, and graphite. The dominance of the EV battery supply chain is considered as a major factor contributing to the lower cost of Chinese EVs. Chinese manufacturers' share of the global EV battery market stood at 60% in 2022. Industry analyst Chris Berry stated that China has a 10 to 15 year head start on the rest of the world in terms of EV battery supply chain.
China's automotive supply chain has gained a lot from the introduction of Tesla. The company has been responsible for imposing the "catfish effect" on the Chinese EV industry, which forced Chinese manufacturer to innovate and try to catch up with Tesla from technology advancement to affordability.
"Reversed" joint ventures
Smart #1, built by Geely's joint venture with Mercedes-Benz. It is developed based on Geely's EV technology.
In the 1990s, Chinese automakers pursued Western technology through joint ventures. However, a reversal occurred in the 2020s, with Western manufacturers now seeking technological assistance from Chinese counterparts and invested in China through joint ventures. Several Chinese electric vehicle startups have leveraged their technological advantages, attracting investments from traditional Western automotive giants such as Renault-Nissan, VW, BMW, Mercedes-Benz, Toyota and Stellantis.
In 2017, Renault-Nissan and Dongfeng set up a joint venture called "eGT New Energy Automotive" to produce A-segment EV.
In 2019, Mercedes-Benz announced the establishment of a joint venture partnership with Chinese automaker Geely. Geely acquired 50% of Smart brand to produce EVs based on Geely's SEA platform.
In July 2019, Renault Group announced a capital injection of 1 billion yuan to acquire a 50% stake in JMEV, an EV subsidiary of Jiangling Motors Corporation.
Mini Cooper SE, developed by GWM and manufactured by Spotlight Automotive, a joint venture between GWM and BMW.In 2020, Toyota announced its joint venture with Chinese manufacturer BYD. The joint venture was set to assist technical know-how for Toyota's EV development and supply the battery, electric motor and electronic control unit for Toyota's EV. Toyota bZ3, the first electric sedan of Toyota, was built under the assistance of BYD with its technology.
In July 2023, Audi and SAIC announced their partnership that the EV platform from IM Motors, the brand of SAIC, will be introduced into Audi's electric models.
In July 2023, Volkswagen Group announced its investment of $700 million in XPeng, the EV startup venture from China, for purchasing 4.99% stake of the company. The VW will collaborate with XPeng to develop two VW brand electric models for the mid-size segment in the Chinese market in 2026.
In August 2023, Geely and Renault decided to set a joint venture codenamed Horse with each entity holding 50% stake, to manufacture internal combustion engine (ICE) and hybrid powertrains for Renault, Nissan and Mitsubishi vehicle with Geely's technology.
In September 2023, Ford and Changan announced to establish a new joint venture Changan Ford NEV, to produce and distribute Ford vehicles based on Changan's technology of electric vehicle. Changan holds 70% stake in the JV while Ford holds 30%.
In October 2023, Stellantis announced its investment to Leapmotor at the price of 1.5 billion euro, acquiring 20% of Leapmotor for the support of technology to produce EVs.
"Reversed" joint ventures/investment of western manufacturers
Developing and producing Ford brand electric vehicles by Changan
Changan Ford NEV (30:70)
Foreign tariffs and restrictions
In the 2020s, the export volume of Chinese-built automobiles has been increasing significantly. Chinese automobiles' presence overseas has triggered increased tariffs and other restrictions for a variety of stated reasons around state subsidies, overcapacity, national security, and forced labor. Critics argue that such reasons are a justification for protectionism.
During the presidency of Donald Trump, the U.S. imposes a stiff 27.5 percent tariff for Chinese-made cars and has buttressed that with the protectionist tax credits of President Joe Biden's Inflation Reduction Act, which incentivized electric car and battery production in North America. In addition, hostility toward China from leaders in both political parties of U.S. make it difficult for Chinese carmakers to penetrate the U.S. market.
In February 2024, the U.S. government blocked the import of several models of Volkswagen vehicles under the Uyghur Forced Labor Prevention Act, accusing some component of them were produced under forced labor in Xinjiang. Volkswagen previously denied the accusations, claiming that they could not find any indications or evidence of forced labor among the employees through an third party audit.
In April 2024, when the U.S. Treasury Secretary Janet Yellen visited China, she accused Chinese automotive industry of having overcapacity and tilting the playing field away from American workers and firms. While some industry observers consider that the issue of overcapacity raised by U.S. is an excuse for protectionism.
In May 2024, the U.S. Commerce Secretary Gina Raimondo said the U.S. could take "extreme action" to ban Chinese connected vehicles or impose restrictions on them for national security reasons. U.S. President Joe Biden later unveiled a hike in tariffs on Chinese made EV, quadrupling the duties from 25% to over 100%. The International Monetary Fund criticized the Biden administration's decision to raise tariffs on China goods including EVs, urging the U.S. to maintain open trade policies.
Canada
In May 2024, Canada's Trade Minister Mary Ng told Bloomberg News that Canadian government is considering raising the tariffs on Chinese-made EVs after the U.S. announced major hike of tariffs on them earlier.
European Union
In September 2023, European Commission President Ursula von der Leyen announced EU would launch an anti-subsidy investigation into Chinese electric vehicles, stating that "global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies. This is distorting our market." The People's Daily stated that the investigation proposed by the EU is a practice of protectionism in the name of "fair competition."
Chinese companies can sell cars at much higher price and profit margins in the EU compared with the Chinese domestic market. According to Rhodium Group, European duties of around 45 percent, or even 55 percent, would be needed to render exports to the European market unappealing.
India
India has been keen to reject investment plans from Chinese car manufacturers due to the Sino-Indian border dispute and a tougher stance towards investments from China. Great Wall Motor initially proposed an investment of US$1 billion and had plans to start manufacturing in 2021 by buying a former General Motors plant, before cancelling its plans in July 2022 due to failure of obtaining regulatory approvals. In July 2023, BYD Auto was forced to cancel its investment plans worth US$1 billion to produce cars in India due to scrutiny from the Indian government, noting "security concerns", despite 16-year presence of BYD Company in the country. MG Motor India had struggled to receive clearance from the Indian Government to obtain capital from parent SAIC Motor, until a local company JSW Group acquired a 35% share in the company.
Industry and academia
Carlos Tavares, the CEO of Stellantis called the influx of Chinese car-makers an "invasion" and warned the "possibility of geopolitical tensions" with China in 2022. However, after Stellantis invested 1.5 billion Euro to acquired stakes in Chinese startup venture Leapmotor in 2023, he defended Chinese automobiles presence in the global market, states "we have to adopt a global mentality. We do not support a fragmented world. We like competition. To start a probe is not the best way to tackle those questions" and "Stellantis could benefit from "Leapmotor's competitiveness both in China and abroad".
Jim Saker, president of the Institute of the Motor Industry in the UK, describe Chinese cars in UK as "invasion by trojan horse" and alleges there are "major security issues" with Chinese cars, that "paralyzing a country."
Involvement of Chinese technology companies
Since the 2020s, Chinese technology corporations such as Huawei, Baidu, DJI with their advanced software or hardware technological capability started entering the automotive business by various approaches.
AITO M9, designed and supplied by Huawei's hardware and software solution and sold through Huawei/HIMA showrooms
Huawei's partnership with automobile manufacturers has taken the form of three business models, from the standardized parts supply model, the "Huawei Inside" (HI) model, and the Harmony Intelligent Mobility Alliance (HIMA). Baidu and DJI has been providing autonomous driving system and hardware to automotive manufacturers. Qihoo 360 invested in the Chinese EV startup company Hozon Auto. Geely collaborates with Baidu to set up joint venture brands, and acquired Chinese smartphone company Meizu for its Polestar and Lynk & Co brands with its auto OS and AR system. Xiaomi is the first and the only Chinese tech company that is directly involved in automotive design, development and manufacturing, and operates its factory in Beijing.
Involvement of Chinese technology industry in the automotive industry
Collaborated under the Harmony Intelligent Mobility Alliance (HIMA) model. Huawei provides a complete set of vehicle solutions and participates in product definition, design, marketing, user experience, quality control and delivery, while the manufacturers are responsible for vehicle manufacturing.
Collaborated under the Huawei Inside (HI) model. Huawei provide full-stack smart car solution and Huawei's smart cockpit to car manufacturers. In this mode, Huawei empowers vehicle intelligence through the supply of both software and hardware, but does not participate in the design, development, and marketing of the vehicles.
China encourages the development of clean and fuel efficient vehicles in an effort to sustain continued growth of the country's automobile industry (see Fuel economy in automobiles). By the end of 2007, China plans to reduce the average fuel consumption per 100 km for all types of vehicles by 10%. The proportion of vehicles burning alternate fuel will be increased to help optimize the country's energy consumption. Priority will be given to facilitating the research and development of electric and hybrid vehicles as well as alternate fuel vehicles, especially CNG/LNG.
Environmental standards
On March 10, 2008, Beijing became the first city to require light-duty vehicles to meet China-4 emission standard, which was equivalent to Euro-4. Beijing shifted its emission standards to the fifth-stage standards for light-duty and heavy-duty vehicles in January 2013 and August 2015, respectively. On 12 April 2016, the Ministry of Environmental Protection (MEP) released the proposal for light-duty China-6 standard.
Electric vehicles (EV) and fuel cell vehicles (FCV)
Due to serious air pollution problems and ever-increasing traffic, alternative-energy vehicle production is an area of strong focus for the Chinese government, and several electric vehicle-friendly policies have appeared at the national and local level as a result. In many cities, free licenses — otherwise a significant expenditure for traditional vehicles — are provided for electric vehicle owners, along with exemptions for registry lotteries. These kinds of policies have created strong interest in new energy vehicles within China.
New energy vehicle sales between January 2011 and March 2016, totaled 502,572 units, of which, over 92% were sold between January 2014 and March 2016. These figures include heavy-duty commercial vehicles such as buses and sanitation trucks. These figures only include vehicles manufactured in the country as imports are not subject to government subsidies. As of March 2016, the Chinese stock of plug-in electric vehicles consist of 366,219 all-electric vehicles (72.9%) and 136,353 plug-in hybrids (27.1%).
As of December 2015, China is the world's largest electric bus market, and by 2020, the country was expected to account for more than 50% of the global electric bus market. China also is the world's leader in the plug-in heavy-duty segment, including electric buses, plug-in trucks, particularly sanitation/garbage trucks.
The government was encouraging the purchase of such cars with a short wait time for a new license plate and with government-backed discounts of up to 40% on electric vehicles. In 2018, new-energy vehicles accounted for about 3% of China's new car sales.
In October 2018, Tesla purchased land for the construction of an EV manufacturing plant in Shanghai's Lingang area. By then, VW had already begun construction of its EV factory, with a planned annual capacity of 300,000 SAIC-VW MEB platform vehicles.
As of 2022, major electric vehicle players in the Chinese industry include BYD Auto, Tesla China, SAIC-GM-Wuling, GAC Aion, and Changan Automobile. These five companies held more than 50 percent market share combined. Chinese brands also account for about half of all EVs sold globally.
Government policies
The Chinese Automotive Industry Plan, announced on the main website of China's central government, said China aims to create capacity to produce 500,000 new energy vehicles, such as battery electric cars and plug-in hybrid vehicles. The plan aims to increase sales of such new-energy cars to account for about 5% of China's passenger vehicle sales. At the 2010 Beijing Motor Show, more than 20 electric vehicles were on display, most of which came from native automakers. As of May 2010, at least 10 all-electric models have been reported to be on track for volume-production.
In 2009, the Chinese government implemented policies to subsidize the purchase of plug-in hybrid and electric cars and buses in 10 cities. The per unit subsidies for passenger cars ranged between RMB 4,000 to RMB 60,000. In ten major cities such as Beijing and Xi’an, Chinese EV producers worked closely with taxi companies to formulate operational solutions that would improve core battery technologies, such as implementing multiple shifts.
On November 2, 2020, the Chinese government introduced the "New Energy Vehicle Industry Development Plan (2021–2035)" to achieve a sustainable automotive future with reduced emissions. This plan is part of supportive policies aimed at strengthening the EV industry. On 21 June 2023, China unveiled a significant RMB 520 billion (US$72.3 billion) tax incentive package spanning four years to provide tax breaks for new energy vehicles. It offers a complete exemption from purchase tax for electric vehicles bought in 2024 and 2025, resulting in potential savings of up to RMB 30,000 (US$4,170) per vehicle. From 2026 to 2027, the exemption will be halved and capped at RMB 15,000 (US$2,078). This initiative aims to stimulate automotive industry growth amidst sluggish auto sales. Regions like Shenzhen and Shanghai have also introduced local initiatives to support the electric vehicle industry, including financial support and implementation plans to drive growth in their respective regions.
Production and supply chain
In terms of electric vehicle production, China has a significant advantage over other countries. The Chinese automotive industry holds a dominant position in the electric vehicle supply chain, with more than 600,000 EV-related enterprises operating in the country as of 2022. Some 75 percent of the world's lithium-ion batteries are made in China and the country's EV manufacturing facilities are close to the source these components. China also houses more than half of the world's processing and refining capacity for lithium, cobalt, and graphite, which are essential materials for making EV batteries. 70 percent of the global production capacity for cathodes and 85 percent for anodes are also hosted in China.
China's strength in EV supply chain resulted in reduced costs in logistics, labor, and land management. Additionally, economies of scale are enabled by its large domestic EV market. China's EV manufacturing sector enjoys a cost advantage of 20 percent compared to Western markets such as those in the U.S. and Europe. In January 2023, according to an executive of French automotive supplier Forvia, Chinese carmakers can build an electric vehicle (EV) for €10,000 less than European carmakers, an overwhelming cost advantage that will put pressure on European manufacturers in their home market. Chinese manufacturers are able to produce electric vehicles with lower cost by having lower research and development costs, lower levels of capital spending and lower labour costs than European rivals.
In China, authorized car dealerships are called 4S car shops. The 4S represents sales (整车销售), spare parts (零配件), service (售后服务) and survey (信息反馈). In most cases, brand-name new cars can only be purchased from 4S shops.
The profit of car dealerships in China is quite high compared to the rest of the world, in most cases 10%. This is supposedly due to the 'non-transparent invoice price' as announced by manufactures and to the premiums they charge for quick delivery. Due to the lack of knowledge for most customers, dealers can sell add-ons at much higher prices than the aftermarket. For new cars in high demand, a high premium is added for instant delivery or just placing an order. There is no regulation by either the government or associations but some retailers are members of the China Automobile Dealers Association (CADA).
A Lynk & Co showroom in a mall in Shenzhen, selling vehicles directly to customers
Direct sales are allowed in China, and have gained popularity in the 2020s, driven by new energy vehicle brands. Many electric car brands such as Nio, XPeng and Huawei's HIMA rely heavily or solely on the direct sales model. Traditional automakers have also started adopting this sales model. This phenomenon has led to the reduction in the number of traditional dealerships.
Nomenclature
Car brand and model names in China typically include both an English name and a Chinese name chosen by the manufacturer, often sounds different or unrelated to the English name, regardless of whether they are from a foreign or domestic brand. For example, the Chinese name of Toyota, "丰田"; Fēngtián sounds different from its original name, however the same kanji characters in Japanese means "Toyota". On the other hand, Mazda chose to use an identical-sounding transliterated name, "马自达"; Mǎzìdá. Another example is AITO that has a completely unrelated Chinese name by character, sound or meaning, which is "问界"; Wènjiè, with literal meaning 'ask the world'.
Another Chinese automotive market phenomenon is the requirement for a manufacturer name badging in Chinese characters on the rear of every locally produced vehicles. The badging is mandated by the "Measures for the Administration of External Markings of Automotive Products" implemented by the Chinese government in February 2006, which specifically require manufacturers to write the names of automobile manufacturers in Chinese characters in a specific size and material. Its purpose is to highlight the vehicle's "Made in China" status. This regulation does not apply to imported vehicles or exported vehicles.
Exports
Great Wall Motor exports some cars to Russia as knock-down kits, to be assembled in a Haval factory in Tula Oblast.MG ZS is most exported Chinese car model in 2023, with a total of 251,000 units sold overseas.
In 2012, exports of Chinese automobiles were about 1 million vehicles per year and mostly to emerging markets. By 2022, Chinese car exports reached 3.11 million units, ranking second worldwide. Domestic sales still accounted for the bulk of the 27 million units produced. Electric cars sales totaled 679,000. In 2023, China overtook Japan, becoming the largest car exporter in the world. The increased export numbers contributed to the growing demand for electric cars.
Unlike local Chinese manufacturers, joint venture manufacturers were reluctant to export their vehicles from China due to having to share 50% of the profit with its local partner, as opposed to keeping a full profit by exporting from fully-owned plants elsewhere. Notable exceptions in the early era included Honda, which formed China Honda Automobile in 2003 to produce vehicles for exports to Europe, and SAIC-VW that exported Volkswagen Polo to Australia in 2004. As a result of excess production capacity, low cost of production, and the more accessible electric car supply chain, some joint ventures such as SAIC-GM, Changan Ford and Jiangling Motors (since 2018), Beijing Hyundai (since 2018), Yueda Kia (since 2018), Dongfeng Honda and GAC Honda (since 2023), and others started shipping vehicles from China to overseas markets.
According to a report from McKinsey, while Chinese car companies have performed well in overseas markets in recent years, their operating model remains based on "pure export," making them less mature when compared to international car companies that have been deeply involved in overseas markets for many years. For example, only around 40% of Japanese vehicle manufacturers' sales are produced in Japan, while 60% are produced and sold in overseas markets it operates in.
As of at least 2024, the Chinese EV industry is in a strong competitive position in the developing world market, including Southeast Asia.
As the world's largest automobile market, the Chinese government organizes large-scale international automobile exhibitions in Beijing, Shanghai, and Guangzhou every year, attracting automobile manufacturers from all over the world to use them as the launch stage for new cars.
Auto China - Beijing International Automotive Exhibition (Chinese: 北京国际汽车展览会), is an auto show held biennially in Beijing, China since 1990. It is currently the largest auto show in the world.
Auto Shanghai - Shanghai International Automobile Industry Exhibition (Chinese: 上海国际汽车工业展览会), is a biennial international automobile show held in National Center for Exhibition and Convention of Shanghai. It is China's oldest auto exhibition which was first held in 1985.
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China Association of Automobile Manufacturers (2012-01-16). "5,579 electric cars sold in China in 2011". Wind Energy and Electric Vehicle Review. Archived from the original on 2014-01-12. Retrieved 2014-01-12.
Liu Wanxiang (2017-01-12). "中汽协：2016年新能源汽车产销量均超50万辆,同比增速约50%" [China Auto Association: 2016 new energy vehicle production and sales were over 500,000, an increase of about 50%] (in Chinese). D1EV.com. Archived from the original on 2017-06-28. Retrieved 2017-01-12. Chinese sales of new energy vehicles in 2016 totaled 507,000, consisting of 409,000 all-electric vehicles and 98,000 plug-in hybrid vehicles.
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"中汽协：2018年新能源汽车产销均超125万辆，同比增长60%" [China Automobile Association: In 2018, the production and sales of new energy vehicles exceeded 1.25 million units, a year-on-year increase of 60%] (in Chinese). D1EV.com. 2019-01-14. Retrieved 2019-01-15. Chinese sales of new energy vehicles in 2018 totaled 1.256 million, consisting of 984,000 all-electric vehicles and 271,000 plug-in hybrid vehicles.
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