China poised to lead global auto market, S&P Global says

China is solidifying its position as a global automotive powerhouse, with BYD emerging for the first time as one of the top 10 manufacturers worldwide, according to S&P Global Mobility.

An analysis of the impact of Chinese manufacturers on Western markets and retail networks found that overseas sales of Chinese vehicles have surged, notably as the automakers expand in Europe with electric models.

Significant changes in vehicle sales processes are emerging, with Chinese manufacturers targeting new generations of consumers and embracing new retail models.

"BYD is constantly growing and kind of eating into the market share of some of the incumbent manufacturers," said Bjoern Huetter, S&P Global Mobility product management director.

The findings come amid rising European and North American tariffs designed to protect local markets from more affordable Chinese EVs. The European Union, after a lengthy study, determined that Chinese EVs sold in Europe have been unduly developed and assembled with incentives and subsidies, putting European brands at a cost and price disadvantage.

The global light-vehicle market remained volatile in the second quarter, with sales falling 1.3 percent, driven by concerns about affordability and high interest rates, which are deterring consumers from making major purchases, Huetter said.

BYD's global sales grew 29 percent in the second quarter, while sales at North American manufacturers such as Stellantis and General Motors experienced declines, with Stellantis down 13 percent and GM down 8.8 percent. GM's sales in China continue to slump, an issue shared by other Western automakers struggling to compete with local companies. Second-quarter global sales also fell at the two biggest automakers: 3.4 percent at Toyota Motor Corp. and 2.9 percent at Volkswagen Group, S&P data shows.

Overseas sales of Chinese brand cars and light trucks quadrupled from 2020 to 2023, rising from half a million to 2 million. Leading importers of Chinese automobiles include Russia, Australia, Brazil, Mexico and the United Arab Emirates.

Five Chinese brands are gaining the most traction overseas: MG, Chery, Great Wall, Geely and BYD.

"BYD is actually the least geographically diversified of all of those five brands," Huetter said, although it leads in month-to-month sales, with most of them in China.

A new generation of consumers with shifting needs are disrupting the traditional sales model and are presenting opportunities for nascent Chinese manufacturers to expand their geographical footprint, according to Tanja Linken, executive director of automotive retail network development at S&P Global Mobility.

The conventional franchised dealership model is evolving. An agency model, in which an agent acts as a go-between for the automaker and customer, is becoming increasingly popular and effective.

"It is a transitional retail model," Linken said. "It is an online retail model that combines the best of both worlds, the geographical coverage that you get with local experience retailers versus the control of the brand experience of the consumer journey that you can generate through data ownership and a direct-to-consumer model."

The direct-to-consumer model, in which automakers interface directly with consumers, is also on the rise. Brands such have Tesla have helped popularize direct sales. However, without a large physical presence and relying predominantly on online sales, the model makes it challenging to tap a wide consumer base, according to Linken.

BYD is adopting the agency model and partnering with large dealership groups across Europe. As traditional manufacturers adjust retail strategies and leave facilities vacant, Chinese manufacturers such as BYD are seizing the space.

"By partnering with existing dealers, BYD has quickly established strong geographical coverage, with representation in most major cities and solid showroom presence," Linken said.

The EU's provisional punitive tariffs, which range from 17.4 to 37.6 percent on Chinese EV manufacturers and started July 5 for up to four months, have altered projections for Chinese automakers' market penetration in the West, according to Sidong Fan, senior analyst of Automotive Planning and Solutions at S&P Global Mobility.

Tariff negotiations among automakers, the EU and China are expected to conclude in November, impacting the ability of Chinese manufacturers to expand their global footprint.

"If additional EU tariffs really come into effect in November, a Chinese EV startup will be facing a tough situation in Europe, depending on the brand positioning and cost structure," Fan said.

To counter some of the financial pressure from the tariffs, Chinese automakers are establishing or expanding manufacturing footprints in Europe. BYD plans to build a $1 billion plant in western Turkey to complement its first European electric vehicle factory in Hungary.

Chinese auto manufacturers have a "general cost advantage compared to European brands" due to a "sufficient supply chain, low energy and labor costs, government support, and an effective economy of scale," Fan said. But to stay competitive in Western Europe, the average price of EVs must remain low.

There is also significant opportunity for growth because small EVs are still partly missing from the European market, which could give Chinese manufacturers a "competitive edge," according to Fan.

Chinese manufacturers have limited market penetration in Europe compared with legacy brands, and the increased tariffs are poised to slow Chinese EV imports. However, Fan said more local production could boost their long-term expansion, and current projections indicate that sales of Chinese brands in Europe could quadruple in the next decade.