China’s plan to sell cheap EVs to the rest of the world

The resurrection of a car plant in Brazil’s poor north-east stands as a symbol of China’s global advance — and the west’s retreat.

BYD, the Shenzhen-based conglomerate, has taken over an old Ford factory in Camaçari, which was abandoned by the American automaker nearly a century after Henry Ford first set up operations in Brazil.

When Luiz Inácio Lula da Silva, Brazil’s president, visited China last year, he met BYD’s billionaire founder and chair Wang Chuanfu. After that meeting, BYD picked the country for its first carmaking hub outside of Asia.

Under a $1bn-plus investment plan, BYD intends to start producing electric and hybrid automobiles this year at the site in Bahia state, which will also manufacture bus and truck chassis and process battery materials.

The new Brazil plant is no outlier — it falls into a wave of corporate Chinese investment in electric vehicle manufacturing supply chains in the world’s most important developing economies.

The inadvertent result of rising protectionism in the US and Europe could be to drive many emerging markets into China’s hands.

Last month, Joe Biden issued a new broadside against Beijing’s deep financial support of Chinese industry as he unveiled sweeping new tariffs on a range of cleantech products — most notably, a 100 per cent tariff on electric vehicles. “It’s not competition. It’s cheating. And we’ve seen the damage here in America,” Biden said.

The measures were partly aimed at boosting Biden’s chances in his presidential battle with Donald Trump. But the tariffs, paired with rising restrictions on Chinese investment on American soil, will have immense impact on the global auto market, in effect shutting China’s world-leading EV makers out of the world’s biggest economy.

The EU’s own anti-subsidy investigation into Chinese electric cars is expected to conclude next week as Brussels tries to protect European carmakers by stemming the flow of low-cost Chinese electric vehicles into the bloc.

Government officials, executives and experts say that the series of new cleantech tariffs issued by Washington and Brussels is forcing China’s leading players to sharpen their focus on markets in the rest of the world.

This, they argue, will lead to Chinese dominance across the world’s most important emerging markets, including south-east Asia, Latin America and the Middle East, and the remaining western economies that are less protectionist than the US and Europe.

“That is the part that seems to be lost in this whole discussion of ‘can we raise some tariffs and slow down the Chinese advance’? That’s only defending your homeland. That’s leaving everything else open,” says Bill Russo, the former head of Chrysler in Asia and founder of Automobility, a Shanghai consultancy.

“Those markets are in play and China is aggressively going after those markets.”

The new Chinese investments are often two-pronged — both in car manufacturing and the raw materials that are central to the new economy.

Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies, says the west needs to understand that China’s global ambitions create an opportunity for many countries to expand their manufacturing base and to obtain foreign direct investment in “technologies of the future”.

China’s cleantech investments in the developing world, she says, “really complicates” foreign policy for western governments, which have already tried to warn about the risk of becoming dependent on Beijing through President Xi Jinping’s so-called Belt and Road infrastructure programme.

“It is tough to tell a country in the developing world, ‘Hey, you shouldn’t want to have more factories or refining because it’s Chinese investment’,” she says. “With the [Belt and Road Initiative] there was a credible argument that a lot of debt is not going to be sustainable . . . but here if they open factories, they hire local people, then in the minds of the leaders of these countries, ‘why not?’.”

The International Energy Agency forecasts that this year 10.1mn EVs will be sold in China, 3.4mn in Europe, 1.7mn in the US. Fewer than 1.5mn EVs will be sold everywhere else in the world.

Yet the agency has forecast that the global EV fleet will grow eight-fold to about 240mn in 2030. This implies annual global EV sales of 20mn cars in 2025 and 40mn in 2030, or 30 per cent of all car sales. Moreover, an increasingly large share of that expansion is likely to come from new markets.

In some important developing economies, Chinese companies are investing in both production and processing raw materials. Nowhere is this more striking than China’s involvement in the EV ecosystem in Indonesia, home to the world’s largest reserves of nickel, a key component of EV batteries.

Last year alone companies domiciled in China and Hong Kong invested $13.9bn in Indonesia, most of which is believed to have been in the metals and mining industry. Chinese companies account for more than 90 per cent of the nickel smelters in the country.

Chinese banks have also been keen to provide financing for nickel plants when others have been hesitant, says Alexander Barus, chief executive of the Indonesia Morowali Industrial Park — the country’s largest nickel processing site, which was built by Tsingshan, a Chinese nickel producer, and a local partner. 

“When we first started searching for mining investment, we went around the banks in Indonesia, no one supported us. The banks were in doubt, whether it would be profitable or not. But when we went to Chinese banks, they were ready to finance,” says Barus. 

Having secured access to Indonesia’s key resources, Chinese companies have also been the first movers in setting up EV manufacturing plants, even as Indonesia — and President Joko Widodo personally — have courted other big names such as Tesla to set up EV manufacturing. BYD said early this year that it would invest $1.3bn in an EV factory in Indonesia.

The story is similar in Brazil where BYD and compatriot group Great Wall Motor are about to commence local manufacturing that could also serve for exports to the wider region. 

Great Wall is investing about $1.9bn in Latin America’s largest economy with production expected to start this year at a former Mercedes-Benz factory in Iracemápolis, São Paulo state.

As well as its investment in auto production at Camaçari, BYD is also on the lookout for lithium mining assets in Brazil, which is ramping up extraction of the key metal for EV batteries. 

Brazil, which is the world’s sixth-biggest car market, has been relatively slow to embrace electrification. This is attributed in part to its widespread use of lower-carbon ethanol derived from sugarcane. But there are already signs of a shift. Last year sales of EVs almost doubled in Brazil and in recent months the country overtook Belgium to become the largest single export destination for Chinese EVs.

In an effort to stimulate a homegrown industry, Brasília is imposing rising tariffs on EV and hybrid imports — these will hit 35 per cent by mid-2026. Lula, himself a former metal worker, has promulgated a vision of a “green” industrial rejuvenation.

China’s publicity drive in the region includes BYD’s sponsorship of the Copa América football tournament for South American nations. Such marketing campaigns, coupled with aggressive pricing by Chinese car brands, has led to acceptance by Brazilian consumers, says Cassio Pagliarini, chief marketing officer at Bright Consulting, an automotive sector specialist. 

In China, the expanding global push by EV makers is seen as part of the broader strategy under Xi of boosting political and economic ties with developing countries via his flagship Belt and Road Initiative.

Over recent years the value of China’s exports to emerging markets has overtaken that with developed economies, a historic change after decades of Chinese growth being more dependent on G7 economies.

“From the perspective of national strategy, there is no doubt that the focus of China’s future foreign economic strategy will shift towards developing countries,” Tu Xinquan, a professor and dean of China Institute for WTO Studies, at the University of International Business and Economics, told local media the day after Biden imposed new tariffs on Chinese EVs.

Yet the expansion of China’s auto industry into these new markets is threatening to eat into the strong market share held by several multinational automakers.

This is particularly worrying for Japanese companies which have built up a strong position in the south-east Asian market. “China can make a very compelling sales pitch to south-east Asian countries,” says a senior Japanese government official, highlighting Beijing’s ability to sell not just electric vehicles but also critical raw materials for batteries. “That’s the biggest risk for Japan.”

Another senior executive working with a Japanese carmaker was more direct: “We’re terrified that Chinese cars will flood into south-east Asian markets.”

Jens Eskelund, president of the European Union Chamber of Commerce in China, says China’s push to promote high-tech manufacturing has put its companies into direct competition with their European counterparts in many sectors in markets across the world, including autos. 

European businesses should not be “complacent about the situation”, he adds.

For some countries, the arrival of China’s EV industry is creating new tensions with a US administration, which does not want to cede influence to Beijing.

Over the past year, US officials have repeatedly warned that the Biden administration will take action if China tries to ease its industrial overcapacity problem by dumping goods on international markets.

One particular point of concern in Washington is Mexico, which has access to the US market through the USMCA, the trade agreement between the US, Canada and Mexico. Chinese companies, including BYD, have said they want to build factories in the country and several other rivals including MG and Chery have been talking to Mexican officials for more than a year.

Mexico’s government has been careful to not be seen to be courting China and has made clear in public statements its priority is the US relationship, including signing a memorandum of intent to start screening investments over the risk they pose to national security.

Leftist President Andrés Manuel López Obrador has nationalised the country’s lithium supplies and cancelled a concession held by Chinese firm Ganfeng for an operating mine in the country’s north.

Claudia Sheinbaum, Mexico’s president-elect after a landslide victory on Sunday, leaned heavily on Chinese companies for transportation projects when she was mayor of Mexico City, buying electric buses and contracting out the renovation of the city’s oldest subway line to Chinese firms.

Yet Sheinbaum, a leftwing former climate scientist, insisted during the election campaign that USMCA would remain “fundamental”.

Mexican consumers, however, are rapidly embracing cars from China. Last year, one in five cars sold was made in China, although half of those were produced by non-Chinese brands.

Guillermo Rosales, head of Mexican auto distributors association AMDA, says imports from China have led to a clogging of ports in the country’s Pacific coast such as Lázaro Cárdenas.

“With the arrival of Chinese cars, [consumers] have a greater supply and more options to choose from,” he says, adding that US concerns did not worry Mexican consumers. “It’s a very open market for competition.”

Ambitions of China’s BYD stretch beyond EVs

The global plans of the company founded by Wang Chuanfu range from solar modules and electric buses, trucks and trains to complex transport systems. But is it trying to do too much? Full story from April

In Australia, China’s global expansion is also leading to new questions about national security as new high-tech cars collect information from drivers and their surroundings.

A sharp increase in the number of Chinese-branded EVs on its roads — BYD’s sales were up sixfold last year — has sparked complaints over data and infrastructure security.

Australia was the first country to ban the use of Chinese telecoms vendors in its 5G networks in 2018 setting off a period of tension with China. The move to ban Huawei and ZTE was supported by Australia’s security services, which said that the use of “high-risk” vendors in the telecoms networks could have had implications for the security of data and infrastructure in the country including transportation.

Opposition senator James Paterson has argued that the potential risk posed by Chinese EVs went beyond the person buying and driving the car but to the community they live in given the amount of data that a vehicle can collect. “We’ve all seen the movies where electric cars can be weaponised,” he says.

Paterson wants the Australian government to instigate a national security review of Chinese EVs. “We didn’t allow those companies to become the backbone of our communications network. Why would we let them become the backbone of our transport network?”

Additional reporting by Nic Fildes in Sydney, Kana Inagaki and David Keohane in Tokyo, Ding Wenjie and Joe Leahy in Beijing