China's invasion of EM car markets
China's massive ramp-up in vehicle production mostly targets emerging markets
China is plowing massive resources into becoming a global player in cars. A lot of this push is happening in electric vehicles (EV), which is why you hear so much buzz about electrification in China. As I discussed on Sunday, this isn’t about being “green.” After all, 70 percent of China’s electricity production uses fossil fuels. Instead, this is mostly about the same old mercantilism that’s driven every other decision in recent decades. For whatever reason, China’s leadership decided that it needs to be a global player in cars, especially EVs. Lots of cheap electricity and the infrastructure that comes with that are necessary conditions for this.
China’s race to dominate the EV sector represents a major threat to European car makers. As I noted in yesterday’s post, cars imported from China are rising as a total share of car imports into the Euro zone, but what’s playing out in Europe is peanuts compared to what’s happening across emerging markets (EM). The left chart above shows the value of imports into the Euro zone from China in percent of total car imports. This number is up to 14 percent currently from around four percent back in 2019, i.e. just before COVID. The right chart shows the same ratio for Brazil, where it’s gone from 10 percent before COVID to 36 percent now. The threat to European car makers is twofold: (i) the threat of direct exports from China into the EU; (ii) a big increase in competition across EM as China floods these markets with cars.
The left chart above breaks down the composition of China’s total car exports. The sharp rise that’s been playing out since 2000 is primarily about EM (red). Exports to advanced economies (blue) are up too, but they’re a rounding error in the big picture. The right chart above shows year-over-year growth in China’s overall vehicle exports (black line), broken down into the contribution from advanced economies (blue bars) and EM (red bars). At this point, growth in China’s auto exports is driven entirely by EM. This is where the competitive threat for European auto makers lies. China is flooding these markets with cars.
Robin, the EM data is the smoking gun. But as a supply chain auditor, I see a threat to Western OEMs that is far deadlier than just 'lost sales.'
It is Infrastructure Lock-in.
China isn't just dumping cars in Brazil or Indonesia; they are effectively 'terraforming' the local industrial ecosystem. On the ground, I see Chinese firms not just shipping EVs, but building the charging networks, upgrading the local grids, and training the mechanics.
Once an emerging market adopts the 'Chinese EV Operating System' (from the physical plug standards to the software ecosystem), it becomes structurally hostile to Western hardware.
Europe is debating tariffs at its own border, while China is quietly rewriting the 'building codes' inside the markets of the Global South. This is Vendor Lock-in at a sovereign scale.
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Sharp observation on the mercantilism angle. The EV push from China into EM markets isn't about climate, its about capturng market share before local capacity scales up. The timing on Brazil's surge especially tracks with domestic policy shifts that opened the flood gates. What's gonna be interesting is how EM govts respond when their auto sectors start feeling the pressure.