U.S. Subsidies on Electric Vehicles Fuel Boom in China Exports
Strong car sales contrast with weakness in other exports
· China’s auto exports in the third quarter were up 71%.
· According to seasonally adjusted figures compiled by Oxford Economics. South Korea’s car exports were up 36%.
Auto exports from Europe and Asia are surging as the U.S. and other countries lavish subsidies on electric vehicles and dealers replenish inventories that even now aren’t back to prepandemic levels.
The boom in autos contrasts with broader weakness in exports as the global economy slows. The trend offers a glimpse of how the West’s embrace of industrial policies aimed at stimulating domestic manufacturing and reducing the use of fossil fuels is causing wrinkles in patterns of world trade.
In Germany, Europe’s industrial powerhouse, manufacturers exported around 2.6 million new passenger cars in the 10 months through October, up 22% year over year, according to the German Association of the Automotive Industry.
South Korea and Japan have seen auto exports accelerate, in part thanks to U.S. tax breaks for electric cars. China earlier this year became the world’s biggest auto exporter, vaulting over Japan thanks to sales to sanctions-hit Russia as well as exports of EVs from both homegrown manufacturers such as BYD and foreign brands such as Tesla.
Compared with average monthly exports in 2021, China’s auto exports in the third quarter were up 71%, according to seasonally adjusted figures compiled by Oxford Economics. South Korea’s car exports were up 36% over the same period, and Japan’s were up 18%. Thailand’s exports of cars as well as automotive parts were up 13%.
Over the same period, nonauto exports for those four countries fell 5.4%, emphasizing how auto exports are bucking the wider trend of weakening overseas sales as consumers and businesses trim spending in response to higher interest rates.
The car industry was among the hardest-hit sectors during the pandemic as shortages of semiconductors battered global production. Dealer inventories were depleted in the U.S. and other major economies during 2021 as countries emerged from lockdowns. Order backlogs lengthened and Asian carmakers have been racing ever since to catch up, said Alex Holmes, lead economist at Oxford Economics in Singapore.
“The tailwind from things righting themselves in supply chains came a lot later for the auto industry,” he said.
That need to refill sparse lots is one of the factors that has propelled exports this year. Juan Duque, business-development manager at Rick Case Hyundai, a car dealership in Fort Lauderdale, Fla., said he now has about 400 cars on his lot, close to typical prepandemic levels.
“Last year we had a third of that,” he said, with some months’ stock being as low as 30 to 40 vehicles. “We’d sell everything,” he said, even as prices for South Korea-made Hyundais shot up.
Sales now are buoyant, he said. Financing incentives such as 0% interest for 60 months on models including Tucson and Kona SUVs are bringing in buyers now that interest rates have risen sharply. “I don’t foresee any slowdown,” Duque said.
European auto manufacturers reported a surge in deliveries in the three months through September, as strong growth in the U.S. market helped to offset weakness in China.
BMW Group said last month that it had delivered around 622,000 BMW, Mini and Rolls-Royce vehicles to customers in the third quarter, up about 6% year over year. Sales increased 8% in the U.S. but declined by about 2% in China.
Volkswagen’s deliveries increased by about 7% in the third quarter to 2.3 million vehicles as growth in Europe and North America offset a 6% decline in China to about 837,000, the company said. Among major German automakers, only Mercedes-Benz recorded lower deliveries compared with the previous year, amid declines in both China and the U.S.
Asian car exporters in particular are benefiting from the shift to electric vehicles as governments seek to reduce their economies’ reliance on fossil fuels.
The biggest beneficiary is China, which is pulling ahead in the EV market thanks to Tesla, which makes many of its vehicles in Shanghai, and a growing roster of homegrown EV makers that are looking overseas for markets to absorb the millions of vehicles now being produced in China each year.
The glut of Chinese production is already adding to tensions with trading partners. The European Union last month opened an anti-subsidy probe into Chinese EV makers after a flood of imports.
Trade restrictions arising from icy relations between Beijing and Washington mean that Chinese EVs aren’t making significant inroads in the U.S. But other Asian exporters have gotten a boost from provisions in the Inflation Reduction Act aimed at encouraging drivers to switch to EVs.
President Biden’s signature legislation originally offered tax credits only to buyers of vehicles assembled in North America. But tweaks in late 2022 extended those credits to leased vehicles, even if they were made elsewhere, boosting imports of Japanese and South Korean EVs. U.S. imports of electric cars from Japan and South Korea more than doubled in the 12 months through September from a year earlier, to $5.8 billion.
The big question is how long the boom will last. Economists say the post-pandemic restocking effect will probably fade soon. The U.S. economy is expected to slow in 2024 as the effect of interest-rate increases bites. Europe is also expected to lose steam, if not tip into recession.
“There is a risk that Asian auto-shipments may cool over the coming year,” said Frederic Neumann, chief Asia economist at HSBC. He added that Chinese electric-vehicle exports, though, will likely continue to gain global market share thanks to the economy’s “stupendous” production capacity.
Broader trade signals from Asia, such as companies’ export order books, suggest global trade “is likely to remain under pressure for quite some time,” Neumann said.