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.