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Securities Times reporter Han Zhongnan

Recently, there have been market reports that Dongfeng Motor Group is expected to invest in building a factory in Italy. On August 16, Dongfeng Motor Group refuted the rumors, saying that the company is currently only in preliminary contact with the Italian government and has not made any substantial progress.

In fact, when Chinese automakers build factories overseas, they need to reach consensus with their partners on many details such as network security, data protection, and localized parts supply. Although the process is not easy, with the successive production of BYD and GAC Aion's factories in Thailand, the trend of Chinese automakers deploying production capacity overseas is becoming increasingly clear.

According to incomplete statistics from Securities Times reporters, as of now, SAIC, GAC, Great Wall Motors, Chery Automobile, Geely Automobile, BAIC Group, Nezha Automobile, etc. have factories overseas, distributed in Southeast Asia, Russia, South America, Africa, etc. Since the beginning of this year, many car companies have also expressed their willingness to build factories in Europe.

However, building a factory overseas is not a one-day task. Although the process is accompanied by flowers and applause, it also faces thorny challenges at any time.

Going overseas is a must

Since the first batch of Chinese self-owned brand cars entered the overseas market in 2001, domestic vehicle and supply chain companies have been continuously strengthening their overseas exploration. After more than 20 years, Chinese automobile companies have finally achieved a comprehensive "going out" from products to brands.

Fu Bingfeng, executive vice president and secretary general of the China Association of Automobile Manufacturers, said that in recent years, my country's automobile exports have grown rapidly, the number of overseas direct investment projects by Chinese companies has continued to increase, and the overall international development has shown a good situation of both quality and efficiency growth.

The latest data released by the China Association of Automobile Manufacturers shows that in July 2024, China exported 469,000 vehicles, a year-on-year increase of 19.6%; from January to July 2024, China exported 3.262 million vehicles, a year-on-year increase of 28.8%. Among them, the cumulative export of pure electric vehicles from January to July was 554,000, and the cumulative export of plug-in hybrid vehicles from January to July was 154,000, a year-on-year increase of 1.8 times. Russia, Mexico, Brazil, the United Arab Emirates, Belgium, Saudi Arabia, the United Kingdom, Australia, the Philippines, and Turkey are the core destinations for Chinese automobile products to go global.

Specifically at the enterprise level, from January to July, Chery Automobile took the lead with a total export volume of 622,000 vehicles. SAIC Group, Changan Automobile, Geely Automobile, Great Wall Motors, and BYD Auto also ranked at the forefront, with cumulative exports exceeding 200,000 vehicles, and each with its own highlights. In terms of growth rate, BYD and Great Wall Motors' exports grew faster, with a significant increase compared with the same period last year.

The outstanding performance of the above-mentioned automakers in exports is closely related to the strategic decisions of the companies themselves. For example, Chery Automobile, which has been in the overseas market for 20 years, has determined the international development path since the establishment of the company. Although this route was full of thorns at the beginning, from the results, Chery Automobile's technology and products have withstood the test of the international market and have also been tempered accordingly. Zhang Guozhong, executive vice president of Chery Automobile Co., Ltd., told the Securities Times reporter that the Chinese automobile industry, like the Chinese sports industry, faced a "neck-stuck" technical blockade at the beginning. To break through the global track, we must insist on independent research and development.

Like Chery, more and more Chinese automakers regard going overseas as a must for their own growth. On the one hand, if Chinese auto brands want to become world-class brands, they must be tested by the international market; on the other hand, after domestically produced cars are widely favored overseas, it is also conducive to expanding their popularity in the domestic market. The most vivid example is BYD, the leader in new energy vehicles. In recent years, the overseas market has become the "new engine" for BYD's performance growth. Wang Chuanfu, chairman and president of BYD Co., Ltd., said that having a world-class brand is an important sign of an automobile power, and Chinese automakers need to work together to go global and break the old pattern.

Opportunities and challenges coexist

"One out of every three pure electric vehicles sold in Thailand is from BYD." In July this year, Wang Chuanfu expressed the company's investment intention in Southeast Asia at the BYD Thailand factory completion ceremony. In his view, the automobile market in Thailand and even Southeast Asia is full of vitality and has a strong demand for electric vehicles. Building a factory locally can better meet local needs.

Almost at the same time, GAC Aion's Thailand factory also went into production. GAC Aion's general manager Gu Huinan told the Securities Times reporter that Aion's products have been launched in the Thai market since September last year and have performed well there. With the development of the Thai market, GAC Aion's products have spread to the other nine ASEAN countries.

So far, Chinese automakers such as SAIC MG, Great Wall Motors, Changan Automobile, and Nezha Automobile have all established factories in Thailand. Automotive consulting firm CAM predicts that it will not take long for China to replace Japan and have the largest number of automobile factories in Thailand.

Many industry insiders told the Securities Times that Chinese automakers can refer to Japanese automakers for their overseas expansion path. Back then, Japanese automakers achieved large-scale development by rapidly expanding in the US and Southeast Asian markets, and thus created Toyota, a world-class auto brand. In the middle of this year, when Great Wall Motors was restructuring its overseas business units, Wei Jianjun, chairman of Great Wall Motors, said that Great Wall Motors should benchmark Toyota, Hyundai, etc. when going overseas, adapting to local conditions and taking the market as the starting point.

Pan Helin, a well-known economist and member of the Information and Communication Economics Expert Committee of the Ministry of Industry and Information Technology, told the Securities Times that Chinese automakers build factories overseas to enter the local market. Localized car manufacturing is more attractive to overseas consumers and is more conducive to establishing a good image in the minds of local residents. At the same time, building factories overseas can also reduce the logistics costs of automobile transportation and enhance overall competitiveness.

On the other hand, Chinese automakers are accelerating the layout of overseas factories, also considering avoiding tariffs imposed by Europe and the United States.

Since the beginning of this year, the United States and the European Union have successively imposed tariffs on Chinese new energy vehicle products. Under the pressure of high tariffs, most Chinese automakers have not stopped going overseas, but have chosen to establish production bases overseas to bypass tariff barriers and reduce operating costs. For example, GAC Aion's Thailand factory has been approved for 185 (bonded area operation license), which means that the import tariff on all production parts of the factory will be reduced to 0, and electric vehicles produced in the bonded area will enjoy the same tariff exemption and customs clearance convenience within ASEAN member states as locally produced electric vehicles.

Cui Yan, chief automotive analyst at Tianfeng Securities, believes that building factories overseas may become a necessary path for Chinese automakers to go overseas, and joint ventures will be the fastest way to engage in local operations. Independent automakers that are the first to build factories overseas will be more competitive.

The benefits of building factories overseas are very significant for Chinese automakers, but there are also many challenges in the process. Pan Helin told the Securities Times reporter that the main challenges for Chinese automakers in building factories overseas are cultural differences and legal compliance. "For example, in some countries, labor unions often lead negotiations with companies, and in some countries, immigration issues are more sensitive." Pan Helin suggested that automakers can make two preparations before building factories overseas. One is to understand the local culture and regulations, and the other is to cooperate with influential local companies to reduce trouble.

In addition, Pan Helin also pointed out that the additional tariffs imposed by Europe and the United States may cover the overseas factories of Chinese automakers. Therefore, it is possible to consider establishing new sub-brands, turning overseas factories into independent enterprises, changing the geographical attributes of enterprises, and domestic automakers can become upstream suppliers of overseas enterprises.

Not a single soldier

The most obvious effect of Chinese car companies building factories overseas is that it accelerates the overseas expansion of the supporting domestic automobile industry chain.

In fact, the overseas expansion of complete vehicles and industrial chains often complement each other. Before this, power battery companies such as CATL, Guoxuan High-tech, Sinotruk, and Honeycomb Energy have invested in and built factories overseas. Now, with the further development of complete vehicle companies in the local area, the synergy effect of the industrial chain will be further highlighted.

Zhang Shuo, deputy general manager of Great Wall International, said that true internationalization requires the entire industrial chain to go overseas and find one's own position through scientific layout. In addition to providing automotive products, we hope to bring automotive technology, employment opportunities and related products.

Especially in the international context of rising trade protectionism and increasing technological barriers, Chinese automakers need to further strengthen their supply chain resilience overseas. Wang Yao, deputy chief engineer of the China Association of Automobile Manufacturers, believes that Chinese auto companies need to actively participate in international exchanges and cooperation to continuously improve their global competitiveness and market adaptability.

Of course, this kind of industrial chain cooperation does not mean "grouping together". Cui Dongshu, secretary general of the National Passenger Car Market Information Joint Conference, emphasized in an interview with a Securities Times reporter that in fact, the intrinsic connection between Chinese automakers and overseas markets has long existed, but they still need to develop in a low-key manner and establish relatively mild relations in overseas markets to avoid risks. "Create more benefits for the local area and reduce some friction." Cui Dongshu believes that only by maintaining such an investment and factory construction logic can better local development be achieved.

In addition, many industry insiders also warned that competition in overseas markets is also fierce, especially in the Southeast Asian market. With the concentration of Chinese automakers' local investments, competition between brands is likely to intensify. Chinese automakers need to be cautious and avoid extending the overly competitive atmosphere overseas.