China’s electric vehicle juggernaut is reshaping the car market

The speed and scale of China’s electric vehicle revolution has caught the world by surprise, and analysts say this trend shows no sign of slowing down.

Tesla CEO Elon Musk was among those who underestimated the potential of China’s EV manufacturers.

In 2011, Musk dismissed BYD by laughing at their products during a Bloomberg interview. “Have you seen their car?” Musk said. “I don’t think it’s particularly attractive, the technology is not very strong. And BYD as a company has pretty severe problems in their home turf in China. I think their focus is, and rightly should be, on making sure they don’t die in China.”

BYD seems to have had the last word. The company has been at the forefront of China’s aggressive EV push, rapidly expanding its domestic market and overtaking Tesla as the world’s largest EV manufacturer by revenue in 2024.

Chinese start-ups such as Nio and Li Auto, alongside more established automakers including Geely and SAIC Motor, are also leading manufacturers in this space. Battery giant CATL has meanwhile been a key player in powering these vehicles.

Henner Lehne, vice president of competitive intelligence, market analysis, forecasting at S&P Global Mobility, said China’s EV industry has become a “significant force” in reshaping the global car market.

“Just a couple years ago the domestic car makers in China were not seen as true competitors to the established global car industry. But that changed quickly within just a couple of years,” Lehne told CNBC by email.

“BYD alone was growing about 1 [million] units per year for the last three years straight, wiping out the smile in the faces of many product managers from the legacy car makers. And the competition is not only staying in China,” he added.

Notably, in 2023, China surpassed Japan as the world’s largest vehicle exporter. It’s domestic car sales then ballooned to a record 31.4 million units last year, with brand-new EVs accounting for roughly 41% of the total vehicles produced.

The Asian giant’s auto sector growth has been attributed to subsidies, tax incentives and, between 2009 and 2023, an estimated $230 billion in EV development costs. Analysts also cited lower labor costs, the weaker yuan, innovative technological developments and a robust battery supply chain among Beijing’s key advantages.

China’s ascent has since led to regulatory scrutiny in Western markets, amid allegations of anti-competitive practices. Both the U.S. and European Union have slapped duties on Chinese-made EVs to protect traditionally dominant American and European brands.

Michael Dunne, CEO of Dunne Insights and a China auto market researcher, said he expects China to cement its dominance in auto manufacturing, “just as it has done for solar panels. ship-building, drones and steel in recent years.”

By 2030, Dunne told CNBC that he expects China will manufacture 36 million vehicles per year, or four out of every 10 cars built globally at the time. He also anticipates that Beijing will export an estimated 9 million vehicles a year, from just 1 million in 2020.

“Countries with smaller manufacturing industries like Thailand, [South] Africa and Spain are already feeling the pressure from Chinese imports,” Dunne told CNBC by email.

In the U.K., for one, Chinese EV sales have soared. Chinese-owned car brands accounted for roughly 10% of all new car sales in June, up significantly from previous years.

Chinese EV brands have also rapidly made inroads in EV-friendly Norway. From the first delivery of an MG car to the Nordic country in January 2020, Chinese EV brands have gone on to capture a combined market share of roughly 10%.

Rella Suskin, equity analyst at Morningstar, said the growing competitiveness of Chinese vehicles in many parts of the world is only just beginning.

“It’s so saturated in China that they have to look elsewhere. And we’re at the point now where exports to the rest of the world is only really just starting. We haven’t even begun to see the start of it,” Suskin told CNBC by video call.

In that vein, China’s EV industry was recently found to have spent more on factories abroad than at home for the first time on record, during 2024.

The story for Chinese EV players is perhaps not so rosy in their domestic market, however. Analysts told CNBC they expect an industry shake-out before too long, with many startups struggling to turn a profit in an increasingly crowded field.

Sigrid de Vries, director general of the European Automobile Manufacturers’ Association (ACEA), a car lobby group, described China as a “fierce competitor” in the global market.

“I think we as the European auto industry have a legacy of being great competitors as well. So, I certainly wouldn’t want to give up on European players, or Japanese, Korean or American for that matter.”

ACEA represents 16 major Europe-based automobile manufacturers, including the likes of Volkswagen, BMW, Stellantis, Renault and Volvo. It has frequently called on the EU to take action to ensure the bloc’s competitiveness on the road to full electrification.

To help European carmakers compete with China’s EV behemoth, ACEA’s de Vries said a leveling of the policy playing field would make a meaningful difference.

“We have to realize that some of that leveling of the ground, speaking for the EU, could be realized on their own terms. It’s the regulatory framework, driving cost, stifling innovation rather than unleashing entrepreneurial spirit,” de Vries said.

ACEA’s de Vries added that while Europe won’t be able to substantially influence China or the U.S., the bloc’s regulatory framework could be adjusted to “try and create the best possible environment for doing business in Europe.”

The European Commission, the EU’s executive arm, did not respond to a CNBC request for comment.

— CNBC’s Evelyn Cheng contributed to this report.