Picture Source: autoreporting.com
China remains the world’s leading manufacturing economy and global exporter, despite the weakened economy and the shift of several industries away from the country. China’s significance in specific sectors of the global economy has experienced growth in areas such as electric vehicles (EVs) and renewable energy. China’s long-term strategies of moving up the value chain and its strategic positioning within the supply chain have played a key role.
As global manufacturing dynamics evolve and companies seek optimized supply chains, many foreign-owned enterprises have strategically relocated their factories from China. For instance, Nike Inc., Samsung Electronics Co., Ltd., and Foxconn Technology Group (Apple’s contract manufacturer in Asia) have moved significant portions of their manufacturing operations to countries like Vietnam and Indonesia. These decisions are driven by business strategies influenced by rising costs in China coupled with international relations.
It’s important to note that the factories relocating from China predominantly belong to industries heavily involved in labour-intensive assembly lines. Shifting this sector to other regions is relatively less complicated compared to China’s capital-intensive production.
China’s abundant reserves of rare earth metals and natural resources have solidified its position as a leading manufacturing hub. These resources are essential components in the production of advanced technologies, chemicals, conductors, printed boards, and other products, which require large-scale plants and advanced machinery. This underscores China’s role as a primary input provider in the global supply chain, giving it significant leverage in negotiations. Thus, while some factories have moved their production to other countries due to various disruptions, they still rely on China for primary materials due to China’s market positioning.
Looking at China’s automotive economic evolvement the country’s entry into the World Trade Organization (WTO) in 2001 accelerated the growth of the industry. By 2008, China had become the largest automobile producer globally, with production capacity growing from two million vehicles in 2000 to 29 million vehicles in 2017. Foreign investment and joint ventures, such as those established by General Motors, Volkswagen, and Toyota, have been instrumental in developing China’s automotive industry, providing market access and advanced technologies.
German car manufacturers have benefited significantly from China’s vast market of 1.4 billion people. Companies like Volkswagen and BMW have leveraged lower tax rates, subsidies, and enhanced funding access in China, gaining a substantial market share while adapting to Chinese trends and preferences.
Volkswagen in China has partnered with local firms like SAIC, FAW, and JAC reaching 4 million vehicles annually and employing thousands of people in the region. BMW has also seen substantial growth in China, which is now its largest single market. Pre-Covid, the company delivered 723,680 BMW and MINI-branded vehicles in one year, marking a 13.1% year-on-year increase. The scenario signals that European carmakers effectively benefited from the Chinese economy by way of growing revenue and profits over the years.
Conversely, Chinese brands have gained market dominance in EV technology and advanced assisted driving systems. Companies like BYD and Contemporary Amperex Technology (CATL) lead the EV sector, generating over two-thirds of their revenue domestically, underscoring the importance of internationalization in their long-term business vision.
Competitiveness is the golden rule for manufacturing, and analyzing external factors affecting the supply chain, such as tariff barriers, geopolitical frictions, and natural disruptions like COVID-19, is crucial. These factors can disrupt the global supply chain, highlighting vulnerabilities in the ecosystem, including EV production. Recently, Chinese companies have been establishing or planning to establish factories in Europe to access the market more effectively.
Strategic Expansion in Hungary
BYD, one of China’s leading EV manufacturers, is constructing its first European electric vehicle factory near the southern Hungarian city of Szeged. This facility is expected to be one of the largest investments in Hungarian economic history and will provide thousands of jobs. Additionally, BYD already operates an electric bus manufacturing plant in the northwestern Hungarian city of Komarom.
Contemporary Amperex Technology Co. Limited (CATL) has announced a significant investment of 7.34 billion euros to build a battery plant in Debrecen, Hungary. This plant is expected to create around 9,000 jobs, further solidifying Hungary’s position as a global hub for lithium-ion battery manufacturing.
Forging New Paths in Spain
Chery Automobile, another prominent Chinese EV manufacturer, has reached an agreement with its Spanish partner to build its first European plant in Barcelona’s Zona Franca industrial zone. This plant will produce Chery’s Omoda-branded vehicles.
Investing in Turkey’s Potential
BYD plans to invest about $1 billion in Turkey to build a new energy vehicle (NEV) production site with a planned annual capacity of 150,000 vehicles. Production is expected to start by the end of 2026. Chery is also in advanced discussions with the Turkish government for factory investments in Turkey as part of a broader strategy to dominate the European market through Turkey.
Localizing Production in Italy
Dongfeng Motor is in talks with the Italian government to establish a factory with an annual capacity of more than 100,000 units. This move is part of Dongfeng’s strategy to localize production in Europe. This is further supported by Prime Minister Gorgia Melon’s recent visit to China resulted in the signing of an industrial collaboration memorandum that includes electric vehicles and renewable energy for the next three years.
Europe and China are together forging a win-win business solution. For Chinese companies, producing in Europe means access to advanced manufacturing ecosystems; potential cost savings, and better market penetration. Additionally, China, being a primary input provider, will still produce primary products for the EV auto industry in Europe. Thus, the business model involves producing primary products in China and assembling them in Europe, leading to a shared success.
For Europe, this scenario brings investments, job creation, and access to affordable EVs, contributing to the region’s green transition goals. Additionally in the long term this business model may not only focus on EVs from China but also products such as wind turbines amongst others.
The shifting landscape of global supply chains and manufacturing is a clear sign of the times. Companies worldwide are re-evaluating their external factors, improve supply chains to mitigate risks and enhance efficiency. China’s move to upscale its manufacturing and strategically place production facilities in Europe, particularly in the EV sector, reflects trust and a broader trend of seeking resilience and competitive advantage in a rapidly changing global economy.
John Zerafa, MBA, is a China Market Analyst with over 24 years of experience in the Chinese market. Mr. Zerafa has worked in the supply chain sector in China for several years.