Moody's: "China's Electric Vehicle Industry Faces Profit Decline... Must Focus on Emerging Markets"

Struggling with US-EU Containment and Domestic Demand Slump
Intense Price Competition Led by BYD

Chinese electric vehicle (EV) companies need to focus on emerging markets to overcome Western tariff pressures and sluggish domestic demand, according to an analysis.

On the 27th, the Hong Kong South China Morning Post (SCMP) reported that global credit rating agency Moody's stated in a recent report, "Chinese EV manufacturers will have better opportunities to diversify their markets, build scale, and generate higher profits in the long term through geographic expansion."

[Image source=AP Yonhap News]

The report identified Latin America, the Middle East, and Southeast Asia as the key markets Chinese companies should target. These regions have relatively low geopolitical risks, rising per capita GDP, and increasing EV demand driven by advances in climate change mitigation efforts.

Geowin Ho, Vice President and Senior Analyst at Moody's, explained, "Despite strong demand, intense domestic competition is eroding the profitability of Chinese EV manufacturers. These challenges, coupled with the desire to scale up, are driving expansion into overseas markets."

In the Chinese mainland market, EVs account for more than half of new vehicle sales, but fierce price competition has severely deteriorated industry profitability. According to SCMP, among local companies in China?the world's largest emerging auto market?only BYD and Li Auto are expected to see revenue growth. Over 30 competitors face pressure from losses.

In February, led by BYD, Chinese automakers cut prices by 5-20%. According to a Goldman Sachs report in April, the average price of 50 models sold in China dropped by 10% following these cuts.

At the same time, tariff increases by advanced economies such as the United States and the European Union (EU) have narrowed export opportunities for the Chinese EV industry, making it inevitable to accelerate entry into emerging markets, SCMP explained.

China surpassed South Korea this year to become the largest automobile exporter to Israel. According to a May report by Deloitte China, market share in Southeast Asia surged from 47% in 2021 to 74% last year. China's General Administration of Customs reported that from January to May this year, exports of Chinese vehicles (including EVs, gasoline cars, and trucks) to Brazil increased more than sixfold to 159,612 units, while shipments to the United Arab Emirates (UAE) rose 92% to 114,530 units.

However, Moody's cautions that existing market risks must also be considered. The report stated, "While emerging markets hold significant potential, Chinese EV companies face evolving geopolitical tensions and fluctuating demand. Increasing production and entering new markets will incur higher costs."

This content was produced with the assistance of AI translation services.