Chinese car companies invest heavily in shipbuilding and "explore new paths" to expand their business in the Americas
Before the May Day holiday, a roll on/roll off ship carrying 3439 new energy vehicles, BYD Pioneer 1, departed from the Guangdong Shenshan Xiaomo International Logistics Port and set off for South America, Brazil, and other regions to embark on its overseas journey.
In the current situation where China's automobile exports are increasing day by day, the high transportation costs and potential overseas markets are pulling each other, driving a group of independent brands to cross the track and invest in shipbuilding. Many automobile companies, including SAIC, BYD, Chery, etc., have already laid out their roll on roll off ship business.
Based on the export destination and volume, water transportation with lower shipping costs often becomes the preferred transportation method for domestic brands exporting to South America, Europe, and the Middle East, and leverages the North American market by entering South America. But currently, the export path of new energy vehicles in the Americas is full of challenges.
Starting from January 2024, Brazil, an important electric vehicle market in South America, will resume imposing import tariffs on new energy vehicles, including pure electric vehicles, plug-in hybrid vehicles, and hybrid oil electric vehicles. In 2022, the United States in North America introduced the Inflation Reduction Act, which stipulates that American consumers can receive up to $7500 in subsidies for purchasing compliant clean energy vehicles, except for vehicles using Chinese made battery components.
Chinese car companies have provided their own solutions for different overseas markets by increasing investment or delaying pace.
Shipbuilding "going to sea"
"A regular sedan transported from a Chinese port to Europe or North America requires a sea freight cost ranging from approximately $2000 to $5000, which is only a basic cost, plus additional costs such as tariffs, taxes, insurance fees in the destination country." The head of an international logistics company told reporters that in the past three years, with the increasing volume of Chinese automobile exports, sea freight costs have also skyrocketed.
The head of a logistics company under a car company stated that the highest shipping fee this year has exceeded $100000, which is five times higher than the $20000 fee in 2021. The most expensive shipping cost for roll on/roll off ships is equivalent to the cost of producing a vehicle. According to VesselsValue, a commercial shipping data provider, the current rental cost for a roll on/roll off ship with 6500 parking spaces has reached $123500 per day.
With the support of new energy vehicles, the export demand of Chinese car companies has rapidly increased, which has also led to a continuous increase in shipping costs. According to data from the China Association of Automobile Manufacturers, the export volume of automobiles has increased nearly fourfold in the past three years. In the first quarter of this year, automobile exports reached 1.324 million units, a year-on-year increase of over 30%. According to data from the General Administration of Customs, the total import and export volume of automotive products in China in the first quarter of this year was 68.29 billion US dollars, a year-on-year increase of 5.5%. Among them, the import amount was 15.73 billion US dollars, a year-on-year decrease of 11.5%; The export amount was 52.56 billion US dollars, a year-on-year increase of 11.9%.
It is worth mentioning that although China has surpassed Japan to become the world's largest exporter in terms of export volume, Japan currently has over 300 roll on/roll off ships in the important field of export transportation, accounting for 38.88% of the world's total, making it the country with the highest roll on/roll off ship capacity in the world; However, there are still less than 40 roll on/roll off ships in mainland China, accounting for nearly 5% of the world's total, with a relatively small share. Meanwhile, countries such as Japan and South Korea have formed relatively stable sea freight costs with years of export experience.
Based on the above factors, in order to ensure the stability of the overseas supply chain and control the cost of going abroad, multiple car companies have personally "stepped down" in cross-border shipbuilding. At present, most domestic car companies achieve long-term large-scale vehicle "going out to sea" business through two modes: renting transportation vessels or building self operated fleets.
In 2022, BYD invested over 500 million US dollars to build the first batch of six car roll on/roll off ships at an average price of 87 million US dollars per ship, plus two option orders. BYD will have a fleet of at least eight roll on/roll off ships in the next two years; Chery Automobile's joint subsidiary Wuhu Shipyard is building an automobile transport ship construction base in Weihai and will purchase three new roll on/roll off ships in early 2023; Guangzhou Automobile Trading, a subsidiary of Guangzhou Automobile Group, has established Guangzhou Merchants Ro/Ro Transportation Company with China Merchants Shipping Investment. In addition, Anji Logistics, established by SAIC Group, currently has nine specialized foreign trade ships, all of which are self operated and self operated.
After finding ways to control the high shipping costs, domestic car companies have further focused their strategic vision on overseas markets. Following the ocean currents, independent brands focusing on new energy vehicles will bring domestic cars to multiple regions such as Southeast Asia, Europe, and the Americas, exploring the second growth pole.
Explore the Brazilian market
In October 2023, several senior executives from Guangzhou Automobile Group, including Feng Xingya, General Manager of Guangzhou Automobile Group, and Zeng Hebin, General Manager of Guangzhou Automobile International, conducted a 10 day research trip to three countries in the Americas. The most important goal was to expand Guangzhou Automobile's market in the Americas, especially Brazil.
As the sixth largest automotive market in the world, Brazil has always been a sought after overseas arena for car companies around the world. With the further increase in global sales of new energy vehicles, domestic independent brands have rushed to this market with the advantage of passenger car electrification, including GAC, BYD, Great Wall Motors, Chery Motors, etc.
According to data from the Brazilian Electric Vehicle Association, the sales of electric vehicles in Brazil reached approximately 93900 units in 2023, marking the sixth consecutive year of growth. According to relevant government data from Brazil, in the first quarter of this year, the import volume of passenger cars in Brazil surged by 450% year-on-year, and the import value increased by 46.4% year-on-year, reaching 1.5 billion US dollars. At the beginning of 2024, at least 36% of Brazil's imported electric vehicles were made in China. Currently, best-selling electric vehicle brands in Brazil include Toyota, BYD, Chery, Great Wall Motors, and others.
Unlike the intensified price competition in the domestic automotive market, domestic electric vehicles hope to establish a high-end brand image, and their overseas prices are often twice as high as those in China. Taking BYD as an example, recently, the entry-level A0 pure electric seagull produced by the car company entered the Brazilian market, with a listing price of about 115800 Brazilian reals (about 160000 yuan), which is nearly three times higher than the starting price of 69800 yuan for the domestic Seagull Honor version. BYD officials told reporters that sales performance in overseas markets can make up for the profits of the current domestic car price war.
As foreign car companies continue to increase their market share in Brazil, Brazil is resuming import tariffs on new energy vehicles. Starting from January 2024, tariffs on imported pure electric vehicles, hybrid oil electric vehicles, and plug-in hybrid vehicles in Brazil will be raised to 10%, 12%, and 12% respectively, and will gradually increase to 35% by July 2026.
Brazilian authorities have stated that this policy is aimed at reversing the impact on the country's industry caused by a significant increase in imports and drastic price changes. Meanwhile, restoring import tariffs is conducive to stimulating car companies to produce electric vehicles in Brazil and revitalizing the local automotive industry. Gradually increasing the tariff rates on imported electric vehicles can avoid any impact on the market.
Brazilian authorities have stated that in 2023, due to the exemption of import tariffs on electric vehicles, the Brazilian government has lost 2 billion Brazilian reals in tax revenue, of which 1.1 billion Brazilian reals are related to imported electric vehicles from China.
After the policy was issued, the electric vehicle market in Brazil that needs to be explored has increasingly attracted domestic independent brands to invest in the local area. BYD will increase its investment in the state of Bahia, Brazil this year. Previously, in July 2023, BYD announced that it would establish a large production base consisting of three factories in the city of Camari, Brazil, with a total investment of 3 billion Brazilian reals (approximately RMB 4.5 billion) and a planned production capacity of 150000 vehicles. It will be put into operation in the second half of 2024.
In addition, Great Wall Motors has invested 10 billion Brazilian reals (approximately RMB 14.2 billion) in 2022 to establish its fourth global and first complete production base in Latin America. From 2022 to 2025, Great Wall Motors will invest approximately 4 billion Brazilian reals in its factory located in the state of S ã o Paulo, Brazil; An additional 6 billion reals will be invested between 2026 and 2022. Great Wall Motors Brazil announced that the factory will undergo modernization and achieve an annual production capacity of 100000 vehicles, with an expected annual revenue of 30 billion Brazilian reals by 2025. Great Wall Motors will launch a product portfolio in Brazil that only includes hybrid and electric models, with 10 models to be launched by 2025. According to the plan, Great Wall Motors will begin the intelligent and digital transformation of the Ilasema Polis factory within this year.
Chery Automobile has already established a factory in Brazil and assembled cars using the CKD (imported component assembly) model. In February of this year, the Brazilian Federal Taxation Bureau announced the application of import tariff preferences for automotive parts imported for the spare parts market (as capital goods). At present, Chery Brazil's factory is undergoing a large-scale renovation to adapt to the production of pure electric, plug-in hybrid and other electrified vehicle models. In March, Chery Automobile sold 4829 vehicles in Brazil, a year-on-year increase of 187.6%. In addition, JAC Motor is also making efforts to expand into the electric vehicle market in Brazil.
The North American market that is within reach
Although both belong to the American sector, the nearby North American market has made many Chinese car companies sigh with excitement. "BYD currently does not intend to enter the US market. Although this market is attractive, its complexity cannot be ignored." In an interview in the first quarter of this year, BYD's Executive Vice President and CEO of the Americas, Li Ke, stated that the domestic situation in the US is complex, especially as the growth momentum of the electric vehicle market is gradually weakening. She believes that there are many uncertainties and complex factors in the electrification process of the US market, so BYD currently does not plan to enter the US market.
Public data shows that in 2023, the market share of electric vehicles (including plug-in hybrid and pure electric vehicles) in the United States only increased from 6.8% in 2022 to 9.1%, still far behind the penetration rates in China and Europe. It is worth mentioning that in 2023, the annual sales of electric vehicles in the United States exceeded 1.4 million, a year-on-year increase of more than 50%. Among them, the sales of pure electric vehicles in the United States are expected to reach 1.1 million, a year-on-year increase of 48%, accounting for 80% of the US electric vehicle market and 7% of the entire US automotive market, setting a new record. In 2024, the sales of pure electric vehicles in the United States are expected to surpass the threshold of 1.5 to 2 million vehicles.
Although there is still a potential market for electric vehicles in the United States, due to complex geopolitical and industry development factors, especially a series of restrictive factors such as the Inflation Reduction Act, many domestic car companies have temporarily put their layout in this market on hold. On May 3, 2024 local time, the US government issued the final rules on clean energy vehicle provisions under the Inflation Reduction Act. US citizens who purchase electric vehicles can apply for a federal tax credit of up to $7500, but strict regulations are set on the application conditions: if they purchase battery components manufactured or assembled by Chinese companies, their eligibility for tax credit will be restricted or even cancelled.
It is worth mentioning that Mexico, adjacent to the United States, is becoming an important focus for domestic car companies to leverage the North American market segment. According to data released by the Mexican Bureau of Statistics and the Mexican Association of Automobile Dealers in January this year, Chinese car companies such as BYD, JAC Motors, and Geely sold a total of approximately 129300 vehicles in Mexico in 2023, a year-on-year increase of 63%; The market share in Mexico reached 19.5%, a rapid increase from 6.4% in 2019.
With the aim of establishing production bases near the United States as a "nearshore outsourcing", many domestic car companies, including BYD, Nezha Motors, Jetour Motors, etc., are interested in investing in and building factories in Mexico. According to the 2020 US Mexico Canada Free Trade Agreement, car companies can achieve localization of automobile production areas through Mexico and enter the vast new energy market in North America, including the United States and Canada.
In addition, Mexico also has a vast market for new energy vehicles domestically. According to Marklines data, the penetration rate of new energy vehicles in Mexico is only about 1%, and the local new energy industry chain is lacking, which also provides new export directions and transportation paths for domestic new energy vehicle suppliers.
(This article is from First Financial)
