SHANGHAI – China’s healthy domestic automobile sales are a welcome sign for an industry that is nervous about its export outlook, marred by the imposition and threat of U.S. tariffs from the Trump administration.

Speaking last week at an International Lubricants Base Oils & Additives Conference (ILBAC) in Shanghai, Xu Haidong, deputy secretary general at the China Association of Automobile Manufacturers (CAAM), reiterates the industry produced a record 31.4 million vehicles in China during 2024, including passenger cars, commercial vehicles and new energy vehicles (plug-in hybrids, hybrids and battery-electrics), up 4.5% year-on-year. “These numbers were a bright spot in a struggling economy,” says Xu. 

The growth largely was attributed to the electrified-vehicle sector, which surged 35.5% from 2023 to 12.8 million units, while commercial vehicle sales dropped 3.9% from prior year. Sales of traditional internal-combustion-engine passenger vehicles remained somewhat flat, increasing 5.8% to 27.5 million units.

However, the data underlines China’s exposure to overseas sales, with Chinese customers accounting for only 29.3% of purchases of the 31.4 million vehicles, as most vehicles built domestically in 2024 were sold overseas.

“The figures revealed the two blades of a sword,” says Xu, referring to strengths and weaknesses in China’s export sector. On the positive side, Chinese-branded vehicles are well-received in foreign markets such as Russia, Brazil and the United Arab Emirates, with BYD, Geely, and SAIC among the leading companies in these important markets.

“Recognized for their quality and cost-effectiveness, Chinese brands are competitive in numerous foreign markets, not only in the electric vehicle sector but also in the complementary electric power vehicle (CEPV) sector, which has long been dominated by foreign brands,” says Xu. 

But the negative side poses imminent risk especially after the Trump administration imposed new tariffs against China early this year, even if some of these have been suspended. “It’s not about tariff itself as the U.S. is not a major market for Chinese manufacturers. However, the impact of the U.S. tariffs, or protectionism, is profound,” Xu notes.

Many countries, following the U.S., have imposed tariffs or non-tariff barriers on Chinese car imports to protect their domestic auto industries from potential redirection of auto exports from China. Russia doubled its ‘recycling fees’ to $7,500 per imported vehicle in January. This move was largely aimed at curbing Chinese car imports since China is the major country that exports vehicles to Russia after its invasion of Ukraine in 2022. 

Meanwhile, Brazilian government tariffs on Chinese-made EVs since January 2024 are reducing their competitiveness. By July 2026, each Brazil-bound Chinese BEV will likely face a 35% tariff. In the European Union, Chinese-made BEVs currently face tariffs up to 45.3%.  

Chinese manufacturers have felt the pushback, with Chery’s car exports falling 6.5% in April from March. Indeed, the CAAM has predicted China’s overseas vehicle sales would rise only 5.8% from 2024 to 2025, compared to 19.3% from 2023 to 2024. 

“The trend is clear. It’s no longer sustainable for our manufacturers to rely on exports to survive. We must adapt to the new trade reality by setting up facilities in other countries, manufacturing for the local market and contributing to the local economy,” says Xu. 

One problem is that new-vehicle sales within China have remained stagnant, averaging around 25 million units annually since 2019, according to the CAAM. 

Xu says Chinese consumers are hesitant to buy new cars due to China’s comparatively weaker economy, which the Organization for Economic Cooperation & Development (OECD), a Paris-based international think-tank, said will grow 4.3% in 2026, and 4.7% in 2025, down from the double-digit growth of the period 2000-2010. Xu warns that tariffs would exacerbate China’s economic difficulties, increase unemployment and further harm car sales. 

As a result, he calls on the government to continue offering consumer subsidies to boost domestic car sales. For instance, in July 2024 the Chinese government began offering subsidies of RMB20,000 ($2,871) for alternative energy cars and RMB15,000 ($2,086) for CEPVs with engine sizes less than 2.0L.

According to China’s ministry of commerce, the policy helped secure the purchase of over 3.7 million cars from July to December 2024. Subsidies will continue through 2025, as announced by China’s state council (its de facto cabinet) in January. The CAAM has predicted China’s domestic vehicle sales will total reach 32.9 million in 2025, a 4.7% increase from 2024. CEPV, commercial vehicle, and alternative-energy car unit sales are expected to grow 4.9%, 3.3% and 24.4%, respectively. 

And there is room for growth by Chinese automakers in their local market. Fierce competition from local rivals and softening consumer demand for new vehicles have impacted foreign automakers, causing them to lose market share in China. In August 2024, Chinese brands surpassed foreign brands in combined market share for the first time, notes Xu. 

He says Chinese brands continue to encroach foreign brands’ market share in both the EV and CEPV sectors, demonstrating their competitiveness. However, foreign brands still have an advantage in self-driving technologies, such as Tesla’s Autopilot, as they heavily rely on advanced chips that China faces a global embargo from the U.S. 

“But smart Chinese engineers like those in Huawei have been working on this issue and we are positive Chinese manufacturers will develop highly competitive autonomous driving systems in the near future,” says Xu.

Foreign manufacturers are changing strategies to adapt to market shifts. For example, Honda in March started to operate a new facility in Guangzhou. Catering to the Chinese market, the new facility is dedicated to EV models like the Honda P7, a premium BEV SUV.  

Chinese brands have been waging a price war to win customers in China since 2023. In May, BYD announced it would drop the price of its car models by up to 30% on June 18. Its rivals, including Geely, Nissan and Cadillac, followed suit.  

While this might enable Chinese automakers to gain sales, Xu still has concern about such cut-price rivalry: “Competing on prices harms companies in the long run. We should offer more valuable added technologies and services to attract customers,” he tells the conference.