China's auto exports "reverse"

In recent days, the Russian ruble has broken the cliff, adding a bit of chill to the already depressing Chinese auto exports.

In 2012, China’s auto exports exceeded 1 million vehicles. At that time, the entire car industry was excited. The China Association of Automobile Manufacturers also organized special events to celebrate the arrival of this “important milestone event”. However, this year, China’s auto exports are in the rhythm of “reversing the car”: From January to November, China’s auto exports totaled 810,000, a year-on-year drop of 9.3%. It is estimated that in 2014, Chinese auto exports will be around 850,000. Not only was it lower than the 1.056 million in 2012, but also lower than 87.24 million last year.

“Work hard for three or four years and return to 11 years overnight”

What is the concept of 850,000 vehicle exports? In 2014, China Automotive is expected to be the world’s largest automobile production and sales country for the sixth consecutive year, reaching around 24 million vehicles, which means that China’s auto exports account for only 3.5% of production and sales volume.

Automobile export volume is one of the important standards to measure the development level of a country's auto industry. In 2012, the export volume of automotive automakers accounted for more than 50% of the total output: 77% in Germany, 90% in Spain, Belgium, 80% in the UK, 70% in Korea, France, and 50% in Japan. . Compared with these countries, China's 3.5% share is minimal, and it is also extremely inconsistent with the status of the world's first automobile production and marketing country.

China's auto industry started late, and auto exports have also been slow. In the 1960s and 1970s, for a long period of time, Chinese auto exports were exported in the form of free foreign aid, and it was not until the 1990s that Chinese cars had a real sense of export. Since 1993, when automobile exports exceeded 10,000 vehicles for the first time, auto exports gradually increased steadily.

At the end of 2001, China joined the World Trade Organization, and its automobile exports grew rapidly. Due to the small base, from 2002 to 2007, China's auto exports have basically increased at a rate that doubled in one year. In the past six years, the export volume of automobiles has risen rapidly from 28,000, 45,000, 78,000, 173,000, and 343,000 vehicles to 614,000 in 2007.

In 2011, China’s auto exports gradually eclipsed the financial crisis and reached 850,000 vehicles. In 2012, the export volume exceeded 1 million, reaching 1.05 million. This year, car exports are expected to fall back to 2011 levels, 850,000 vehicles.

An industry person lamented with regret: "We have worked hard for three or four years and returned to 11 years overnight."

Export reversing, who hangs the reverse?

Russia is the world’s sixth largest automotive market and one of the most important exporters of Chinese automobiles.

According to statistics from the China Automobile Association, there are currently more than a dozen brands such as Geely, Great Wall, Chery, Lifan, Jianghuai, and others selling vehicles in Russia. Among them, Geely, Lifan, Great Wall, and Chery belong to the first echelon of sales.

On December 17, Geely Automobile issued a warning that due to the loss of foreign exchange exchanges in the Russian business and the reduction in car sales, it is expected that net profit for 2014 will drop by approximately 50% year-on-year. Russia accounts for about a quarter of Geely’s overseas sales. In the Chinese car market in the Russian market, Geely sales ranked second. Accumulated sales from 22,074 units in the previous October decreased by 34.2% year-on-year to 14,519 units, and the market share decreased from 1.0% to 0.7%.

Among the Chinese car companies in Russia, Lifan has the highest sales volume. In the first 10 months of 2014, Lifan’s cumulative sales also decreased by 18.4% from the previous year to 17,909 units from 21,945 units. The market share decreased from 1.0% to 0.9%.

Lifan shares a secret secretary Tang Xiaodong on December 26th to the Automotive Industry and Economics Network, said the ruble slump will bring about a certain impact on the company, but the impact of Lifan plunge by the ruble will be relatively smaller than other car companies. Lifan's 16-year export experience will allow Lifan to better avoid the risks caused by the ruble storm.

Not only in Russia, but in many export-oriented countries, Chinese companies are faced with the difficulties caused by the devaluation of the local currency and the appreciation of the renminbi. In addition to the exchange rate issue, tariffs have also become a major obstacle to Chinese auto exports.

It is understood that in 2011 Brazil had surpassed Russia to become China’s largest exporter of automobiles, but then Brazil increased the import tax on automotive products by 30%, resulting in a substantial increase in the export cost of Chinese automobiles to the Brazilian market. Since then, other major exporting countries have also set up auto trade barriers. At present, Russia’s auto import tariffs are as high as 25%.

The automobile production network has found out that at present, the target countries for the export of Chinese automobile enterprises are Russia, Cuba, Ukraine, the Middle East, Iraq, Africa, Iran, and North Korea. These regions and countries are economically weak and their political environment is poor. Also virtually increase the export risk of car companies.

New Energy Vehicle Takes Breakthrough

Although exports account for a small percentage of overall sales, they are expected by auto companies. Nowadays, Chinese auto companies have encountered an "export crisis" and car companies have begun to break through.

Lifan Dongxiang Tang Xiaodong told the Auto Sankei Network that at this stage, we must strive to improve the quality and competitiveness of our products. This is a long-term solution. In the current situation, Lifan will build a factory in an exporting country and “hedge it through localization”. "Unfavorable factors such as exchange rates and tariffs. The sales of Lifan’s automobile sales to Russia do not have to be converted into US dollars like other car companies and then repatriated to the country. Instead, they are used to build factories in Russia and partially offset the impact of exchange rate fluctuations.

It is understood that Lifan will invest approximately US$300 million in the construction of a new automobile production plant in Lipetsk, Russia. This is the third wholly-owned vehicle factory that Lifan Motors has invested and built following Uruguay and Ethiopia. It is also the largest overseas investment project of Lifan Auto. In this regard, the European Chamber of Commerce has also pointed out that the devaluation of the Russian ruble weakened the sales growth of imported vehicles, but it will greatly promote the local brand and local product investment brand sales rebound. To use bank deposits in Russia for the construction of factories in Russia, Tang Xiaodong hopes to hedge against the problems caused by the devaluation of the ruble.

Not only are Lifan, Changan, Great Wall and other independent brands all starting to build factories overseas to deal with the increasingly severe exchange rate and tariff issues. According to the news, Changan Automobile announced its global strategy for CA4133 in 2013. By 2020, its sales in overseas markets will reach 400,000 units. It will also promote the construction of three major manufacturing bases in Brazil, Russia, and Iran. These three regional markets will be developed in the future. It accounts for 30% of Changan Automobile's overseas market.

While independent brands have set up factories overseas, JAC and BYD have made new breakthroughs and achieved breakthroughs in the export of new energy vehicles.

Previously, JAC and GreenTechutomotive, Inc. ("GTA" for short) signed the "Jianghuai IEV Electric Vehicle Export Framework Agreement." According to the agreement, the company will sell Jianghuai Automotive IEV pure electric cars to GTA. Based on reasonable predictions of business plans, the two parties agreed that within the plan, the quantity of GTA products purchased shall be at least 2,000. GTA agreed to start purchasing the first batch of 200 product orders after signing the agreement.

In addition, BYD also builds new energy vehicles in countries such as Brazil, but it is currently concentrated in the field of electric buses. In the private consumption field, BYD is also pushing its electric vehicle rental business. Recently, BYD Motor Company announced that it will expand its electric car rental program in London, England, and will provide 200 e6 electric vehicles to a London private car rental service company by April next year. This is BYD’s largest single overseas leasing transaction so far.

The Automobile Industry Economics Network believes that although the current market share of new energy vehicles is small, it is a blue ocean. JAC and BYD's exploration in the export of new energy vehicles has opened up new paths for Chinese auto exports.