Leading the Charge: Chinese Electric Vehicles in the Global South

Last September, the EU announced an anti-subsidy probe into imports of Chinese-made electric vehicles (EVs), and the UK is reportedly considering a similar investigation. Policymakers’ main concern is that a flood of cheap Chinese EVs might eat into the market share of European manufacturers, replicating the decimating effect that cheap Chinese solar panels have had on Europe’s solar industry. This time, however, the economic security stakes are much higher, with the automotive sector representing 6.1% of total EU employment and over 7% of the Union’s GDP.

While Western automakers have been dragging their feet on transitioning to pure battery electric vehicles (BEVs), Chinese policymakers began prioritising BEVs as early as 2009, hoping to help Chinese firms technologically leapfrog Western companies. Companies like BYD – now the world’s largest EV producer – have benefited hugely from government support, including various discounts and tax breaks, availability of credit, the provision of supporting infrastructure, as well as finance for research and manufacturing.

Ambitions were initially limited to the domestic market, but by 2017, Chinese policymakers had explicitly outlined goals for Chinese automakers to conquer the world. On the domestic market, Chinese brands have climbed up the leaderboard of best-sellers, with BYD surpassing Volkswagen last year. In Europe, too, Chinese brands are making headway, their market share rising from just 0.4% in 2019 to 7.9% in 2023.

But there is also a battle beginning between Chinese and Western auto companies for emerging EV markets in the Global South. Rich countries currently account for the vast majority of global EV sales, but uptake in middle-income countries like Brazil is starting to pick up. Chinese automakers have invested heavily in these markets, where US, European and Japanese companies currently dominate with traditional internal combustion engine (ICE) models.

In Brazil, EV sales were up 145% in the first three months of 2024, with BYD accounting for over 40% of the cars sold. Second place, with just 15% of the total, went to another Chinese brand, Great Wall Motors. In March, BYD’s Dolphin Mini became the best-selling electric vehicle (EV) in the country, breaking the record previously held by another BYD model. EV penetration in Brazil is still low compared to Europe, but it is a rapidly expanding market, and this expansion is largely being driven by Chinese companies, particularly BYD.

Western carmakers have neglected EVs in emerging markets, choosing to follow the conventional wisdom that rich countries will transition to EVs first, with poorer countries lagging behind. For example, in 2021, BMW decided to double-down on combustion engines, citing a lack of infrastructure, while BYD’s main Western competitor in BEVs, Tesla, is only now preparing to bring its cars to South America. Following BYD’s recent success, Western companies like Volkswagen and GM have this year announced a change of course, but BYD has a good head-start as well as a significant technological and cost advantage.

BYD has been able to win ground in Brazil due to the low price point of models like the Dolphin Mini. This compact electric hatchback retails for £15,800 – below the average price of a new car in Brazil and a bargain for an EV, which also costs the consumer less to run than an ICE car. State support has certainly helped BYD bring down costs, but by manufacturing most of its own components, BYD has also achieved a massive cost advantage through vertical integration.

By introducing affordable EVs, BYD has effectively created a new segment in the market. As of yet, Western companies do not have a product that can compete on price, meaning that BYD is likely to dominate the rollout of EVs in middle-income countries. BYD’s explicit ambition in Brazil is not just to become the top EV manufacturer, but to displace Volkswagen as the top auto brand, and if EV penetration in Brazil continues at pace, that is a real possibility.

BYD is also investing heavily in local manufacturing. The left-wing government of Lula da Silva is not opposed to EVs, but nor is it incentivising Brazilians to buy electric. The government is concerned about deindustrialisation and jobs, so it has been reluctant to encourage EV imports that would undermine the national auto industry. BYD has managed to get around this resistance by building an £860 million manufacturing facility in the north of Brazil. Poignantly, this site formerly belonged to US automaker Ford, which abandoned its Brazilian operations in 2021.

Brazil does not have any car brands of its own, so unlike the EU, it has nothing to fear from Chinese EV brands, as long as they manufacture locally. In fact, the prospect of cleaner transport and the movement of high-tech industry to Brazil makes such developments incredibly attractive. During his first two terms, from 2003 to 2011, Lula oversaw a period of deepening relations with China. A decade later, the power asymmetry between Brazil and China has shifted, and Brasilia is looking to Beijing for technology and investment. Lula’s April 2023 visit to China, which was pivotal in bringing forward the BYD investment, was explicitly linked to the hope that China could help reverse Brazil’s deindustrialisation.

Losing huge emerging EV markets to China is not only an economic concern; there is also a political dimension at work. BYD’s emerging market strategy coincides with a diplomatic push from Beijing to win over countries in the Global South. Leveraging anti-Western and anti-colonial sentiments among developing countries, Beijing is seeking to position Chinese leadership as a credible alternative to the Western-led international order. The hope is that amid worsening trade tensions with the West, more neutral or even pro-China markets in the Global South could become alternative destinations for Chinese exports.

Bearing in mind this wider systemic competition with China, BYD’s success in Brazil is also a victory for Beijing’s global leadership ambitions. Not only is BYD helping Brazil towards its climate goals by providing affordable EVs, but it is also bringing high-tech supply chains by investing in local manufacturing. Washington’s quiet diplomacy has had some luck in rolling back Chinese projects in Latin America, but unless the West comes up with more compelling alternatives to attractive offers like BYD’s, it will find it difficult to push back against Beijing’s narrative in the Global South.

And BYD’s is not just investing in Brazil. Besides a planned factory in Hungary and a failed bid to invest in India, BYD has also established a joint manufacturing venture in Uzbekistan worth £130 million, built a £520 million factory in Thailand and announced a £1 billion facility in Indonesia, and it is scouting locations for another factory in Central Mexico. The speed and scale of this push to internationalise is unprecedented – while Toyota’s global expansion took decades, all of the developments above have occurred in the last 18 months.

Accompanying German Chancellor Olaf Scholz on his recent trip to China, BMW boss Oliver Zipse claimed, ‘we don't feel threatened by Chinese manufacturers’. Given the colossal dependence of German automakers on China, it is easy to see why they might seek to play down tensions, but it is difficult to buy Zipse’s confidence while surveying BYD’s progress in China, Europe and now across the Global South.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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