Can China’s Crowded EV Market Find Room for Growth Amid Western Restrictions?

Key Takeaways

• In the last decade or so, a string of Chinese electric vehicle (EV) makers has emerged.
• However, their growth so far has been rooted in domestic sales.
• Amid rising import restrictions in Europe and the U.S., Chinese EV companies face obstacles to growth.

After years of government-subsidized growth, China’s electric vehicle (EV) market is larger than the rest of the world combined.

But a slowing economy and escalating trade war paint a gloomy picture for the country’s EV manufacturers. Facing the double threat of a domestic demand slump and increasingly hostile Western trade policy, the sector’s future looks uncertain.

China’s Rise as an EV Powerhouse

Before battery power emerged as a viable alternative to traditional engines, China played an important role in the automotive supply chain. But it didn’t have any homegrown brands that could compete with the American, European, and Japanese giants that dominated in the fossil fuel era.

However, from the early 2000s, it was already clear that electric was the future, with the Chinese government started using supply- and demand-side policy incentives to grow the country’s EV sector.

Thanks to the government’s investment in batteries and other key EV technologies, today, China is home to more than a dozen EV makers, including giants like BYD and Geely.

Initially, these companies relied almost exclusively on domestic demand, which is heavily subsidized by Beijing. But in recent years, they have sought to extend their reach overseas.

International Expansion

The initial stage of Chinese EV companies’ international expansion has focused on China’s immediate neighbors.

While India and Thailand have strong domestic players in the two- and three-wheeler markets, Chinese brands dominate their electric car markets.

Companies like BYD, Neta and MG (owned by SAIC Motor) also have a strong presence in South Korea, Malaysia, Indonesia, the Philippines, Vietnam and Singapore.

Outside of Asia, Chinese companies have captured a significant share of burgeoning EV markets in South America and Africa. But they’ve had less luck in Europe and North America.

The reasons for this are both cultural and geopolitical.

On the one hand, Tesla and legacy European automakers secured an early lead in many Western markets. On the other, governments in Europe and the U.S. increasingly view Chinese EV companies as a threat to domestic industries and a target for tariffs and other import restrictions.

Starting during Donald Trump’s first term, Washington has essentially locked Chinese firms out of the U.S. market.

Meanwhile, the European Commission’s recent decision to impose additional tariffs of up to 35% on Chinese-made EVs means the EU is also out of reach unless manufacturers open up new factories in Europe.

Alternative Avenues for Growth

Despite obstacles to growth in Europe and North America, Chinese EV firms still have options.

Amid rising protectionism in the EU, the U.K. provides Chinese firms with a foothold in Europe and access to a rapidly electrifying car market.

An early example of Chinese maneuvring in the country can be seen in Geely’s acquisition of the London Taxi Company in 2013. Since then, the iconic black cab maker has aggressively pursued the transition to EVs.

More recently, BYD, GWM Ora, and Omoda have all set up shop in the U.K. since 2023, while Xpeng, Avatr, and Jaecoo plan to do so in 2025.

A similar pattern can be observed in North America. Although the U.S. has made it all but impossible for Chinese companies to enter the market, the biggest players are already on the move in Canada and Mexico.

BYD expects to sell 100,000 vehicles in Mexico next year. Before Donald Trump’s election, it planned to build a factory there too. But like many automakers, the company now appears to be holding off until more details about Trump’s proposed tariffs emerge.

It’s hard not to see this forceful push into North America as a strategic attempt to circumvent U.S. trade restrictions and enter the country via the back door. Whether the tactic will work all depends on how future tariff schemes treat goods manufactured across the Southern border.

At the dawn of a new era of economic protectionism, companies can no longer rely on free trade agreements to sell their products around the world. Just as the Chinese EV industry has matured into a global heavyweight, it now faces its biggest challenge yet.