Global Automotive Market Ramblings

A recent car carrier from Yantai, China to Mexico caught fire midway through the trip, reportedly with 800 new energy models on board.

With the way things are going this boat is probably going to burn.It’s reasonable to assume that the vehicles will all be powered down at the touch of a button when they get on board, and that the risk of a fire is very low.

The cause of the fire after the power failure could be high temperature, or a short circuit caused by a bump causing the fire to start.The exact truth can only wait for further news reports.

The ship was bound for Mexico, a market that has been courted by Chinese car companies in recent years and has already jumped to second place as a destination for Chinese auto exports in 2024.

In the first quarter of this year, Mexico surpassed Russia as the first destination for China’s auto exports.This of course has the reason that Russia tightened the vehicle import policy, resulting in the export of the first destination to Mexico, but there is no denying that Mexico is becoming a hot spot for the export of car companies.

In 2024 Chinese car companies exported a total of 445,000 units to Mexico.Exports totaled 138,000 units in the first quarter of this year.

Why are Chinese car companies piling up in Mexico?Some media reports say that Chinese car companies are piling up in Mexico in order to enter the U.S. We can’t rule out that the brands building factories have these marginal considerations, but it’s definitely not the main reason.

In fact, the biggest obstacle to enter the United States is the product.Mexico to attract car companies is still the huge size of the automobile market, Mexico passenger car sales of about 1.2 million units per year, about the same as Russia.

Then why the outbreak in these years, but not in the previous years?This is related to the stage and strategy of the overall overseas development of Chinese car companies.

Epidemic before the large part of the car companies to go or overseas asset-light mode, investment in factories, the establishment of subsidiaries of this mode of operation only a small number of car companies in key countries to do.

After all, investing overseas needs to take into account the size of the automobile market and economic and political factors, after all, overseas investment is too risky.

For example, a car company in Brazil factory failure, a car company Russia factory moribund (later because of sanctions to come back to life), a car company India failure, and so on.So before most of the previous relatively conservative, the domestic can still eat again that there is no need to engage in a hasty march overseas.

The epidemic has intensified in the past few years with the domestic involution, coupled with China’s unique Smart Driving, the smart cockpit is gradually recognized by consumers in the country, making Chinese brands increase their determination to go overseas.

Then the breakthrough of the sea is relatively unified in Mexico, this stage of overseas development of car companies present a light investment, low threshold, large volume, low risk, the four elements.

Mexico fits these four elements very well.It’s a natural place for Chinese companies to pile up.

Light investment: Mexico’s product certification requirements vehicle certificate holder needs to be a local company, car companies to enter Mexico must set up overseas subsidiaries or authorize local companies.This is relatively routine, so the investment is not large.

Low threshold: vehicle regulations certification is basically equal to Russia, or even much simpler than Russia, because most of the recognized European regulations, do not have to invest in too much territorial certification.

Large volume: the market volume need not be mentioned year-round stabilized at about 1.2 million units, and in recent years there has been growth, we must know that the global sales of more than a million countries are just a dozen, and most of the developed countries for the high threshold, developing countries, in addition to China, only India, Brazil, Russia.

Low risk: Bilateral relations are stable, at least much more so than our neighbors, with no hot and cold relations like India.

In fact, the whole of South America is basically a low-threshold, low-risk market, out of the Brazilian market, Central and South American countries are generally small volume, annual sales of more than 300,000 units of the market is not much.The quality market may only be Chile.

Brazil’s entry threshold is actually relatively high, encouraging real estate, but the local manufacturing industry is relatively poor.Car companies to invest in building factories, want to short-term cost recovery to achieve profitability or more difficult.I predict that Brazil may make many companies pay tuition fees.

Of course, the market to pay tuition not only Brazil, Europe, the same, do not look at the current several car companies have begun to build plants to invest in the real realization of mass production and profitability there are still a lot of risks, such as compliance, labor management to bring the increased cost of the European fragmentation of the market and regulations brought about by the difficulty of the operation of the sales volume does not meet expectations.

However, the internationalization or rise of any company has to go through successive setbacks, and the accumulated experience is the basic nourishment for a strong future.

Starting last year or this year, the overseas strategy of Chinese car companies may have entered another phase.Domestic involution and consolidation may also spill over into increased overseas investment.

How to make those that have already invested profitable may be the main issue faced.For example, Thailand, a popular investment location, has gathered 7-8 automobile companies to invest in the construction of factories, and it is obvious that Thailand is already facing serious overcapacity.

How to play the role of Thailand’s production base radiation, radiation Australia, Africa, South America and other countries may also be the main challenge faced by Chinese car companies, after all, we are too homogenized.

Then there is no risk of small, relatively large volume of the market.There is, that is the Middle East, the Middle East countries are mostly the same certification system regulations threshold is relatively low, the consumer affluent purchasing power, and low tariffs do not have to invest in building factories, the Middle East countries and China’s bilateral relations are very stable.

Can be said to be the blessing of Chinese car companies, although there is no official statistics, but it is expected that Chinese brand sales can also account for about 30% of the total sales of cars in the Middle East.If any car company in the Middle East did not earn money, it may be that the product really can not.

Finally, let’s talk about the CIS market that we love and hate, and this market is mainly Russia.From the sinking and floating of Chinese enterprises in Russia, the main influence on the export of Chinese car companies is the Russian sanctions, the exchange rate, Russia’s policy of encouraging local production.

Before the Russian-Ukrainian war to say which car companies did not make money, I believe; which car companies made a lot of money, I also believe.After all, the ups and downs of the exchange rate led to this market is really not very profitable.

But who did not earn money after the Russia-Ukraine war, it can only mean that you move slowly.But Russia in October last year announced an increase in the scrapping tax, directly relying on the whole car export enterprises pressed to death, to a displacement of 1.5L car, for example, the scrapping tax to pay about 60,000 yuan.

This means that imported products will cost 60,000 dollars more in net cost than local products for scrap tax alone.Car companies were stepping up their efforts to develop new products for Russia when they suddenly put the brakes on.

It’s possible that a lot of investment will go down the drain again.Enterprises that do not rely on the vehicle may be more fortunate, but fortunate is also relative, this country is too vulnerable to international sanctions, belong to the operation of the country is very high risk.It is possible that the factory just built this year with the changes in the international situation will not be able to operate.Let’s just say it’s a risky endeavor.

Other regions like Australia and New Zealand, Japan and Korea, and the United Kingdom are at the high end of the market.

Can enter all belong to the strength, after all, at least need to product hard, such as Australia, the product must collision five-star.Less than five-star consumers will be considered unsafe, but their five-star to be stricter than our national standard, relatively speaking, the cost is higher, so do not say that our domestic products sold abroad is expensive in order to make more money, in fact, this should be taken into account in the development cost factors.