The automotive industry faces two disruptions: China’s emergence as a leading global auto exporter, and the transition from internal combustion engine (ICE) to electric vehicles (EVs).
Detailed data on sales by origin/destination/model show that the automotive market is primarily local or continental, with limited sales originating from distant countries for both ICE and EV. Accordingly, foreign direct investment (FDI) is an important mode of supply for foreign markets.
Insights from Japanese and Korean brands’ market penetration in the 2000s and 2010s suggest that successful models are primarily sold through local assembly; the most successful Chinese EV models in Europe are close or above the investment threshold.
Examination of potential differences between EV and ICE indicates evolving comparative advantages: while EVs are not inherently more traded compared to other vehicles, China currently leads in cells and modules, but not yet in assembly.
Down the value chain, the median distance between battery production and assembly is 215 km in 2022, suggesting localized sourcing in EV similar to combustion engines and larger than ICE transmissions.