Chinese electric vehicle supply chains are rapidly expanding their presence in international markets while ramping up efforts to achieve self-sufficiency in auto chips amid geopolitical tensions.

“Globalization is essential for Chinese car manufacturers, including those EV producers, to maintain momentum and target key consumer markets worldwide,” said Howard Yu Hao, the Lego professor of management and innovation, and research director at IMD Business School’s Center for Future Readiness.

He said he believes overseas expansion will offer new growth opportunities for Chinese EV-makers, which has already become a focus point for a number of players following the remarkable success of BYD in overseas markets.

READ MORE: China expected to become world's top auto exporter

In a livestreaming days earlier, senior executives of Xiaomi, a Chinese smartphone-maker and a newcomer to the EV sector, revealed that it is considering expanding its car business overseas, with the European market a specific target. Another EV player, Xpeng, saw its overseas business grow in the second quarter, with overseas sales accounting for over 10 percent of overall business for the first time.

According to a recent study by a subsidiary associated with the China Automotive Technology and Research Center Co, Southeast Asia, Europe and North America have been the main targets for Chinese car exports and the overseas expansion of Chinese automotive makers.

Exponential growth

The past few years have witnessed exponential growth in Chinese auto exports, surging from a mere 1 million units in 2020 to about 5 million in 2023. Global investment bank UBS expects this number to exceed 6 million this year, with a significant increase in markets less affected by geopolitical tensions.

Paul Gong, UBS Head of China Autos Research, said, “Sooner or later, more automotive manufacturers will establish factories overseas, locating them in export destinations. Today, however, most sales are still based on direct exports.”

Overseas expansion of Chinese EV-makers is accelerating as competition in the domestic EV market mounts. Xiaomi’s joining has intensified rivalry, with domestic rivals such as BYD, Xpeng and Nio enjoying solid bases and US giant Tesla remaining popular among Chinese consumers.

The first financial results unveiled by Xiaomi’s new electric vehicle business on Wednesday highlighted the Chinese smartphone-maker’s ambition to become a leading force in the sector.

The company said at its interim results announcement that 27,307 units of the Xiaomi SU7 series were delivered in the second quarter. It expects to fulfill the target of 100,000 Xiaomi SU7 series delivery in November ahead of schedule and hopes to meet the goal of delivering 120,000 such vehicles for the whole year.

Xiaomi’s revenue from smart EV sales reached 6.2 billion yuan ($868.3 million) in the second quarter, with a gross margin of 15.4 percent.

According to a Thursday report by Huatai Securities, the gross margin of Xiaomi’s EV business exceeded its previous estimate by 7.4 percentage points. The broker attributed the performance to the company’s fast growth in car sales and its strong bargaining power in the supply chain.

Citibank analyst Kyna Wong and others forecast the gross margin of Xiaomi’s EV business to reach 18 percent, 18.3 percent and 18.4 percent for 2024, 2025 and 2026 respectively.

Xiaomi moved into the EV market with the launch of the SU7 series in March. Starting prices of the three versions — the Standard, Pro and Max — were 215,900 yuan, 245,900 yuan, and 299,900 yuan respectively.

Competition among EV-makers is becoming more intense. Earlier this year, Aito, the Huawei-backed EV brand, slashed 20,000 yuan off the price of its M7 model. Other market players, including Nio and Xpeng, have offered discounts and perks to woo potential buyers.

Xiaomi, however, brushed aside concerns of a price war. “Our strategy is to enhance product competitiveness through economies of scale and technological advancement, rather than taking part in a price war,” company executives said.

While lower prices may boost in sales, a more important issue that requires attention is the supply of chips, which is the lifeblood of Chinese EV players as they shift toward intelligent vehicles.

Focused on self-sufficiency

Gong noted a surge in semiconductor usage in the automotive sector, particularly in EVs equipped with intelligent driving functions. This trend is fueled by a growing market appetite for new technologies.

“Cars with autonomous functions require additional types of semiconductors. In general, this could double or even triple the semiconductor usage inside a typical car compared to traditional internal-combustion engine-vehicles,” he said.

According to the China Association of Automobile Manufacturers, while vehicles powered by fuels normally use 600 to 700 chips, electric and advanced smart cars use from 1,600 to 3,000 chips.

Only 10 percent of Chinese auto chips are domestically made in 2023. US and European magnates dominate the global auto chip market. Heightened geopolitical tensions are making the need for chip self-sufficiency more urgent.

Yu believes the situation is improving as industry players step up research and development in this field. The 10 percent self-sufficiency rate of Chinese auto chips was increased from 5 percent in 2020.

Xiaomi’s EVs exemplify Chinese prowess in producing the country’s own advanced smart driving technologies. The Pro and Max versions of the SU7 series are installed with Xiaomi’s self-developed Pilot Max intelligent driving solution. This system incorporates the US-based Nvidia Drive Orin computing platform and lidar technology from Chinese company Hesai.

ALSO READ: China firmly opposes move on EV tariffs

“The Chinese automotive industry is heavily focused on developing self-sufficiency in semiconductors, which are crucial for EVs and autonomous driving technologies. Companies like BYD have already integrated battery and microchip production into their operations, giving them a competitive edge. Huawei has also entered the automotive chip market,” Yu said.

“This trend is expected to continue as Chinese manufacturers invest more in semiconductor research and production to reduce reliance on foreign suppliers.”

The Hong Kong Special Administrative Region, as an international financial hub linking onshore and offshore investors, will play a significant role in assisting the growth of the Chinese auto chip sector by offering a fundraising pool for chip designers.

In the latest example, auto chip designer Black Sesame Technologies, which raised HK$1.04 billion ($133.4 million) from the sale of 37 million shares, began trading on the Hong Kong Stock Exchange on Aug 8. Its shares closed at HK$19.70 on Thursday, up 0.6 percent.

Horizon Robotics, which develops AI chips for self-driving cars, earlier this month got the approval from the China Securities Regulatory Commission to list in Hong Kong and is expected to raise up to $500 million.