Tariff Troubles: China’s Auto Parts Industry Feels the Heat

China’s car industry, one of the few strong areas in its economy, is now feeling the pressure from rising trade tensions with the United States. Experts warn that Chinese parts suppliers, especially those making EV batteries and high-tech components, are likely to take the biggest hit.

Every year, China ships about RMB100 billion (RM65 billion) worth of car parts to the US. But with new tariffs now raised to 125 per cent — up from just 10% three months ago — that flow of exports is at serious risk.

“The new tariffs are a big blow to Chinese battery makers and supply-chain companies,” said David Zhang from the International Intelligent Vehicle Engineering Association. “Carmakers aren’t as badly affected, since they don’t rely on US sales as much.”

The stock market has already reacted to the news. A group of 26 Chinese carmakers saw their share prices fall 7% this week, while auto parts makers lost more than 10%. An index tracking 55 car-related companies in China and Hong Kong dropped over 9%.

Last year, about 15% of China’s car parts exports went to the US. But actual car sales were small — only 116,000 Chinese-made cars were sold in America, and most were built by joint ventures between Chinese factories and US brands like GM and Ford, according to Huatai Securities.

When it comes to EV batteries, Chinese companies are global leaders. Big names like CATL and Gotion High-tech account for two-thirds of the world’s EV battery supply. China’s car parts makers, overall, meet nearly half of global demand.

China has also become the world’s largest market for electric cars, helped by government support and tech-friendly consumers. Right now, 3 out of every 5 electric cars sold worldwide go to Chinese buyers.

But growing trade tensions could change that. Cui Dongshu, head of the China Passenger Car Association, said the impact could be especially bad if the US expands tariffs to more countries, especially in Southeast Asia. He warned that could cause serious trouble for China’s car sales in the region.

Southeast Asia has been one of the fastest-growing markets for Chinese electric cars. Companies like BYD and Hozon Auto have been gaining new customers, especially in countries shifting toward cleaner vehicles.

In 2024, the Philippines bought about 130,000 Chinese-made EVs, making it China’s third-biggest market for electric cars. Thailand followed closely with nearly 126,000 units.

However, the outlook for exports isn’t as strong as last year. China’s car shipments are expected to grow only 10% in 2025, down from 25% last year. In March, exports even dropped 8% from a year earlier, although the total for the first quarter still showed a small increase of 1%, according to industry data.

Source: SCMP