Profitable Trend: Chinese EVs Exported as Second-Hand Vehicles
The export of Chinese electric vehicles in the form of second-hand cars has become a trade trend, with parallel export volumes steadily increasing, primarily directed towards Central Asia and the Middle East. However, challenges related to product quality, after-sales services, and localization still need to be addressed.
Recently, Li Xiang, the founder of the Chinese EV startup Li Auto, revealed on social media that some of the company’s Li L9 vehicles were exported as second-hand vehicles to Central Asia and the Middle East. These cars are then likely to be further re-exported to other markets, such as Russia. Despite the Li Auto L9 being priced at approximately 1 million RMB in Russia, double its domestic price, these vehicles remain highly sought after overseas. According to recent data, around 200 Li Auto vehicles are exported in this manner every week.
In the parallel export trade, BYD, a larger player than Li Auto, stands out. The quantity of BYD EVs exported in parallel is so significant that the company had to issue an official notice stating that BYD vehicles purchased from unauthorized dealers in overseas markets will not be covered by warranties.
Li Auto and BYD are not the only Chinese brands involved in this trade. According to data from the China Association of Automobile Manufacturers, in 2022, there were 1.12 million EVs exported, and in the first six months of this year, the figure reached 800,000. Among the exports, the growth rate of second-hand car exports is even faster, rising from 15,123 vehicles in 2021 to around 70,000 vehicles in 2022.
Industry insiders estimate that approximately 50,000 second-hand cars were exported from January to May this year, with at least 70% of them being EVs exported in parallel. Among them, about 35,000 EVs were exported as second-hand vehicles, with a trade volume of over 7 billion RMB (approximately 1.08 billion USD) based on an average price of 200,000 RMB (approximately 31,000 USD) per vehicle.
In the parallel export model, the exported EVs are all second-hand vehicles. Parallel export refers to the international trade of vehicles that have already been registered and then exported as second-hand cars. Although Li Xiang stated on Weibo that parallel export cars are not included in China’s insured vehicle count, in reality, these cars need to be insured and registered as second-hand vehicles before they can be exported. The reason why these cars cannot be directly exported as new vehicles is due to two prerequisites for new car exports: authorization from the manufacturer and approval from the Ministry of Commerce. These requirements are challenging for automotive dealers and international traders to meet. Parallel export, on the other hand, has lower requirements and simpler procedures, making it a more convenient and efficient approach.
Though the entire trade chain is relatively lengthy, exporting a Li Auto L9 with a domestic price of 459,800 RMB to Russia and selling it for around 1 million RMB generates a difference of over 500,000 RMB. Additionally, there are export tax refunds from China’s customs and import subsidies from some destination countries, resulting in a total trade margin of over 600,000 RMB (approximately 93,000 USD), making the overall profits considerable.
The export of second-hand cars was prohibited in China until April 2019 when the Ministry of Commerce, the Ministry of Public Security, and the General Administration of Customs jointly issued a notice supporting the export of used cars in mature regions. However, even after the opening of the second-hand car export market, the sales volume of regular second-hand cars for export remained relatively low. According to Li Jinyong, chairman of Zhonghai Electric, this was due to the dominance of left-hand and right-hand drive markets by used cars from the United States and Japan. Only when European and American sanctions against Russia occurred in the spring of 2022 did the situation change, creating an opportunity for Chinese cars in the Russian market. Chinese traders saw this chance and started exporting EVs in a second-hand “like new” condition, leading to the flourishing of second-hand car exports. At the “2023 China Second-hand Car Conference” organized by the China Automobile Dealers Association, one of the guest speakers revealed that over 80% of the total volume of second-hand car exports is composed of parallel exported second-hand EVs.
Currently, the main destinations for parallel exported EVs are Central Asia and the Middle East. Although China’s customs no longer releases data on second-hand car exports since 2022, and international geopolitical changes have led to fluctuations in the ranking of export volumes, Central Asia and the Middle East remain the primary export destinations. The choice of export destinations in parallel trade is closely related to the tariff policies, regulatory access, and market demand of the importing countries.
In the international automobile trade, Europe, the United States, and Japan have strict standards, making it difficult for second-hand cars to enter these markets. Southeast Asia has many right-hand drive countries, making it unsuitable for left-hand drive Chinese used cars. Therefore, the main export destinations for Chinese second-hand cars are the Middle East, Africa, India, Central Asia, and South America. Considering the access requirements for second-hand cars in some countries and the overall difficulty of international trade, only the Middle East and Central Asia are relatively favorable trade partners. Data from trade partner countries also supports this situation. Since 2022, Central Asia, particularly three countries in the region, has become the largest market for second-hand car exports. Statistics from Uzbekistan show that China has become its largest source of automobile imports.
Between Central Asia and the Middle East, the volume of second-hand cars exported to Central Asia is larger. Cars exported to the three Central Asian countries can not only be sold locally but can also be transferred to Russia for sale, making Central Asia the main entry point for parallel exported cars.
As the parallel export of EVs remains a buyer’s market, international traders dominate the trade. These traders purchase vehicles from authorized dealers of Chinese car manufacturers, register the vehicles for export to trade countries, earn profits from the price difference and export tax refunds. Due to the rapid development and lucrative profits of parallel exported EVs, many individuals from the automotive industry have joined this trade. For instance, Mr. Liu from Shenzhen, an authorized dealer for a certain brand, is planning to venture into parallel export trade. According to his introduction, there are currently four regions with traders engaged in parallel export trade: Tianjin, Sichuan-Chongqing, Zhejiang, and Fujian. In particular, Tianjin, with its existing large number of automotive parallel import traders, has transformed into parallel export traders with almost zero cost.
The Sichuan-Chongqing region is the fastest-growing area for second-hand car exports, benefiting from the promotion of the “Belt and Road” initiative, the transportation capacity of China-Europe trains, and its proximity to the Western region, which makes it closer to the Central Asian market and facilitates land transportation. Zhejiang and Fujian provinces already had a large number of overseas personnel engaged in international trade and were quick to understand changes in overseas market demand, contributing to the initial scale of EV parallel export trade.
Tianjin, Sichuan-Chongqing, Zhejiang, and Fujian each have their advantages, becoming the pioneering regions for parallel export and second-hand car exports. However, among the total of 41 second-hand car export ports, the export scale of other regions remains relatively small and is still in the early stages of development.
Traditional international trade involves mutual inspection by buyers and sellers, while Alibaba’s website remains the primary platform for parallel export information exchange. Although offline communication can be time-consuming and incur high travel costs, many international traders visited Shanghai during the Shanghai Auto Show this year for on-site inspections. Some of these traders even directly visited some automotive dealerships, inquiring about purchasing cars for export. After the opening up due to the pandemic, Chinese automotive dealers have also started going abroad to explore international markets. However, the more commonly used method is still online trade. Alibaba’s international trade website is the most frequently used platform for information exchange by traders. By searching for keywords such as BYD and NIO on Alibaba’s English and Russian versions, numerous traders engaged in cross-border sales of BYD and NIO vehicles can be found.
The parallel export business has attracted more and more domestic dealers and second-hand car merchants, prompting some traders to establish their platforms to offer automotive export services or provide training courses to help other dealers venture into this business.
Li Jinyong stated that the average profit from parallel exporting one car was around 10,000 USD in 2022, but by 2023, it had decreased to 2,000 USD.
Moreover, parallel export cars face issues related to product quality and localization services. As more people enter the market, issues related to product quality, after-sales services, and localization services become more complex. After-sales services solely rely on product quality support, as parallel exported vehicles lack warranties for local consumers. While minor problems can still be resolved, major issues related to power batteries cannot be repaired locally, rendering the cars useless. Lack of localized services means that the parallel exported Chinese vehicles may not fully meet the demands of the local markets. For instance, some vehicles may not have an English interface for the car infotainment system, and charging networks may be inadequate or inconvenient, causing frequent problems.
Despite Chinese EVs facing modest competition in the domestic market, they are highly popular in international markets. The ID series of vehicles from Volkswagen, for example, is well-received internationally, particularly in Central Asia, where many ID models are exported in parallel. One trader even jokingly remarked that without parallel export, Volkswagen’s pure electric vehicle sales in China could be halved.
Although the ID series has moderate competitiveness in the domestic market, the Volkswagen brand is well-known in international markets, where the demand is primarily for electric functionality rather than intelligent features. As a result, the ID series has been a popular choice for parallel export. The high volume of parallel exports of the ID series has exceeded the operational capacity of regular traders, suggesting the participation of major automotive players in the background.
Due to the flexibility and various advantages, including export tax refunds and subsidies for the Belt and Road initiative, some manufacturers now use the parallel export model for official new car exports. As the number of Chinese brand EVs imported by a specific country increases, the car brand will sooner or later enter that country through official new car exports or even establish production plants there. Hence, the current parallel export trade conducted by small and medium-sized traders may be paving the way for automotive manufacturers. As the number of Chinese brand EVs in a country increases, it will naturally attract the attention of automotive manufacturers and lead to official exports. In the eyes of automotive dealers, although official exports may compete with the interests of parallel exporters, they also present an opportunity. Li Jinyong believes that if parallel exporters can collaborate with automotive manufacturers, they could obtain brand authorization in a country, with the automaker providing the vehicles while the parallel exporter takes care of the business operations. This could be an excellent collaboration model. However, parallel exporters must first prove their ability to sell EVs well in that country. Automotive manufacturers also have their considerations regarding how to export cars to different countries.
Chen Cijing, Vice President of NETA Auto in charge of international business, revealed that NETA Auto exported several thousand vehicles to Thailand in 2022, with the sales volume of the NETA V reaching 3,000 to 4,000 units. As a result, they began constructing a CDK factory in Thailand in March this year. NETA Auto adopts a model where they establish a subsidiary dedicated to the Thai market, leaving no room for parallel exporters. At the same time, he admitted that different countries require different operational methods, and it is not a one-size-fits-all approach. Throughout the history of automotive development, there have been examples of collaborations between international traders and automotive brands, such as the successful partnership between Lixingxing and Mercedes-Benz in promoting the brand in China.
Photo from Wikimedea