Editor's note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).
This report does not constitute a rating action.
Key Takeaways
- China's auto sector will continue to contend with overcapacity, price wars, and growing demand for margin-dilutive electric vehicles.
- While the U.S. has significantly lowered its tariffs on China, the incremental tariff on imported vehicles and parts to the U.S will still strain the sector.
- Conditions are raising the downside risks for rated issuers, especially those that are more exposed to U.S. tariffs: Johnson Electric and Zhejiang Geely.
China's carmakers have overcome a lot and will now have to overcome a little more. U.S. tariffs will add uncertainty to a sector already managing overcapacity, price wars, and a challenging EV transition. We believe pressures will weigh on the cash flows of rated entities over the next 12-24 months.
U.S Tariff Impact Varies
| Johnson Electric and Zhejiang Geely are most exposed to the U.S. market among rated Chinese auto firms | ||
|---|---|---|
| Direct exposure to the U.S. | Potential EBITDA margin impact from tariffs | |
| Johnson Electric Holdings Ltd. | 25% revenue from U.S., mostly via exports from China, Mexico, Europe | 2-4 percentage points |
| Zhejiang Geely Holding Group Co. Ltd. | 8%-9% revenue , mainly via Volvo Car AB exports from Europe | 0.5-1 percentage points |
| Contemporary Amperex Technology Co. Ltd. | Low single-digit volume exposure | <0.5 percentage points |
Johnson Electric: Highest exposure
- Among the rated Chinese auto makers and parts suppliers, Johnson Electric Holdings Ltd. is more exposed to U.S tariffs than its peers in China.
- About one-quarter of its revenues are sourced from the U.S, and this is mostly via exports from China, Mexico or Europe.
- The tariffs would hit its EBITDA margins by 2-4 percentage points, assuming a 50% price passthrough.
- We expect the actual impact to be smaller, given the exemption on the content that complies with United States-Mexico-Canada Agreement and incremental cost reduction efforts.
Zhejiang Geely and CATL: Mixed impact
- For Zhejiang Geely Holdings Group Co. Ltd., 4% of its unit sales are exports to the U.S. (through Volvo Car AB).
- We estimate that the 25% tariffs on imported vehicles into the U.S. may reduce its EBITDA margin by 0.5-1 percentage points, assuming 50% price passthrough.
- The small exposure of Contemporary Amperex Technology Co. Ltd. (CATL) to the U.S. and increasing sales in other regions suggests the firm will only take a limited hit from tariffs.
The other rated issuers generally have limited direct exposure to the U.S. market. U.S. trade policy is dynamic, and this complicates our estimate of the potential impact on the rated issuers' financial metrics. It's also difficult to quantify the impact of all potential mitigants into our scenario analysis.
Industry Assumptions
- We expect China's domestic light vehicle (LV) sales to grow 0%-3% in 2025. This factors in the sector's solid performance in the year to date, supported by government stimulus.
- The forecast also accounts for likely softer momentum in the rest of the year on a high base and the likely hit on the Chinese economy from tariffs.
- Upside to our assumptions could emerge if the recently lowered U.S. tariffs on China hold in place.
- LV sales will likely decline by 1%-3% in 2026 in China, with demand pulled forward to 2025 due to government subsidies and buying done in anticipation of a 5% purchase tax on electric vehicles (EVs) from next year.
- EV sales to grow by 25%-30% year on year in 2025, lifting the penetration rate to above 50%, before decelerating to single-digit percent growth in 2026.
Competition Focusing On EVs And Affordability
- Chinese carmakers' competitive edge in EVs will likely support market share gains over the next 12 months at least.
- Foreign players are deepening cooperation with local EV suppliers and empowering local product-development teams to create products that will resonate in China; their initiatives will take time to yield results.
- Persistent oversupply will continue, prolonging price cutting.
- Carmakers are introducing more low-price models to grab share in the mass market.
Electric Progress Remains Solid
- BYD Co. Ltd. will likely maintain its top position in China's EV space, despite moderate market share decline in the year-to-date.
- Other carmakers are catching up by launching more affordable models with upgraded features.
- Demand for battery-electric vehicles strengthened in the first quarter likely due to the increased availability of cheap models.
- Momentum for plug-in hybrid electric vehicles remains solid following three years of high growth.
Battery Market Competition Also Intensifies
- Domestic battery installations will remain strong in 2025, given solid EV growth and the pursuit of higher energy density.
- Some lower-tier players are gaining market share as carmakers continue to diversify supply chains for better cost management.
- That said, CATL and BYD will continue to lead the market, we assume, given the former's tech capabilities and diversified products and the latter's expanding EV sales.
Rating Buffers Are Narrowing
- Intense competition and worsening external conditions are adding downside risks to rated issuers.
- U.S. tariff will further reduce the financial headroom of Zhejiang Geely and Johnson Electric.
- The pressure on Beijing Automotive Group Co. Ltd. and China FAW Group Co. Ltd. lies primarily in making more progress with their EV lineup, which will determine the competitive position and financial metrics of the entities over the next two to three years.
- We expect CATL to stay net cash with stable profitability amid rising EV penetration in China and Europe.
- U.S. tariffs should have a limited impact on CATL, given its low-single digit sales volume exposure to the country.
| The downside risks facing each firm in the Chinese auto sector | ||||
|---|---|---|---|---|
| Issuer credit rating | Rating strains | Downgrade trigger | S&P 2025-2026 forecasts (before tariff impact) | |
| Zhejiang Geely Holding Group Co. Ltd. | BBB-/Stable/-- | - U.S. tariffs - Intense competition | - Debt/EBITDA>2.0x- EBITDA margin<7%-8% | - Debt/EBITDA: 1.3x-1.6x- EBITDA margin: 6.8%-7.5% |
| Geely Automobile Holdings Ltd. | BBB-/Stable/-- | - U.S. tariff impact on parent - Intense competition | - Same with the parent’s, due to core subsidiary status | N.A. |
| Beijing Automotive Group Co. Ltd. | BBB/Stable/-- | - Slow EV progress at JV- Loss-making proprietary brands | - FFO/debt<12% | - FFO/debt: 15%-16% |
| BAIC Motor Corp. Ltd. | BBB/Stable/-- | - Slow EV progress at JV- Loss-making proprietary brands | - Same with the parent’s, due to core subsidiary status | N.A. |
| China FAW Group Co. Ltd. | A/Stable/-- | - EV competitiveness | - Debt/EBITDA~1.0x- EBITDA margin<8%- FOCF/sales<=3% | - Net cash- EBITDA margin: 8.5%-9.5%- FOCF/sales: 4%-6% |
| Contemporary Amperex Technology Co. Ltd. | A-/Stable/-- | - U.S. tariffs- Increasing competition | - Debt/EBITDA~1.5x- EBITDA margin declines significantly | - Net cash- EBITDA margin: 23%-24% |
| Johnson Electric Holdings Ltd. | BBB/Stable/-- | - U.S. tariffs- Price and volume pressure | - Debt/EBITDA>1.5x- EBITDA margin declines materially- Negative DCF | - Net cash- EBITDA margin: 15%-16%- DCF:US$260-US$290 mil. |
Ratings as of May 15, 2025. JV--Joint venture. FFO--Funds from operations. FOCF--Free operating cash flow. DCF—Discretionary cash flow. N.A.--Not available. Sources: Company reports, China Association of Automobile Manufacturers, EV Volumes, S&P Global Ratings.
Related Research
- Global Auto Outlook: From Drive To Dive, May 6, 2025
- China's Car Sector: A Shakeout Looms, April 1, 2025
- China Industrials: Policy Patches Will Ease Some Of The Strain, Feb. 11, 2025
- Impact Of U.S. Tariffs On China's Auto Sector: Watch For Second-Order Effects, Feb. 10, 2025
- China Auto: Survival Of The Fittest, Oct. 16, 2024
| Primary Contacts: | Claire Yuan, Hong Kong 852-2533-3542; Claire.Yuan@spglobal.com |
| Stephen Chan, Hong Kong 852-2532-8088; stephen.chan@spglobal.com | |
| Crystal Ling, Hong Kong 852-25333586; crystal.ling@spglobal.com | |
| Secondary Contact: | Danny Huang, Hong Kong 852-2532-8078; danny.huang@spglobal.com |
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