As the West clamps down, Chinese cars flood Israel

More than 50,000 new cars are expected to arrive in Israel by the end of the year, most of them made in China. The main reason for the flood is the rise in purchase tax due at the beginning of 2025, but a global trade war aimed at blocking the invasion of Chinese vehicles also lies behind it.

That war is expected to reach a climax in the coming weeks. The Israeli vehicle market is in the eye of the storm, and as a result can be expected to experience a dramatic growth in the supply of vehicle brands and models, in the size of stocks, in competition, and in the number of new players that could enter the market.

The trade war in the automotive industry followed China's record export of over 5 million vehicles worldwide in 2023. The double-digit jump in Chinese exports caught Western automotive industries and economies unprepared, but in 2024, initial blocking measures were put in place.

The first trading bloc to rouse itself was the European Union. Early in July, the EU imposed a "temporary duty" of 20-38% on electric vehicles imported from China on the grounds of "anti-competitive measures" by the Chinese government.

According to the latest reports, the EU will decide by the end of this month whether to retain the duty for the next five years. The Chinese attempted to avert the move on the diplomatic level, including veiled threats of reprisals. The EU, however, continues to stick to its guns, and the Chinese are beginning to realize that the move is almost inevitable.

The results can already be seen on the ground. Since July, Chinese-made electric vehicles have risen in price by thousands of euros amid bankruptcies of importers and agencies and a significant pile-up of vehicle stocks at ports in Europe and China. Several Chinese manufacturers are considering making an about-face and deferring their entry into the European market.

Some Chinese manufacturers have announced intentions of setting up European factories to circumvent the customs duty. This week, however, the Chinese government indicated that such a move was not desirable because of the fear of a leak of sensitive technologies. The government recommended that manufacturers suffice with assembly plants to build vehicles from kits sent from China to Europe. In response, the European Commissioner for Trade announced that the EU would not allow customs evasion exercises that did not contribute to employment and GDP in the EU.

Russia, too, where almost every new vehicle sold is Chinese, is gradually starting to close the gates. The Western sanctions imposed since the invasion of Ukraine make it very difficult for Russian vehicle importers to pay the Chinese in foreign currency. Meanwhile, on the other side of the Atlantic, the US and Canada are preparing to impose aggressive protective tariffs this month, amounting to 100%, instead of the current 25%, on electric vehicles and batteries and raw materials for batteries produced in China.

Israel as a preferred export market

The trade war has put Chinese vehicle manufacturers in a problematic position. They operate production lines in China that were designed with the thought of substantial growth in vehicle exports in the coming years. At the same time, their profitability in the Chinese market itself has been eroded by a fierce price war that has continued for three years. Several Chinese vehicle manufacturers are listed on Western stock exchanges, and investors measure their performance according to market share and export potential.

As a result, a bottleneck has been created, with thousands of new vehicles looking for new, friendly destinations for Chinese vehicles, including Israel. Although Israel is a small market, with 270,000 vehicles sold annually on average, for the Chinese, it's an ideal place for offloading stocks.

Israel has no local vehicle manufacturing industry, and so has no protective tariffs against Chinese imports. In addition, Israeli consumers are very sensitive to what they see as value for money, that is, the relationship between a car's accessories and its price, and here the Chinese have a substantial advantage over Western vehicles.

Many Israeli consumers, particularly buyers of vehicle fleets, don't care about the brand of vehicle they buy, its geographical origin, or its road capabilities, especially when it comes to electric vehicles.

To that can be added the extraordinary enthusiasm of existing importers and other businesses in Israel for obtaining import franchises for Chinese vehicle brands. To that end, they are prepared to finance European standards, commit in advance to buying large quantities, and so forth.

As a result, some Chinese brands are much more successful in Israel than in the big vehicle markets of the West. Since the beginning of 2024, Chinese vehicle brands have conquered more than 22% of the Israeli market. A considerable proportion of the sales are of new brands and models previously unknown to the Israeli consumer.

Add to that the stocks at ports overseas, the current high prices of Japanese, European, and South Korean brands in Israel, and perhaps also the effect of the Turkish embargo on exports to Israel, and you get the potential for a new and much bigger wave of Chinese vehicles flooding the market in the next few months, mainly electric models but also benzene, plug-in, and hybrid vehicles.

A changing market

The flood is already here in two ways. The first is heavy pressure from Chinese manufacturers on their direct Israeli importers to increase orders and immediately import thousands more European-standard cars. Some of the stocks are being offered to the relevant importers at cut prices as long as they commit to ordering substantial quantities.

The success of this tactic is indicated by the number of vehicle transporter ships from the Far East, mainly China and from Europe, that will dock here by the end of the year. At present, we know of no fewer than seven ships laden with 2,500-5,000 vehicles each that are due to arrive in the coming weeks, and some of them will do another round trip to the East and back again before the end of 2024.

Another consequence of the unsold stocks is the unprecedented preparedness of Chinese vehicle manufacturers to appoint an additional official importer if their existing importer can't or won't buy the stock they want to push.

So far, we have seen two cases: the franchise importing the Maxus brand of Chinese group SAIC for the Blilious Group and the JAC vehicles for parallel importer Automax. In both cases, the brands already have an official importer in Israel who at least theoretically still holds the franchise. Sources inform "Globes" that more Chinese manufacturers are discussing appointing additional official importers in Israel alongside their existing ones.

All in all, it will be no surprise if the Chinese conquest of 2024 turns out to be just a prelude to what will happen here in 2025.