Automobile manufacturers from China are changing their model, which was previously focused on exports, by moving towards localized production abroad. According to Moody's Ratings, this step will strengthen the long-term competitiveness of the companies, but financial and regulatory risks will increase over the next one to two years.
This analysis was published in a report in Hong Kong on October 15, 2026, according to information from Moody's Ratings. The agency links this transition to increased competition in the domestic Chinese market and rising export tariffs. Production abroad will allow for improved access to international markets and reduce companies' exposure to tariff barriers. Furthermore, expanding production capacity overseas will help localize supply chains and create growth opportunities for Chinese auto parts manufacturers.
Foreign markets are becoming a key growth driver for the industry. In 2025, sales of Chinese cars abroad reached a record seven million units. Moody's expects exports to continue growing steadily over the next one to two years, which will help offset weakening domestic sales amid the phased cessation of government subsidies. Rising tariffs and local content requirements are also accelerating the move toward overseas production.
Manufacturers are applying various localization strategies depending on their scale, available resources, and priorities. BYD is building factories from scratch. This approach requires significant time and financial investment to achieve full production capacity but provides greater control and minimizes integration risks. Meanwhile, Chery and Great Wall Motor are acquiring existing factories. This limits costs and speeds up market entry but creates risks related to modernizing outdated facilities, integrating workforces, and restructuring supply chains.
Geely, which has a Baa3 rating with a Stable Outlook, and Leapmotor are using partnership models with local companies. These agreements reduce capital and operational risks but limit control, technology protection, and profit share. The success of each of these strategies, according to Moody's, will depend on financial stability, brand positioning, and quality of execution.
The agency forecasts increased financial pressure on automakers during the expansion period. Significant initial investments will increase debt burden and weaken free cash flow, especially while new facilities are under construction. Startup costs, low plant utilization, and rising compliance expenses will put pressure on profitability during the first one to two years.
Regulatory compliance presents another major challenge. Chinese automakers will need to adhere to local labor laws, environmental standards, and sustainability requirements. They will also have to comply with data protection rules for intelligent vehicles and undergo foreign investment reviews in advanced technology sectors. To manage these risks, Moody's advises companies to implement robust global compliance systems, adopt locally adapted management practices, and strengthen supply chain oversight.