China is on track to become the world’s largest auto manufacturer for the first time in 2025, marking a historic shift in the global auto industry after more than two decades of Japanese dominance, Nikkei reports.

Global sales by Chinese automakers are projected to jump 17% this year to about 27 million vehicles, powered largely by booming demand for electric vehicles (EVs) and plug-in hybrids and a sharp expansion of exports overseas.

That surge is expected to propel China past Japan, which has held the top spot in global vehicle sales for more than 20 years.

Japanese automakers’ worldwide sales are projected to remain flat at just under 25 million units, according to compiled industry data, as China rapidly closes — and now surpasses — a gap that once appeared insurmountable.

The rise underscores how dramatically the balance of power in the auto industry has shifted.

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As recently as 2022, Japan outsold China by roughly 8 million vehicles. That lead has been erased in just three years as Chinese manufacturers scaled up production, embraced electrification, and pushed aggressively into overseas markets.

At home, China’s massive domestic market remains the foundation of its ascent.

Roughly 70% of Chinese automakers’ sales still come from within the country, where government policies have strongly encouraged the adoption of EVs and plug-in hybrids.

“New energy” vehicles now account for nearly 60% of passenger vehicle sales in China, giving domestic manufacturers an enormous testing ground to refine technology, cut costs, and achieve scale unmatched by rivals elsewhere.

But China’s ambitions extend well beyond its borders. Having already overtaken other nations to become the world’s largest auto exporter in 2023, Chinese carmakers are increasingly diverting vehicles — particularly lower-priced EVs — to overseas markets to absorb excess capacity at home.

Exports to Southeast Asia have surged, directly challenging Japanese brands that once dominated the region. In the Association of Southeast Asian Nations, Chinese vehicle sales are projected to jump 49% this year to about 500,000 units.

In Thailand, a long-standing stronghold for Japanese automakers, their share of new vehicle sales has fallen to 69% as of November, down sharply from around 90% just five years ago.

Europe has also become a key battleground. Chinese vehicle sales there are projected to rise 7% to roughly 2.3 million units this year.

The European Union has moved to counter China’s growing presence by imposing additional tariffs on China-made EVs, but Chinese manufacturers have responded by shifting exports toward plug-in hybrids, which are not subject to the same duties.

Growth in emerging markets is accelerating as well. Sales of Chinese vehicles are projected to climb 32% to about 230,000 units in Africa and 33% to roughly 540,000 units in Latin America — regions where price sensitivity favors the lower-cost models Chinese automakers increasingly specialize in.

China’s global expansion, however, has triggered rising political and economic friction.

The United States and Canada have imposed tariffs of more than 100% on China-made EVs, while the EU’s tariffs reach as high as 45.3%, reflecting growing concern over the impact of Chinese imports on domestic auto industries.

European regulators are also developing new standards for compact EVs aimed at encouraging production within the region and bolstering local manufacturers’ competitiveness.

Inside China, the race to the top has become increasingly cutthroat. Excess capacity is intensifying price competition, with leading EV maker BYD and others slashing prices to maintain market share.

The most popular price range for new energy passenger vehicles sold this year has been between 100,000 yuan and 150,000 yuan — roughly $14,000 to $21,000 — highlighting how aggressively manufacturers are competing on affordability.

As China cements its position as an auto superpower, competition at home and abroad is only expected to intensify, reshaping global supply chains and trade relations.

Nikkei methodology: The projections are based on a compilation of full-year automaker announcements and S&P Global Mobility data from January through November. Totals include commercial vehicles and combine domestic sales with exports. Sales are attributed by country according to company ownership ratios, with 50/50 joint ventures assigned based on the brand’s country of origin at the time of sale.