In recent years, Chinese car manufacturers have become dominant in Israel’s EV market, presenting opportunities and challenges. As the great power rivalry between the United States and the People’s Republic intensifies, the EV market has become a key battleground. This dynamic could increase U.S. pressure on Israel, including potential efforts to prevent Chinese automakers from gaining a foothold in the Israeli EV market.

The People’s Republic of China (PRC) accounted for 58 percent of all global electric vehicle (EV) sales in 2023. Chinese consumers purchased over 8.1 million EVs, solidifying the country’s position as the world’s largest EV market. Additionally, China exported more than 4 million vehicles in 2023 (1.2 million EVs), becoming the world’s top auto exporter. Key export markets included Russia, Europe, and countries in the Asia-Pacific region. With intense competition and affordable electric cars, sales are expected to increase by nearly 25 percent in 2024, reaching around 10 million. By the end of the year, electric vehicles could make up approximately 45 percent of all car sales in China. 

The PRC has strongly supported the national transition to EVs to stimulate economic growth, reduce air pollution, and lessen the country’s reliance on fossil fuel imports. The government has introduced a range of incentives, including substantial subsidies, tax breaks, procurement contracts, and significant investments in charging infrastructure to promote the EV sector. At the same time, Chinese automakers have invested heavily in research and development, producing affordable and high-quality EVs that are popular both domestically and abroad. China’s early lead in the industry, combined with its large domestic market and extensive government backing, positions it to continue dominating the global EV market in the coming years

The rapid growth of China’s EV sector has had a major impact on Israel’s car market, which Japanese and Korean manufacturers have traditionally dominated. A significant shift is underway as Chinese EV brands increasingly gain market share. A decade ago, no Chinese EVs were sold in Israel, but in the first half of 2024, Chinese manufacturers surged ahead, selling 34,601 fuel and electric vehicles. Chinese EVs have made a powerful impression, capturing 68.31 percent of Israel’s EV market during this period, with 26,803 units sold. 

As more Chinese automakers enter the Israeli market, sales are expected to rise further in the coming years. However, several obstacles and challenges exist, including logistical hurdles, potential policy changes, geopolitical tensions, and data security concerns. Ultimately, the future of Chinese EVs in Israel hinges on navigating a complex geopolitical and technological landscape.

China-Israel-U.S. triangle

Since Israel and China established official diplomatic relations in 1992, their bilateral ties have steadily expanded. Israel’s openness to foreign investment, its innovative partnership with China, the potential for collaboration in technology, and geopolitical considerations such as gaining access to new markets and diversifying its investor base have made it easier for Chinese investors to enter Israel. In contrast, other advanced economies, particularly the United States, maintain more stringent regulatory scrutiny. Israel and China's relationship is powerful in economics, culture, academic cooperation, and tourism. In 2017, the two nations signed an “Innovative Comprehensive Partnership” to further enhance their collaboration. China’s primary interest in Israel lies in its advanced technology sectors, particularly cybersecurity, bio-agriculture, and green technologies. Israel’s strategic location also aligns with China’s ambitions, particularly in enhancing access to European markets. With its ports and airports providing convenient access to global trade routes, Israel could become a crucial node in China’s Belt and Road Initiative.

Israel’s decision to engage with China stems from the belief that the PRC offers a vast market with immense potential and opportunities for technological collaboration as China rapidly advances in this field. Additionally, Israel views engagement with China as a way to gain diplomatic leverage and strategic support on regional and global issues. This outreach is also part of Israel’s strategy to diversify its export markets and investment sources beyond its traditional partners, the U.S. and Europe. However, Chinese investments in Israel have significantly declined since their peak in 2018. Chinese investment in Israel's high-tech sector dropped from 9 percent of total foreign investments before the COVID-19 pandemic to around 2.5 percent in 2021. This downturn is mainly due to stricter regulations on capital outflows from China and increasing pressure from the United States.

The escalating rivalry between the U.S. and China places Israel in a delicate position. Israel faces a complex geopolitical challenge as it must balance national security interests tied to its U.S. partnership with its desire to deepen economic and technological ties with China. This balancing act has become more precarious as Israel risks straining its relationship with one power while trying to maintain ties with the other. The situation also casts uncertainty over Israel's electric vehicle market, which could be affected by these competing pressures.

The ongoing war in Gaza has exposed other significant limitations in the Sino-Israeli relationship. China’s stance on the conflict, including its failure to condemn Hamas and the anti-Israel rhetoric prevalent in Chinese state media and online platforms, has raised concerns in Israel about China’s reliability as a partner. This is particularly alarming given the intensifying U.S.-China rivalry, which has seen China bolster its ties with Iran and its proxies while downplaying its relationship with Israel. Israel is increasingly recognizing that it cannot count on China as a dependable ally, and this realization is likely to shape the future trajectory of their bilateral relations. The relationship’s future remains uncertain, depending on whether the two nations can find common ground on mutual interests. However, much will hinge on the evolution of the Israel-Hamas conflict, the broader dynamics of the U.S.-China rivalry, and China’s strategic objectives in the Middle East.

Great Power Rivalry and Chinese EV Sales in Israel

In the age of great power rivalry, technological competition between the United States and the PRC is reshaping the Middle East’s international trade, financial, and technological order and beyond. Technological development and global connectivity in the digital space play crucial roles in determining the outcome of this rivalry. The United States has expressed concerns about the PRC’s increasing dominance in various technological sectors, including the global EV market. Washington has maintained longstanding concerns regarding its reliance on Beijing for batteries and the potential competitive threat Chinese automakers pose to local industry.

The Biden administration has already spurred over $860 billion in business investments through targeted public incentives in key industries like electric vehicles, clean energy, and semiconductors, bolstered by landmark legislation such as the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act. At the same time, the White House has imposed steep tariffs on EV-related imports from China, including a 100 percent duty on electric vehicles, a 50 percent tariff on semiconductors and solar cells, and a 25 percent tariff on lithium-ion batteries and other critical materials like steel. Although Chinese-branded vehicles are unavailable in the stateside, American automakers increasingly consider Chinese electric cars a significant challenge. Looking ahead, Chinese automakers are seen as presenting an “imminent risk” to the U.S. auto industry in the long term. 

The United States views Israel as a close ally and a key partner in countering the influence of the PRC. As the global rivalry for control over critical technologies intensifies, the United States and other Western countries have introduced restrictions on certain types of investments and technology transfers to China. Since the 1990s, successive U.S. administrations have applied pressure on Israel to halt its military and technological cooperation with China. In 2022, the Israeli government assured the Biden administration that it would it informed of any significant deals with China and would be willing to reconsider such agreements if the United States raised objections. This dynamic could increase U.S. pressure on Israel, including efforts to prevent Chinese car companies from dominating Israel’s EV market. As a result, Israeli companies face a strategic and business dilemma: whether to focus their developments on the Chinese EV market or prioritize the United States. As Washington continues to prevent China from gaining the technological edge, it will likely exert growing pressure on Israel over its dealings with Chinese EV manufacturers. This could put Israel in a difficult position, risking an unintended clash with its primary ally, the United States.

Western countries are increasingly concerned about the security implications of using Chinese-made EVs. These vehicles are often equipped with sophisticated sensors and software capable of collecting user data, which could be exploited for various purposes, including surveillance, marketing, and espionage. A recent incident in the UK raised alarms when a Chinese tracking device was found in a government vehicle during a security sweep; the device had been concealed within a component imported from China, sparking fears of widespread espionage. U.S. government officials have also expressed apprehension about the Israeli military’s use of Chinese-made cars. They worry that vehicles equipped with advanced multimedia systems could potentially access sensitive information from military personnel's cell phones, including those of pilots of advanced aircraft like the F-35 fighter jets. Reports indicate that, under U.S. pressure, a workaround was developed to transfer sensitive information to a secure online cloud system hosted in Israel.