Chinese EV makers expand in Europe amidst tariff hikes

Chinese electric vehicle (EV) manufacturers are increasingly penetrating the European market, strategically partnering with local companies to counteract steep tariffs. This expansion aims to mitigate the impact of the European Union’s decision to hike duties on Chinese EVs, potentially making these vehicles thousands of euros more expensive. The EU's tariffs, reaching up to 48%, pose a significant challenge for Chinese automakers, who are now employing innovative strategies to maintain their competitive edge.

Collaborations with Local Industries

One prominent example is Chery Automobile Co., which has teamed up with Spain’s Ebro-EV Motors to produce the Omoda E5 in Barcelona. This partnership will see the former Nissan Motor Co. factory near Barcelona’s cargo port become a hub for Chery’s European operations. By 2029, Chery and Ebro aim to produce 150,000 cars annually at this facility. Charlie Zhang, president of Chery Europe, expressed the company's commitment to establishing a strong presence in Europe. "We’re determined to move ahead with our launch team, with our operation in Europe in the short, medium, and long term," he said.

Add WION as a Preferred Source

Similarly, Chinese EV manufacturer Leapmotor has begun assembling its T03 city cars at a Stellantis-owned plant in Poland. This arrangement involves assembling cars from kits that have been partially knocked down, a process allowing manufacturers to circumvent high tariffs imposed on fully assembled vehicles.

Expanding Production Capacity

BYD Co. has announced plans to establish a factory in Hungary, with another on the horizon in Turkey. Meanwhile, Zeekr, a subsidiary of Geely, is considering utilising existing production sites owned by its parent company. These moves reflect a broader trend of Chinese EV makers localising production to maintain market share and profitability in Europe.

The Stakes for European Automakers

The influx of Chinese EVs represents a significant challenge for established European car manufacturers. Facing declining global sales growth, European automakers must adapt by forming partnerships with their Chinese counterparts or risk closing some of their own production sites. The strategic alliances and new factories being established by Chinese companies are creating a complex competitive landscape.

SAIC Motor Corp., for example, is in discussions with the Spanish government to determine the location of its first European production site. Volvo Car AB, owned by Geely, has accelerated plans to produce its new EX30 model at its existing plant in Ghent, Belgium, in addition to its factory in China. These initiatives underscore the urgency with which Chinese manufacturers are seeking to establish a foothold in Europe.

Economic and Trade Implications

The European Commission is still deliberating how the new tariffs will apply to joint ventures not included in its anti-subsidy investigation. While ongoing negotiations may prevent the extra duties from becoming permanent in November, China has initiated a retaliatory probe into alleged dumping of pork products from the EU. This trade tension is part of a broader global dispute, with the US imposing even higher tariffs on Chinese EV imports.

Chinese EV makers must navigate these challenges to avoid sacrificing profits or passing on the cost burden to consumers. For instance, BloombergNEF estimates that the profit margin for state-owned SAIC’s MG4 EV could plummet from 25% to just 1% if the firm fails to adjust its pricing strategy. Matthias Schmidt of Schmidt Automotive Research noted, "List prices of Chinese-brand models are unlikely to change, as they currently lack the brand equity to justify a price increase."

Localising Production for Competitive Advantage

Localising production not only helps Chinese EV makers avoid tariffs but also attracts car parts manufacturers, boosting local economies. Ganyi Zhang, a market analyst with digital logistics platform Upply, highlighted the benefits of this approach. "Localising production in Europe can attract car parts makers," he said, indicating the potential positive spill-over effects.

European Governments’ Balancing Act

European governments are courting Chinese manufacturers to bolster local production while grappling with the implications for domestic industries. Stellantis CEO Carlos Tavares has voiced concerns about the growing presence of Chinese firms. "All European governments are dating Chinese car makers to come to assemble their vehicles in their countries," Tavares said in a Bloomberg Television interview. "Italy, France, Germany, Spain, they are all dating the Chinese. We are here for the fight."

Italy’s antitrust authority recently fined DR Automobiles €6 million for mislabeling vehicles from Chinese manufacturers as Italian-made. This highlights the delicate balance European countries must strike between attracting foreign investment and protecting local jobs.

The Future of Chinese EVs in Europe

Despite these challenges, Chinese manufacturers remain resolute in their expansion plans. Alexandre Marian, partner and managing director at AlixPartners, emphasised the determination of Chinese firms. "Chinese manufacturers are extremely determined," he said. "They always find a way around a problem and once they’ve fixed a target, they find a way to make that target."

As Chinese EV makers continue to establish partnerships and build local production facilities, their influence in the European market is set to grow, reshaping the competitive landscape and challenging the dominance of traditional European automakers.