Hong Kong, Hong Kong.- Chinese electric vehicle manufacturers, increasingly a global force, have been preparing for months for the prospect of heavy tariffs in Europe, one of their most promising markets. When the day arrived on Wednesday, many were ready.
Some have already started building factories on the continent, while others have created joint ventures with companies in the bloc. Still others are considering exporting to Europe from third countries, such as Thailand, while several more are throwing in the towel on Europe altogether, turning their attention to other markets where they have a better chance of displacing traditional ones.
The European Union said late last year it would launch an investigation to determine whether subsidies have given China’s electric vehicle makers an unfair advantage. On Wednesday, the bloc told automakers that imports of electric vehicles could be subject to additional tariffs of up to 38%, on top of an existing 10% tax, assuming it moves forward with its plan in early July.
Although the result has been long expected, the EU announcement complicates the plans of many Chinese EV makers, who had hoped to turn their domestic success into global dominance.
After years of benefiting from government support to foster the world’s most developed electric car supply chain in their country, many Chinese players harbored ambitions to become the next Tesla or Toyota. For these plans, it was essential to secure a foothold in developed markets such as Europe and North America.
Now, many are reconsidering that roadmap. In May, the Biden Administration said it planned to increase tariffs on Chinese EVs to 100%. Now, Europe also seems more daunting.
Several major Chinese electric vehicle makers, including Warren Buffett-backed BYD and US-listed NIO, have already invested millions of dollars in Europe, where they could sell their vehicles at a higher profit margin than they could earn at home.
This is critical as electric vehicle sales slow in China, thanks to last year’s phasing out of domestic EV purchase subsidies and a slowdown in the broader Chinese economy that has cooled enthusiasm. of Chinese consumers for expensive goods and unleashed a brutal price war.
He Yadong, a spokesman for China’s Ministry of Commerce, denounced the EU move as “blatant protectionism” and said Thursday that it may also have violated World Trade Organization rules.
Europe’s decision on tariffs on Wednesday arguably justifies decisions by Chinese electric vehicle makers BYD, Chery and Leapmotor to boost manufacturing in Europe, where they are more likely to avoid import duties.
For others, like Great Wall Motor, which has not made major inroads into Europe, the prospect of increased tariffs has prompted a tactical retreat. Great Wall, which has a joint venture in China with BMW, said last month it would close its European headquarters in Germany, three years after opening it.
Still, although Europe’s actions are complicating or disrupting the plans of some Chinese EV makers in the near term, analysts say the tariffs are likely to only temporarily slow Chinese EV sales on the continent and will not derail their trajectory in the future. long term, particularly in countries without their own local actors to protect.
“This is not a black swan event,” said Yichao Zhang, an automotive consultant at Hong Kong-based AlixPartners. “The general direction of Chinese automakers in the new automobile era remains unchanged.”
Top-tier Chinese EV makers such as BYD will remain in Europe, in part because of the large investments they have already made there, he said.
BYD, which has long operated electric bus factories in the United States and Europe, was among the first to announce plans to build a plant in Europe to make passenger EVs. It began exploring options early last year and in December announced that its first passenger EV plant in Europe would open in Hungary.
Under the new EU measure, BYD cars will face approximately 17% in additional tariffs. Still, its Atto 3 SUV – currently priced at around $41,000 at a German dealership – would still be about 4% cheaper than Volkswagen’s comparable ID.4 Pro after the proposed tariffs take effect.
Analysts say BYD could also introduce more plug-in hybrid electric vehicles, another category in which it is particularly strong, in Europe where they would not be subject to additional tariffs.
Leapmotor and Chery, two Chinese car companies that have delayed selling cars in Europe, are now moving forward with the help of local partners.
Leapmotor, a Hong Kong-listed startup that sells lower-priced electric vehicles, has partnered with Chrysler’s parent Stellantis, which is based in the Netherlands. The companies said in May that their new joint venture will begin sales in nine European countries in September.
The deal was structured with Stellantis taking a 51% stake, in an effort to have the joint venture recognized as a European entity, the executive said.
Chery has partnered with Spain’s Ebro-EV Motors to assemble cars in Barcelona. The brand did not sell any EVs in the EU last year, but has enjoyed an increase in sales in markets such as Mexico and Australia.
The largest Chinese electric vehicle manufacturer exporting to Europe is not BYD, but Shanghai Automotive Industry (Group) Corp., known as SAIC and wholly owned by the Shanghai government. The company, historically the owner of British brands MG and Maxus, would face up to 38.1% in additional tariffs, putting it at the top end of the new tariff regime.
Editing of the original article Selina Cheng / THE WALL STREET JOURNAL
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