- The share of Chinese EV imports sold in Europe doubled in 2 years, and China has announced many new models as part of its quest to become the world leader in electric vehicles.
- The EU is looking into whether China is unfairly supporting its EV industry and distorting the market.
- Many of Europe’s carmakers have warned about Chinese EV imports, saying lower energy and labor costs give EV automakers an advantage.
- Europe has already yielded its solar panel manufacturing to China and is worried that its auto manufacturing may have a similar fate.
European Union (EU) regulators will not calmly accept a flood of imported electric vehicles from China, including non-Chinese-made brands made there. Chinese imports have been boosting their share of the EU market by two percentage points a year at the expense of national employers such as Volkswagen, Renault and Stellantis. In response, the EU is launching an investigation into whether electric vehicles imported from China benefit from excessive government subsidies that allow Chinese EV makers to sell for prices EU-made vehicles cannot profitably match. Many of Europe’s carmakers have warned that lower energy and labor costs give Chinese imports an advantage. The EU inquiry could last 13 months, and could result in punitive tariffs on top of the existing 10 percent duty. A few weeks ago, Chinese EV brands stole the Munich auto show from Europe’s legacy manufacturers. The Chinese Chamber of Commerce is opposed to the investigation’s launch and it indicated that the sector’s competitive advantage was not due to subsidies.
Chinese EV makers, including BYD, Nio and Xpeng are targeting Europe’s EV market, where sales soared nearly 55 percent to about 820,000 vehicles in the first seven months of 2023, making up about 13 percent of all car sales. Xpeng plans to expand into more European markets in 2024, and Zhejiang Leapmotor Technology announced five models for overseas markets, including Europe, over the next two years. According to auto consultancy Inovev, 8 percent of new electric vehicles sold in Europe so far this year were made by Chinese brands, up from 6 percent last year and 4 percent in 2021. This doubling of imports in two years has them concerned, and more are coming. At least 11 new, mass-market, China-made electric vehicles are expected to launch in Europe by 2025. About 41 percent of exhibitors at this year’s Munich event are headquartered in Asia, with double the number of Chinese companies attending, including BYD, Xpeng and battery maker CATL, the world’s leader in sales.
Chinese automakers can build an electric vehicle for 10,000 euros ($10,618) less than European automakers, which is an overwhelming cost advantage that is putting pressure on European manufacturers in their home market. Chinese EV makers can produce vehicles for less because they have lower research and development costs, lower levels of capital spending and lower labor costs than carmakers in Europe. They also control the global supply chains for most of the important parts of electric vehicles, including batteries.
Since 2015, the average price of electric cars increased in Europe from 48,942 euros to 55,821 euros, but it dropped in China to 31,829 from 66,819 euros, taking it below the price of gasoline cars. The price gap is a bigger issue for Europe than the United States, as high duties have limited China’s U.S. market share. In the United States, EV prices increased from 53,038 euros to 63,864 euros over that time period.
As noted above, the average electric vehicle in China cost less than 32,000 euros ($35,000) compared with around 56,000 euros in Europe. Chinese brands, however, are unlikely to sell cars in Europe as cheaply as at home. Logistics, sales taxes, import duty and meeting European certification requirements add costs. MG – the best-selling Chinese-made brand in Europe – sees its biggest challenge as getting cars from China to European distribution sites through saturated ports with long lead times. European preferences, such as big batteries that power longer trips would also likely add costs. Further, Chinese automakers need to build trust with European buyers. Surveys indicate most potential EV buyers in Europe do not recognize Chinese brands and those who do are hesitant to purchase a Chinese car as they remember Japanese and South Korean automakers’ decades-long struggle to win trust and adapt to European tastes. The purchase of storied European brands such as MG by Chinese manufacturers (now owned by SAIC) may help.
Regardless, European auto makers must close the gap on costs by lowering manufacturing costs, which will lower prices. Volkswagen aims to cut battery cell costs by 50 percent through its partnerships in China. Earlier this year, Volkswagen announced that it was investing 1 billion euros ($1.1 billion) to build a new innovation center for electric cars in Hefei, China. It also bought a $700 million stake in XPeng. European carmakers have made a “huge commitment” to electric vehicles with partnerships and large investments in technology. Still, the Chinese are “world champions” at making batteries with a large head start, and batteries make up 40 percent of an EV’s cost.
Europe needs to be careful in its pursuit of tariffs, as Germany’s automakers could suffer if China chooses to answer new EU vehicle tariffs with retaliatory duties on German-made Mercedes, BMW and Volkswagen group cars. China is the largest or second-largest market for all three German manufacturers.
European consumers will benefit from the downward pressure Chinese imports place on EV prices. New tariffs, however, could allow European automakers to raise the price floor for domestic vehicles. For example, U.S. truck buyers are paying luxury-car prices for U.S.-built pickup trucks in part because they are protected by a chicken tax duty left over from a U.S.-Europe trade war over chicken. The “Chicken Tax” is a 25 percent tariff on imported light-trucks that was first imposed in 1964, in response to tariffs levied by some European nations on U.S. poultry products.
An EU attempt to raise the price of Chinese electric vehicles through tariffs could escalate the EV price war in China. China’s EV sector already has too much capacity and more Chinese brands want to participate. European, Korean and Japanese automakers are struggling in China. And, EU tariffs are unlikely to force more Chinese electric vehicles to remain in China.
Longer-term, Chinese automakers could build auto plants inside the trade walls, in this case, on European soil. As U.S. automakers learned the hard way, foreign competitors with lower cost structures can transplant those advantages to new factories, which is what Japanese automakers did 40 years ago in response to U.S. trade barriers. And Europe’s “net zero” climate policies have resulted in rapidly escalating electricity prices, which is increasingly taking a toll on their manufacturing capability.
EU Has a Right to Worry
EU has a right to worry as many European businesses were pushed out by heavily subsidized Chinese competitors in the solar industry. In the late 2000s, China pumped vast amounts of money into solar energy technology, enabling domestic manufacturers to make multibillion-dollar investments in new factories and gain market share globally, in part by using their very cheap coal power. China’s boom in production caused the price of panels to plummet, forcing dozens of companies in Europe and the United States out of business.
China is taking a similar approach to the development and commercialization of electric cars. By 2009, China had set a goal of becoming a global leader in electric cars, and was offering government subsidies of $8,800 per car for taxi fleets and local government agencies in 13 Chinese cities to buy all-electric or hybrid gasoline-electric cars. Chinese makers of electric cars have been stepping up efforts to expand in Europe and elsewhere. China’s auto exports increased 31 percent in August, after a 63 percent jump in July, according to the China Passenger Car Association.
Ursula von der Leyen, the president of the European Commission, said it would look into whether China is unfairly supporting its EV industry and distorting the market. Many of Europe’s carmakers have warned about Chinese EV imports, saying lower energy and labor costs give EV automakers an advantage. As the cost cap between Chinese and European built vehicles is about 10,000 euros, European auto makers are clearly at a disadvantage. However, adding punitive tariffs may not be the way to proceed, as partnerships exist between European and Chinese companies that could be affected if the EU takes action. Currently, the subsidy issue is being studied by the EU, but this is the same EU pushing energy policies that have driven manufacturing and processing to foreign shores. The EU might want to include in its studies an analysis of its own policies driving electricity prices much higher for businesses and consumers.