In recent years, Chinese companies have been increasingly penetrating the European market with low-cost electric vehicles. Leading this export campaign is BYD, a company that was among the main sponsors of the recent European Football Championship, along with MG, a car manufacturer that specialized in low-cost roadster vehicles in the mid-20th century and now exports vehicles with upward-opening rear doors and multi-purpose sports vehicles from China.
This effort began with a few cars in 2019 but escalated last year to 175,000 vehicles, according to researchers from Dataforce. This significant shift is causing concern among the board members of companies like Volkswagen and Stellantis, the owner of brands like Jeep, Fiat, and Peugeot, among other European car manufacturers.
Chinese companies accounted for about 9% of total electric vehicle sales in Europe in 2023. While electric vehicle sales still represent a small percentage of the overall car market in Europe, their numbers have been rapidly increasing. The European Union is relying on this technology to boost innovation, especially as the deadline to phase out internal combustion engine cars by 2035 approaches.
This poses a challenge for policymakers in the European Union, who are seeking to protect a sector that provides millions of high-wage jobs during this transitional period. An investigation by the European Union in March found that Chinese government support helped companies sell electric vehicles at significantly lower prices, negatively impacting competition. To address this challenge, the European Union approved a temporary increase in tariffs of up to 48%. These regulations came into effect on July 5, but exporting car companies will not have to pay the fees until these rules become permanent, which is expected to start in November.
However, Europe is not united in its stance on this decision, raising questions about the validity of imposing these tariffs, which could spark a trade war with Beijing. This comes at a time when global electric vehicle sales are slowing down, putting pressure on manufacturers everywhere.
Not all European car companies support the tariff increase, fearing retaliatory Chinese responses in a market that is important to them. Additionally, electric vehicles manufactured by these European companies in China will also be affected by the tariff. The CEO of BMW, Oliver Zipse, said in a conference call on August 5, „These fees will lead us to a dead end and will not help make European manufacturers more competitive.“
New data on vehicle registrations is not helping to settle the debate. Chinese car companies rushed to deliver electric vehicles to dealers in June for registration before the new customs duties came into effect, depleting their inventory and reducing the number of cars available for sale in July. As a result, the registration of Chinese electric vehicles decreased by 45% compared to June, according to Dataforce data covering 16 markets in the European Union.
However, the overall electric vehicle market, meaning cars from all manufacturers, declined by 36% in all those countries. Matthias Schmidt, an independent automotive analyst in Germany, said that European companies were more cautious in managing their inventory. He added, „We saw a strong push from Chinese companies to get cars into showrooms in June, which likely led to inventory depletion.“
In the United States, the tariff could double the prices of Chinese-made electric vehicles, effectively closing the market to these vehicles. To avoid these fees, BYD is seeking to build a new factory in Mexico, a manufacturing relocation strategy that could also be applied in the European Union. The company plans to establish factories in Hungary and Turkey, while Chery Automobile is working on building a factory in Spain.
Meanwhile, other Chinese companies are forming alliances with European car companies. For example, Leapmotor has partnered with Stellantis to establish a factory in Poland.
Brussels is engaged in talks with Beijing to find less provocative solutions to address its concerns, while China has escalated tensions by investigating European pork exports in response to European tariffs. If an agreement is not reached, the temporary tariffs on Chinese electric vehicles will become permanent after member states vote, expected in late October.
Last July, Valdis Dombrovskis, Vice President of the European Commission, said in an interview with Bloomberg TV that „Europeans are ready to negotiate, but it is clear that this solution must address this market imbalance.“
In conclusion, the increasing presence of Chinese electric vehicles in Europe is causing a stir in the automotive industry, with implications for both European and Chinese manufacturers. The ongoing negotiations and tensions between the two sides highlight the complexities of the global automotive market and the challenges faced by policymakers in balancing economic interests and market competition.