Chinese EV makers, such as BYD, XPeng, and NIO, are expanding in Europe to find new markets due to tough competition at home. The European Union, in turn, seems worried about the influx of Chinese electric cars and maintaining a fair balance in the market.
So, a respite needed for automakers in the EU breezed in during the 27-member association's State of the Union (September 13, 2023) when European Commission President Ursula von der Leyen announced a counterstep
against the upswing in Chinese electric car imports into the EU, alleged to be a disruptive force to the bloc's single market due to competitive undercutting.
"So I can announce today that the Commission is launching an anti-subsidy probe into electric vehicles coming from China. Europe is open to competition. Not for a race to the bottom," von der Leyen said.
Various media outlets suggest the investigation might support local e-car producers in the European Union, enabling them to safeguard their market presence. It could also prompt a retaliatory response from China, potentially decimating European EV makers' business interests in the country.
What Does China Have in Its Pocket?
BYD, or “Build Your Dreams,”
a leading player in the industry, has developed a presence in roughly 15 European countries. Priced at around €45,000 in Germany, BYD's Seal sedan is a contender against Tesla Inc.'s Model 3 (roughly €51,990) and various Volkswagen EV cars. As per EU-EV reports
and BYD's official news, BYD accomplished a significant feat in the European electric vehicle market in July 2023. In a notable achievement, the company sold 721 units of its popular model, the BYD ATTO 3, in Sweden, making it the highest-selling electric car in the country for the month (taking an 11.11 percent market share). This also scored BYD's debut as the monthly e-car sales leader in the European market. In 2008, Warren Buffett's Berkshire Hathaway Inc. invested $230 million to secure a 10 percent share in BYD. The Chinese government promptly implemented subsidies and incentives to stimulate the New Energy Vehicle (NEV) sector. In China, BYD dominates with almost 30 percent market share. They have an extensive lineup of 25 models, encompassing hybrid and fully electric options. Prices range from approximately $13,841 to $138,417.
NIO boasts robust sales and service channels in Denmark, Germany, the Netherlands, Norway, and Sweden. Earning a perfect five-star safety rating in the 2023 Euro NCAP safety tests, NIO's ET5 sedan and EL7 SUV showcase a remarkable safety performance. NIO is on track to introduce a new series of vehicles tailored for the European market, set to be produced at a state-of-the-art factory in China and scheduled for launch next year.
Xpeng Inc. made headlines in July when it revealed its deal with Volkswagen and laid out its ambitions to introduce its electric sedan and SUV models to the German market next year. The company is currently in discussions with dealership chains nationwide. They aim to secure 15 to 20 distribution partners this year, intending to double that number in the coming year.
Mini EVs from the SAIC-GM-Wuling partnership offer tangible advantages over their larger electric peers. Their popularity and affordability have positioned them as a cornerstone in China's transition to electric mobility. Wuling's Hongguang mini EV dominated the Chinese electric sedan market, claiming the top spot in sales for both 2021 and 2022. It is an integral part of the joint venture formed in 2002 with SAIC, one of China's formidable quartet of auto manufacturers, and General Motors (GM). At the outset, the partnership thrived in the minivan production domain. However, in July 2020, they rolled out the Hongguang, an immediate market sensation, currently commanding roughly 90 percent of SAIC-GM-Wuling’s total sales. The Hongguang's base price is about $6,563, while three other models span up to $14,635.
Various Chinese enterprises have acquired European brands and vice versa to facilitate their entry into the European market. SAIC Motor Corp. is the proud owner of the renowned British insignia MG, while Geely steers the production of sports cars through Lotus and manages Sweden's Volvo Cars AB.
How China Dominates Global EV Battery Market
China is indisputably leading in the international pursuit of producing EVs and energized batteries. This encompasses everything from the extraction to refining of the essential materials and valuable metals that form the core of batteries.
According to the findings of SNE Research in Seoul, Contemporary Amperex Technology (CATL), headquartered in Fujian province in eastern China, continues to hold its position as the leading global manufacturer of electric vehicle batteries.
In 2022, CATL fitted an enormous 165.7 gigawatt hours (GWh) of battery cells between January and November, a 101.8 percent increase compared to 2021, SNE Research stated.
At the close of 2021, the company's worldwide market dominance climbed from 32.8 percent to 37.1 percent. CALB, Gotion High-tech, Sunwoda, and Eve Energy, four key players in the Chinese market, cemented their positions as world leaders among the top 10 EV battery producers. Taking the seventh spot, CALB commanded a four percent market share. Gotion followed in eighth place, claiming a 2.8 percent stake in the market. Sunwoda secured the ninth-largest position with a 1.7 percent share.
Meanwhile, Eve, in 10th position, held a 1.3 percent share of the market.
Despite the growing popularity of sodium-ion batteries in the market, NEVs are still primarily equipped with lithium-based batteries, making up to 99 percent of installations. These batteries incorporate core elements like aluminum, copper, and iron, more pricey metals like cobalt, manganese, and nickel.
China has strategically positioned itself in the global supply chains of various crucial metals, including lithium. By investing in and forming agreements with mining companies across continents like Africa, South America, Indonesia, Australia, and Canada, China has secured access to essential resources needed for various industries, particularly the rapidly growing electric vehicle market.
Following the mining phase, China holds sway over production in all stages of the battery supply chain. This involves the construction of positive and negative electrodes, manufacturing cells, and organizing their assembly into modules, culminating in forming battery packs. Around 75 percent of battery cells globally are produced in China, 70 percent of specialized cathodes, and 85 percent of anode materials.
Furthermore, China manufactures 66 percent of separators and 62 percent of electrolytes.
By 2025, mainland manufacturers are set to produce an estimated 3,000 GWh of e-vehicle batteries, three times the projected domestic demand for the same year, according to SNE Research's findings.
Subsidies to Boost China's Electric Car Industry
Production Subsidies: The Ministry of Industry and Information Technology (MIIT) grants subsidies to car manufacturers according to the volume of EVs they produce. By the end of 2022, it had funneled nearly $5.4 billion into subsidizing the production of approximately 3.76 million new energy vehicles, based on estimations using the ministry’s most recent subsidy review. As per consulting firm AlixPartners, Chinese state subsidies for electric and hybrid cars totaled $57 billion from 2016 to 2022. This substantial financial backing propelled China into the world's leading EV manufacturer position. It enabled it to surpass Japan as the most prominent auto exporter in the first quarter of this year. 2022 saw China wrap up an expansive 11-year subsidy scheme for e-car acquisitions. Nevertheless, certain local authorities have opted to sustain aid or tax concessions to attract investments and extend consumer subsidies.
Tax Breaks: China's policy of exempting nearly all e-cars
from vehicle purchase tax profoundly impacts their affordability. This, in turn, has triggered a swell in consumer demand, resulting in increased revenue for local automakers. Such incentives are instrumental in driving the growth of the Chinese EV market. In June 2023, China announced a sweeping $72.3 billion package to stimulate the sales of EVs and other green automobiles over the next four years. This proactive measure is aimed at shoring up weakening demand in the Chinese automotive industry, resulting in a sharp increase in automaker stocks. This initiative continues the ongoing policy, which ensures that NEVs, covering battery EVs, plug-in hybrid electric vehicles, and hydrogen fuel-cell vehicles, will remain exempt from purchase tax until the end of 2023.
Bulk purchases: Most Chinese city authorities have made bulk orders for locally made e-buses and e-cars — a steady revenue source for these automakers.
Funding for Research and Development: These allocations primarily occur at the provincial or community level, offering specific grants for critical technologies and the evolution of next-generation vehicles and fundamental components.
What's Driving China's EV Brands to Europe Now?
HSBC analysts reveal that Chinese automakers dominate the global electric vehicle market, representing nearly half of all sales worldwide, having surpassed 50 percent of their domestic market share for the first time this year. However, numerous companies are struggling to maintain steady profits while being entangled in competitive pricing. However, venturing into the European market, where they can fetch higher prices, requires a substantial initial outlay.
Nevertheless, it carries the potential for significant returns in the future. Given the EU's intentions to progressively phase out combustion engines, the market potential looms large.
The EU's import of e-cars from China far surpasses its exports, as figures from Eurostat show.
EU-China Trade in Electric Cars By Value of Monthly Imports (in €)
Import from China (in €)
EU Export to China (in €)
Source: Eurostat (HS2-4-6 and CN8)
European EV Makers Sound Alarm About Chinese Brands
UBS AG experts have raised a red flag, predicting that Western automotive giants are on track to relinquish a substantial 20 percent of their market stake, all thanks to the uptick of competitively-priced Chinese EVs. Beyond the subsidies, their primary asset is the knack for producing cars at a lower expense, given the reduced energy, materials, and labor costs. They've garnered unparalleled mastery over their supply chain. A UBS dissection of the 2022 BYD Seal uncovered that an impressive 75 percent of its components were produced in-house — twice the average worldwide.
UBS estimates that BYD's Seal is wholly made in China, with approximately 10 percent or fewer of its parts originating from foreign suppliers.
Status of Non-Chinese Car Brands in Today's Context
For quite some time, thriving sales in China have acted as a lifeline for car manufacturers worldwide, compensating for weaker demand in their local markets. China's thrust into electric vehicles, primarily spearheaded by homegrown brands, has shifted the paradigm. BYD recently took the top spot as the best-selling auto brand in China, surpassing Volkswagen. Ford Motor Co. downsized its workforce
the previous year, and Stellantis NV ceased operations at its only Jeep factory in China; Hyundai Motor Co. of South Korea is divesting its production facilities in China.
In contrast, VW and BMW AG, among others, are establishing partnerships with Chinese firms to secure technological access and fortify sales in the region. European auto producers are also catching up in the EV race on their home turf:
This year, Mercedes-Benz Group AG and BMW showcased models of their future electric vehicles. However, these models won't be accessible until the middle of the decade.
Pioneering the Citroen, Fiat, and Peugeot marques, Stellantis is charting a course towards being an industry leader in competitive pricing. Their agenda includes introducing two electric vehicles in 2024, each priced below €25,000. In response to the Chinese competition, the company has signaled a potential need to trim investments in high-cost countries, Germany included.
Renault SA in France is segregating its EV and software venture, Ampere, with the aim of an upcoming initial public offering. This strategic maneuver is aimed at streamlining partnerships and ultimately driving down the cost of their electric vehicles. The company is set on introducing the R5, their inaugural affordable French-manufactured electric car, in the third quarter of 2024.
stood at the forefront of Western saleable car companies to introduce a dedicated range of EVs known as the ID series. The most recent addition, the ID.7 sedan, features an augmented-reality display that projects vital information directly into the driver's field of view. It is available starting at around €57,000.
Are Chinese Electric Cars More Budget-Friendly?
Certainly, this rings true in China, although it's a different story in Europe. For example, Renault has been branding the Dacia Spring as Europe's most cost-effective electric vehicle for several years. The crossover's base price in France is roughly $22,200 — but $16,864, after factoring in a state subsidy. Nonetheless, this figure inadequately reflects European manufacturing competitiveness, considering the car is produced in China's Hubei province. With its advantageous combination of cost-effective land, energy, and labor resources, China still holds a distinct edge in car production over Europe. The extensive production efficiency bolsters this advantage.
The price differentials below show the notable gaps in pricing between electric vehicles imported from China into Europe and their production costs in China: In France, the BYD Dolphin EV car is priced at €28,990 (China: €15,200). In the German market, EV cars are priced as follows:
MG ZS: €31,310 (China: €15,600)
Zeekr X: €44,990 (China: €24,700)
Polestar 2: €48,990 (China: €38,900)
BMW iX3: €67,300 (China: €51,800)
NIO ET7: €69,900 (China: €55,600)
Note: (€1 = CN¥7.7 as of September 17, 2023)
It can be deduced that the European EV market is lucrative for Chinese automakers; and more economical for buyers.
'We Don’t Want to See Chinese EVs Benefiting From Our Climate Policies'
Von der Leyen's statement received prompt endorsement from Manfred Weber, the European People's Party leader. “We don’t want to see Chinese electric vehicles benefiting from our climate policies,” Weber told MEPs after von der Leyen’s yearly address. “We have to activate our trade defense instruments to avoid another solar panel attack,” he noted.
The remarks of the Bavarian politician were notable, given the substantial footprint of the German automotive industry in China. This sector would face the highest degree of vulnerability to any potential response from Beijing.
“This is an important move by the commission, signaling the willingness to use trade instruments more proactively to protect the European industry and avoid the replication of the solar panel's failure experience in the past to the crucial car industry,” said Simone Tagliapietra, a senior fellow at the Brussels-based think-tank Bruegel.
Sigrid de Vries, director general of the European Automobile Manufacturers’ Association (ACEA), lauded the commission for its efforts by saying, “recognizing the increasingly asymmetric situation our industry is faced with, and is giving urgent consideration to distorted competition in our sector.”
However, media sources report that the anti-subsidy investigation into Chinese electric vehicles may divide von der Leyen and the German government. The government is fundamentally wary of protectionism, supporting domestic industries instead. They are concerned that retaliatory actions could negatively affect Germany's export sector.
“Competition should spur us on, not scare us. In the 80s, people said that Japanese cars were overrunning all other markets. Twenty years later, it was cars made in Korea. Today, it’s supposed to be Chinese electric cars," German Chancellor Olaf Scholz said.
The EC president faced more pushback, even from her political group. MEP Markus Ferber of the Bavarian CSU and European People’s Party (EPP) raised concerns regarding an “isolation policy” that could cause “other markets to close themselves off as well." Additionally, Ferber highlighted that von der Leyen's announcement could potentially be at odds with exploring new export markets by negotiating additional free trade agreements.
The German Association of the Automotive Industry or VDA spokesperson said, “an anti-subsidy investigation alone does not help to solve the existing challenges with regard to the competitiveness of the European location. Policymakers in Brussels and Berlin must create the framework conditions for the transformation to succeed."