EU probe on Chinese EV imports leaves questions unanswered

    Potential taxes on China-made EVs could impact both local and non-Chinese manufacturers. Photo: BYD
    Shilpa DhamijaAuthor
      Published   in Finance

    A European Union anti-subsidy probe into China-made electric vehicles (EVs) threatens to slow Chinese auto manufacturers' expansion in Europe and imports of these cars produced in the world's second largest economy by non-Chinese companies like Tesla as well.

    And auto makers may have to wait until November 4 next year to find out their fate.

    The EU on October 4 launched an anti-subsidy probe into Chinese BEV imports, to ascertain if they are causing “economic injury” to EU EV producers, and may impose punitive taxes on them. It has up to 13 months to reach a verdict.

    Chinese EV makers are forecast to almost double their market share in Europe by 2025. Chinese car manufacturers make up a mere 3 percent of the total automotive market in Western Europe, yet they represent 8.4 percent of the electric vehicle sector, up from 6.2 percent the previous year and a significant rise from virtually zero in 2019.

    But the largest exporter of EVs from China to Europe isn’t a Chinese brand, “it is Tesla,” Bill Russo, CEO of Shanghai-based strategy and investment advisory firm, Automobility, tells Jing Daily. “It will be interesting to see how they treat exports of non-Chinese brands from China.”

    American brand Tesla is also the biggest exporter of EVs from China to the world, accounting for nearly 32 percent of the total exports from the mainland in the first nine months of 2023.

    Tesla’s China plant churned out nearly half of the company’s global production in 2022. The EU's investigation is likely to impact not just the American car maker, but also German brands such as BMW and Volkswagen, which are planning to produce EVs in China to export to Europe.

    Though the investigation is focusing on BYD, SAIC Motor, and Geely, its remit could be expanded, and any potential duties could be applied to all BEVs manufactured in China.

    In June this year, China unveiled a 72 billion package of tax breaks and subsidies to fuel domestic EV production growth and attract auto manufacturers from around the world.

    Unstoppable juggernaut?#

    China earlier this year overtook Japan as the world’s biggest exporter of autos, shipping some 3.4 million vehicles abroad in the first nine months of the year, with EVs making up nearly a quarter of exports.

    Made-in-China brands including Nio, Tesla, BYD, Geely, SAIC’s MG, Great Wall Motors and Zeekr are expanding their networks in Europe as the region prepares to ban sales of petrol and diesel cars by 2035, each experimenting with a different go-to-market strategy.

    This year, Nio launched its ET5 Touring and EL6 models in Germany, the Netherlands, Denmark, Norway and Sweden with prices starting at about 59,000 euros (62,235). Present in Europe since 2021, the Chinese brand has also been building infrastructure across the region to offer a network of charging and battery swap stations and authorised service centres.

    Nio has built 13 Power Swap Stations in the EU that allow drivers to swap discharged batteries with charged ones, and it aims to have a total of 120 stations by the end of 2023. It also offers leasing models.

    While Nio deployed a direct-to-consumer model in Europe via its Nio House stores spread across major cities, BYD, Tesla’s biggest competitor, is relying on the dealer-partnership model.

    It settled on dealer networks as they have the necessary experience, expertise, and prime locations to shift product, the company said.

    The Warren Buffett-backed brand is present in 14 European markets including the UK and Germany, and aims to establish over a dozen dealerships in France by the end of this year.

    NIO's electric car ES8 SUV is an example of exceptional innovation from China, and Western brands should take note. Photo: NIO website
    NIO's electric car ES8 SUV is an example of exceptional innovation from China, and Western brands should take note. Photo: NIO website

    BYD recently launched its Seal electric sedan in Europe starting at 44,900 euros (47,362).

    Europe attracts Chinese electric vehicle manufacturers due to its lower auto import tariffs of only 10 percent, compared to the US at 27.5 percent. As Chinese Original Equipment Manufacturers (OEMs) strategise their European expansion, what scope do they have to outdo local OEMs who have earned a loyal following over a long period?

    Just over half of surveyed European customers are interested in buying an entirely new brand when moving to an EV, including so-called disruptor brands, according to a study by McKinsey released in December last year.

    Scope of Chinese premium EVs in Europe#

    Zeekr, a premium EV brand under Geely Automobiles, entered Europe this year with the launch of two of its EVs in Netherlands and Sweden, the Zeekr 001 and X priced starting at 59,490 euros (62,752) and 44,990 euros (47,457), respectively.

    The Zeekr 001 is positioned alongside premium cars like the Mercedes Benz EQE, in a segment that is fairly big and growing in Europe.

    “How we position the brand in Europe is very important because Europe’s premium automotive market is probably the oldest and most established globally,” Spiros Fotinos, CEO of Zeekr Europe, tells Jing Daily.

    The brand intends to expand to Germany, France, Denmark and Norway by next year and cover all western European markets by 2026.

    “In Europe, Germany leads the premium car market with a share of about 30 percent to 35 percent. But sales here are still inclined towards local brands,” Philipp Luehr, a partner at McKinsey in Hamburg tells Jing Daily.

    No Chinese EV brands are entering the European market with the intent to capture the pure luxury segment, especially at scale, he adds.

    “There is one luxury segment where the Chinese NEV makers could flourish and that is the low luxury sports cars and roadsters segment,” says Luehr.

    EVs in this segment target aspirational buyers of supercars like Lamborghinis and Ferraris, but cost 20 percent to 40 percent less. “The cheaper version still needs to do a good job,” says Luehr.

    The road ahead#

    Though Chinese OEMs are eager to expand into Europe, would potential punitive taxes create a roadblock?

    “Tax penalties will only make products more expensive for consumers and not protect local BEV producers from competition,” says Russo.

    The EU's anti-subsidy investigation is not the only bump in the road for Chinese NEVs in Europe.

    For instance, Europe’s internet infrastructure differs from the seamlessly integrated interface that Chinese EVs use back home, Luehr says.

    “Here they will need to work with Google, or bring their own kind of interface,” he says, adding that European OEMs struggled in China because of the country’s different internet structure.

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