ChinaThe region’s electric carmakers are expanding in Europe to limit the impact of tariffs that are set to erode their price advantage over the region’s ailing traditional automakers.
Now that the European Union has imposed import duties on Chinese electric vehicles up to 48%, the new generation of Chinese green car manufacturers are working with local industries so that their cars are considered local. Without these measures, Chinese electric vehicles could become thousands of euros more expensive for consumers, or otherwise unprofitable.
Barcelona will soon play host to the Omoda E5, made by China’s Chery Automobile Co., which has partnered with Spain’s Ebro-EV Motors. In Poland, Chinese manufacturer Leapmotor’s T03 city cars are rolling off an assembly line owned by Stellantis. Meanwhile, BYD Co. has announced plans for its own factory in Hungary, with another in Turkey on the way, and Seaweed is considering parent company-owned production sites Yellowish.
The arrival of Chinese EV manufacturers poses a risk for European auto giants, which have little choice but to forge partnerships and make way for their rivals as they close some of their own sites to cope with slowing global sales growth.
Chery hopes to start production at the former factory by the end of the year Nissan Motor Co. factory near the Barcelona cargo port. It is also looking for locations for a second European location.
“We are committed to continuing our activities in Europe with our launch team in the short, medium and long term,” said Charlie Zhang, President of Chery Europe.
Chery and Ebro aim to produce 150,000 cars a year at the Spanish plant by 2029. Zhang, speaking the day after the EU announced the additional tariffs, said Chery is also aiming to build up local research and development, manufacturing and distribution “to become a truly European company.”
The Spanish plant will assemble cars from kits that have been partially “dismantled,” Chery said. Normally, such vehicles are made at cheaper locations, taken apart and then reassembled closer to where they are sold. The process, which is common in car manufacturing, will allow Chery to avoid EU tariffs on finished cars.
The European Commission is still working out how the new tariffs will apply to joint ventures that were not part of the anti-subsidy investigation. While talks could avert the extra duties before they are made permanent in November, China has already launched a retaliatory investigation into alleged dumping of pork products from the EU.
It’s just one part of a broader global trade conflict. The U.S. has slapped tariffs of up to 100% on Chinese EV imports as the world’s two largest economies feud over an industry that’s growing rapidly thanks in part to subsidies from Beijing.
The EU has taken a softer stance. Cheap electric cars are needed to meet a 2035 target to phase out sales of internal combustion cars, but sales growth has stalled as some government support has disappeared. VolkswagenFor example, BYD’s ID.3 sells for around €37,000 ($40,150), while BYD’s Dolphin hatchback sells for around €33,000.
While Chinese EV makers have captured less than 10% of the market share in Europe so far, the region has become the most lucrative sales market for companies like Nio Inc. and Xpeng Inc., which have gone from rapidly expanding in their local markets to running out of capacity.
Chinese companies need a way around European tariffs to avoid sacrificing profits or exposing customers to the pain. According to BloombergNEF, the estimated margin for state-owned SAIC’s MG4 EV could fall from 25% to just 1%. Some of this could be avoided if the company raises prices, or if battery Costs continue to fall, another area where Chinese companies are outpacing their EU competitors.
“List prices of Chinese brand models are unlikely to change as they currently lack the brand equity to justify a price increase,” Matthias Schmidt of Schmidt Automotive Research wrote in a report.
Building installations
Manufacturers aren’t waiting for the full picture of tariffs to emerge. SAIC is in talks with the Spanish government about where to build its first production site in Europe, the newspaper Expansion reported on July 12.
Volvo Car AB, the Swedish automaker owned by Geely, has accelerated plans to build the new EX30 model at an existing plant in Ghent, Belgium, next to its factory in China.
This summer, Leapmotor began assembling the all-electric T03 in Tychy, Poland, at a Stellantis manufacturing facility — just six months after announcing the partnership. Using semi-knocked down kits, Leapmotor will deliver EVs that can be assembled at any Stellantis factory worldwide, the latter company said.
Cars assembled from kits shipped to Poland generate gross profit of about €3,200 per car, Jefferies analysts led by Xiaoyi Lei said in a June 17 research note. That shrinks to about €1,000 for imported vehicles under the estimated impact of the new tariffs.
As an added benefit for the region, locating production in Europe can “attract new people” car parts makers,” said Ganyi Zhang, market analyst at Upply, a digital logistics platform.
There is much more room for partnerships in light of cost pressures, including EU tariffs, Citigroup analyst Harald Hendrikse said in an interview. “All Europeans will soon be making some kind of Chinese car, whether in China or in Europe.”
Questions about rebranding
In ItalyThe government of Giorgia Meloni is trying to lure Chinese manufacturers, although some of the country’s largest carmakers have mixed feelings about the potential increase in competition on their home turf.
Industry Minister Adolfo Urso recently traveled to China and met with electric car makers Anhui Jianghuai Automobile Group and Dongfeng Motor Group Co.
Stellantis Chief Executive Officer Carlos Tavares has repeatedly expressed concern about Chinese companies expanding, despite the company’s tip-up with Leapmotor. “All the European governments are dating Chinese automakers to come and assemble their vehicles in their countries,” Tavares said in an interview with Bloomberg Television on Thursday. “Italy, France, Germany, Spain, they’re all dating the Chinese. We’re here for the fight.”
In June, Italy’s antitrust authority fined DR Automobiles €6 million after it was found to have illegally labeled vehicles from Chinese manufacturers including Chery as Italian-made. DR has said it plans to appeal and that vehicles are only 60-70% pre-assembled in China.
“It is understandable that countries like Italy are concerned about job preservation and are keeping a close eye on what is happening in their home market,” said Alexandre Marian, partner and managing director at AlixPartners.
However, Marian still expects Chinese companies to continue expanding in Europe, possibly by acquiring factories that local manufacturers want to close or sell.
“Chinese manufacturers are extremely determined,” he said. “They always find a way around a problem, and once they set a goal, they find a way to achieve that goal.”