Posted on 09 Apr 2024
Chinese-made battery electric vehicles (BEVs) are becoming a growing sight on European roads, as the region becomes a top destination for the behemoth exporter.
So far this year, they have accounted for one in five BEV registrations in Europe, according to London-based automotive research company JATO Dynamics. “The growth is partly explained by action taken by some Chinese OEMs to accelerate imports ahead of the EU decision on the anti-subsidy investigation,” notes global analyst Felipe Munoz.
Yet, other factors such as their edge in battery technology, lower production costs and some dragging by European legacy carmakers are also contributing to the rise in Chinese-made BEVs in the EU and UK markets.
Last year, 19.5%, or 300,000 units, of all BEVs sold across the EU were built in China. In France and Spain close to every third BEV sold in 2023 was made in China, an analysis by campaign group Transport & Environment has shown. Of that, more than half come from Western carmakers. Tesla and Dacia were the top importers accounting for 28% and 20% of the imports, respectively.
However, the Chinese homegrown brands are quickly catching up, the T&E warns, from 0.4% share in 2019 to 7.9% in 2023. The group forecasts that Chinese companies such as BYD, MG and others could potentially reach a 20% market share in 2027. The overall share of China-made BEV imports to the EU, including Western carmakers, is expected at 26% in 2027, Kallanish understands.
The recent T&E study shows MG currently holds the lion’s share in the EU BEV imports from China at 25%. The British marque owned by Shanghai-based state-owned carmaker SAIC offers four models in the region.
“Polestar is the second largest Chinese OEM with its Polestar 2 model accounting for 7% of Chinese imports,” the study says. The Sweden-based brand is owned by Geely Holding and its subsidiary Volvo Cars.
The third largest Chinese carmaker in the EU is BYD with a 4% share of the imports, though other brands include Great Wall Motors’ Ora, Nio and Xpeng.
Amid a shipping container shortage, an average of around 9,800 BEVs/month were shipped into Europe by Chinese brands last year. In 2024, T&E expects imports to rise to 19,000 cars per month. BYD’s own vehicle carrier ships, known as ro-ro, should largely contribute to that expansion.
Anti-subsidy investigation
Concerned about the impact these imports will have on the domestic automotive industry, the European Commission started last October an anti-subsidies investigation into EU imports of BEVs from China. At the time, EC’s president Ursula von der Leyen said: “Global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies. This is distorting our market.”
Last month, the EC said it has seen “sufficient evidence” tending to show that imports from China are benefitting from countervailable subsidies. These comprise direct transfer of funds; revenue forgone or not collected by the government; and government provision of goods or services for less than adequate remuneration, it unveiled.
It was then that officials in Brussels indicated that provisional additional duties could be applied early and retroactively from July this year. The investigation is set to conclude by November and could increase the current 10% import duty. As part of its investigation, the EC has invited public feedback, backed by evidence.
Time to wake up
In addition to the T&E paper, a video documentary by Belgium-based KU Leuven Institute for Sustainable Metals and Minerals (SIM2) can be seen as feedback and evidence the EU must prepare for higher tariffs to defend its industry.
“Make no mistake about it, the tsunami of Chinese electric vehicles is coming. Europe is sleepwalking into an abyss,” says Peter Jones, director at SIM2. “What is happening in the field of Chinese EVs, has also become the norm for Chinese electric buses, wind turbines, heat pumps, electrolysers, solar panels.”
The institute says its documentary released in March acts as a “wake-up call to avoid that Europe’s decarbonisation strategy leads to a nightmarish de-industrialisation.” Citing an often-unfair competition, Jones suggests “we [Europeans] need to get our act together, from mine to electric vehicle.”
Both T&E and SIM2 suggest that Europe’s transition to climate neutrality can go hand in hand with a cleantech-based re-industrialisation and tariffs seem to be the consensus call.
“The era of neoliberal, free-trade globalisation is over. The age of protectionism and resource nationalism is upon us, driven by the United States’ Inflation Reduction Act and China’s all-conquering state capitalism and its Belt & Road Initiative,” says Jones. “If Europe wants to prevent a disastrous scenario of de-industrialisation and widespread poverty, it must alter its path, pushing for a cleantech-based re-industrialisation.”
Julia Poliscanova, senior director, vehicles & emobility supply chains at T&E, and her team recommend the EU raise the BEV import tariff to at least 25% once the investigation concludes distortive subsidies have been found. This should apply to any manufacturer importing EVs into the EU market, and the UK government should match this in order not to become a dumping ground for Chinese EV imports, they say.
As a comparison, European EV manufacturers are currently subject to a 15% import tariff in China and a 27.5% duty in the US. With a 25% tariff on Chinese BEV imports, medium C-segment cars and medium SUVs (JD segment) sold by Chinese carmakers are expected to become more expensive than non-Chinese brands by 8% and 2%, respectively. At this rate, the EU could also benefit from additional revenues of €3-6 billion ($3.2-6.5 billion), according to T&E’s calculations.
Additional defence mechanisms
For that to happen, such measures shouldn’t be restricted to Chinese electric vehicles, but also carefully expand down the supply chain towards batteries. That’s because most of the cost advantage of Chinese OEM electric cars comes from battery prices.
BNEF estimates battery pack prices in China were on average 20% cheaper last year than in Europe, at $126 per kilowatt-hour. The average price in Europe stood at $151/kWh, compared with a global average price of $130/kWh for lithium iron phosphate packs, and $161/kWh for nickel-cobalt-manganese packs.
Some market rumours suggest Chinese OEMs have access to a much larger discount from Chinese battery manufacturers, with cell prices closer to ESD 50-60/kWh. Whether this is true or not, based on the average EV prices of 2023 sales, cars from Chinese OEMs are estimated to be 5-27% cheaper than European alternatives, depending on the segment.
To increase competitiveness in the European automotive market, Poliscanova believes the EC should increase battery cell import tariffs progressively by 2027 to at least 20%. This would close the average cost gap with Chinese battery cells today, but also enable domestic battery manufacturing capacity to meet local demand.
“To avoid retaliation that could slow down Europe’s value chain build-out, the Commission should consider using amicable trade tools,” T&E says. “This can include a lower tariff up to a certain volume of imports (e.g. 10-15% of the market) at an agreed minimum price, with the higher tariff kicking in afterwards.”
The ultimate goal for tariffs should be localising manufacturing in Europe, not stopping Chinese firms from building factories in the region or shielding legacy carmakers from meaningful competition. T&E, SIM2 and other stakeholders hope that trade defence mechanisms become a core part of the EU’s industrial strategy on EV supply chains.
Source:Kallanish
