China’s electric carmakers are strategically expanding their presence in Europe to counter the impact of tariffs imposed by the European Union. These tariffs, which can reach up to 48%, are designed to reduce the price advantage of Chinese electric vehicles and protect the struggling legacy manufacturers in the region. By partnering with local European companies and establishing their production facilities on the continent, Chinese EV manufacturers can qualify for preferential treatment as “homegrown” vehicles. This allows them to avoid the additional tariffs and keep their prices competitive.
One example of this expansion is the partnership between China’s Chery Automobile Co. and Spain’s Ebro-EV Motors. Barcelona will soon become the production site for the Omoda E5, a Chinese electric car. Chery is also scouting for additional locations in Europe for future production facilities. Similarly, Chinese automaker BYD Co. has announced plans to build a factory in Hungary and is considering another site in Turkey. Zeekr, a subsidiary of Geely, is also exploring potential production sites in Europe.
The arrival of Chinese EV manufacturers poses a significant risk to European auto giants, who are already facing declining global sales growth and the need to shutter some of their own production sites. As a result, European manufacturers have little choice but to form partnerships and accommodate their Chinese rivals on their production lines.
Chery aims to produce 150,000 cars per year at its Spanish facility by 2029 and has plans to strengthen its local research and development, manufacturing, and distribution capabilities to become a truly European company. By assembling cars from partially “knocked down” kits, Chery can avoid the EU tariffs imposed on finished vehicles. This process, common in the auto industry, involves manufacturing vehicles in cheaper locations, disassembling them, and then reassembling them closer to the markets where they will be sold.
The European Commission is still determining how the new tariffs will apply to joint ventures that were not part of the anti-subsidy investigation. While talks may prevent the permanent implementation of these tariffs, China has already launched a retaliatory probe into the alleged dumping of pork products from the EU.
The European Union has a softer stance compared to the United States, which has imposed substantial tariffs on Chinese EV imports. The EU needs affordable electric vehicles to achieve its goal of phasing out combustion car sales by 2035. However, sales growth has slowed due to the removal of government support. Chinese EVs are generally priced lower than their European counterparts, making them an attractive option for price-conscious consumers.
Although Chinese EV manufacturers currently hold less than 10% of the market share in Europe, the region is a lucrative market for companies like Nio Inc. and Xpeng Inc. These companies have experienced rapid expansion in their local markets and have now reached a point of overcapacity. To avoid sacrificing profit or burdening customers with higher prices, Chinese firms need to find a way to navigate the European tariffs. According to BloombergNEF, these tariffs could significantly impact the profit margins of Chinese EVs.
Manufacturers are not waiting for a clear picture of the tariffs to emerge. SAIC is already in talks with the Spanish government about building its first European production site. Volvo, owned by Geely, has accelerated its plans to produce its new EX30 model in Belgium in addition to its factory in China. Leapmotor has already begun assembling its electric cars in Poland, using semi-knocked down kits to avoid the impact of the tariffs. This localization of production in Europe has the additional benefit of attracting car parts manufacturers, benefiting the region’s economy.
Despite concerns about increased competition, some European governments, including Italy, are courting Chinese manufacturers to assemble vehicles in their countries. However, European carmakers, such as Stellantis, have voiced their apprehension about Chinese firms’ expansion in the region. Italy’s antitrust authority has fined DR Automobiles for falsely labeling vehicles from Chinese manufacturers as Italian-made. Nonetheless, experts predict that Chinese manufacturers will continue to expand in Europe, potentially by acquiring plants that local manufacturers are looking to close or sell.
In conclusion, Chinese EV manufacturers are strategically expanding in Europe to counter the impact of tariffs. By partnering with local European companies and establishing production facilities on the continent, they can avoid the additional tariffs and keep their prices competitive. This expansion poses a risk to European auto giants, who are already facing declining sales growth, forcing them to form partnerships with Chinese manufacturers. The European Union needs affordable electric vehicles to achieve its goals, but Chinese EVs are priced lower than their European counterparts. Although Chinese manufacturers currently hold a small market share, the region is a lucrative market for them. Manufacturers are not waiting for a clear picture of the tariffs and are already discussing building production sites in Europe. Despite concerns, European governments are courting Chinese manufacturers, while European carmakers express their apprehension. However, Chinese manufacturers are determined and likely to continue expanding in Europe.