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Chinese electric vehicle makers including BYD and Nio are making a push into Europe to sidestep a price war at home. Their arrival is an unwelcome development for local carmakers that were slower than their Chinese peers to embrace electrification and are struggling to catch up. Some potential help arrived on Sept. 13, when European Commission President Ursula von der Leyen kicked off an investigation into the subsidies doled out by China’s government to its EV industry, saying the support was distorting the market. While the probe may help European manufacturers to defend their turf, it may also spur Beijing to retaliate, harming their business in China.
1. What are the Chinese electric vehicle brands?
-The industry leader is BYD, which has dethroned Volkswagen as the top-selling auto brand in China and expanded to around 15 countries in Europe. BYD’s Seal sedan, which starts from around €45,000 in Germany, competes with Tesla’s Model 3 and several VW cars. Its Atto 3 crossover SUV was the best-selling EV in Sweden in July. BYD counted Warren Buffett’s Berkshire Hathaway as an early investor.
-Nio has established sales and service networks in Norway, Germany, the Netherlands, Sweden and Denmark. The brand’s ET5 sedan and EL7 SUV won the maximum five-star safety ratings in the latest 2023 Euro NCAP safety tests. Nio plans to launch a fresh brand of vehicles next year for the European market made at a new factory in China.
-Xpeng unveiled a partnership with Volkswagen in July and plans to start selling its electric sedan and SUV models in Germany in 2024. The company is in talks with dealership chains in the country and said it hopes to line up 15 to 20 distribution partners this year and twice that next year.
-Other Chinese companies have bought European brands to facilitate their entry into the market. SAIC owns British badge MG, while Geely controls sports-car maker Lotus and Sweden’s Volvo Car AB.
2. Why are they coming to Europe now?
Chinese brands account for about half of all EVs sold globally, according to HSBC analysts, and they grabbed more than half of their domestic car market for the first time in July. But many are struggling to generate consistent profits and are locked in a price war as economic growth slows. Selling in Europe, where they can command higher prices, will require big initial investments but may eventually produce big returns. With the E.U. planning to gradually phase out combustion engines, the market is potentially huge.
3. What does it mean for other automakers?
UBS analysts have warned that western automakers are set to lose a fifth of their market share because of the rise of more affordable Chinese EVs. Aside from the subsidies, their main advantage is an ability to manufacture cars more cheaply due to lower energy, raw material and labor costs. They’ve also achieved unparalleled control over their supply chain. A UBS teardown of a 2022 BYD Seal found 75% of its components were manufactured in-house – a figure that’s double the global average. The Seal is almost wholly made in China, with around 10% or less of its parts coming from foreign suppliers, UBS estimated.
4. What’s the situation for non-Chinese car brands?
For many years, strong sales in China helped the world’s carmakers to offset weaker demand in their home markets. China’s EV push, dominated mostly by local brands, has changed the dynamic. South Korea’s Hyundai is selling production facilities, Ford has cut jobs and Stellantis last year shuttered its only Jeep factory in China. Others, like VW and BMW, are striking partnerships with Chinese players to get access to technology or defend sales there. At home, Europe’s carmakers are playing catch-up on EVs:
-Stellantis – maker of Citroen, Fiat and Peugeot brands – aims to be among the most aggressive on price. It plans to introduce two EVs priced below €25,000 in 2024. The company has warned it may have to cut investments in high-cost countries including Germany to respond to the Chinese threat.
-VW was among the first mass-market carmakers to introduce a dedicated lineup of EVs – the ID range, including most recently the ID.7 sedan which comes with an augmented-reality display that beams information into the driver’s field of vision and starts at around €57,000.
-Mercedes-Benz and BMW this year unveiled prototypes for their next-generation EVs, but those models won’t be available until around mid-decade.
-France’s Renault is carving out its EV and software business Ampere with an eye to an initial public offering, to make it easier for the company to clinch partnerships to lower the cost of its EVs. It plans to introduce its first cheaper French-made electric car, the R5, in the third quarter of 2024.
5. Will European companies be happy with the E.U. probe?
Europe’s carmakers don’t see eye to eye on how Brussels ought to handle China. Stellantis Chief Executive Officer Carlos Tavares has said Brussels should come to the aid of homegrown manufacturers that are struggling to keep pace. The companies that rely heavily on sales in China – mainly Volkswagen, BMW and Mercedes – have more to lose if trade relations sour. Mercedes CEO Ola Källenius said in May that Europe should promote free trade and resist the urge to take protectionist measures. The Germans and U.S. rival Tesla produce cars in China that are then exported to Europe, adding to the potential impact on their business from an automotive trade spat with Beijing.
6. How will the E.U. probe work?
The commission will gather information and evidence to determine whether China breached anti-subsidy rules. If it finds that it did, the bloc could adopt countervailing measures such as imposing preliminary duties on imports of electric vehicles from China within nine months of the case being formally launched, and definitive duties within 13 months. These measures could be challenged by Beijing at the World Trade Organization.
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Bloomberg’s Jorge Valero, Alberto Nardelli and Elisabeth Behrmann contributed to this report.
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