What mechanism allows China to present its EVs at such a competitive price, notably in Europe?
Recently, the stock value of Chinese car manufacturers took a dip upon revelations that the European Commission is mulling over a clampdown on the influx of budget-friendly EVs into the market. Should these tariffs become a reality, China’s ambitious automotive exports, which have surpassed the performance of most locally-produced products despite a declining demand for Made-In-China goods, could suffer a significant setback.
Customs intelligence points out that during the first seven months of 2023, Chinese shipments of new energy vehicles (encompassing both hybrids and EVs) to the European Union skyrocketed by 112%. This surge represents an astonishing 361% growth from 2021.
Decoding China’s Price Advantage
So, what gives China this edge in offering the globe, especially Europe, such competitively priced EVs? Firstly, it’s rooted in overcapacity. Bill Russo, the head honcho at the Shanghai-based consultancy, Automobility, speculates that China experiences an annual overproduction of around 10 million vehicles.
This surplus, combined with Beijing’s proactive EV subsidization, prompted the European Commission to infer that Chinese EVs typically come at a price tag about 20% lower than their European counterparts.
As per Auto News, it’s estimated that China had, by 2021, pumped approximately $15 billion into EV incentives. Notably, these subsidies began in 2009. Fast forward to June 2023, China rolled out additional tax concessions for green vehicles, amounting to a generous 520 billion Yuan ($72 billion), slated for distribution over the coming four years. AlixPartners has deduced that between 2016 and 2022, China’s expenditure on EV and hybrid stimuli was around $57 billion.
The allure is palpable even for Western entities, as evinced by the increasing number of manufacturing plants being established by foreign car manufacturers. Names entering the scene include:
- Tesla
- BMW
- Renault
- Volkswagen, with its recent partnership with Xpeng for bespoke local models.
Unquestionably, car producers operating in China are reaping the benefits of the domestic incentives. Notably, the world’s premier battery producer is China’s CATL, while BYD has outpaced Volkswagen, emerging as the top domestic automobile brand.
From the export lens, Europe emerges as a pivotal expansion territory for Chinese car manufacturers. The stringent emission mandates of the EU, coupled with the impending prohibition on ICE vehicle sales, make the electric option more appealing. With the tariffs from the Trump era inhibiting the potential of Chinese-made vehicles in the U.S., Europe has naturally evolved as the primary trading destination.
Is Europe Taking A Cue From The U.S.?
The European Commission seems uneasy with the influx of Chinese EVs. While the lure of economically priced, innovative technology might accelerate adoption rates, European leaders might be more intent on shielding their indigenous automobile sector.
Recently, the European Commission divulged its plans to probe the feasibility of tariffs to counter the “underpriced” Chinese EVs, with a decision expected in the ensuing 13 months.
“Global arenas are now brimming with cost-effective electric cars. These prices are deliberately suppressed through massive state subsidies,” remarked European Commission’s Ursula von der Leyen to her EU peers.
This apprehension isn’t confined to bureaucrats; industry titans like Stellantis CEO Carlos Tavares have echoed these sentiments, questioning the competency of Western brands against their Eastern competitors.
During Trump’s presidency, Chinese ICEs and EVs were slapped with a hefty 25% tariff—a policy still in effect. Some brands, like Geely’s Volvo, mitigate these by leveraging credits accrued from exporting cars manufactured in U.S. facilities.
However, while affordable Chinese vehicles may jeopardize the native market, the EU must tread cautiously to evade any backlash from Beijing. As per Reuters, China’s Commerce Ministry has already fired a warning shot, denouncing the probe as an overtly protectionist move that could severely destabilize the global auto sector and supply chain, impairing China-EU economic ties.
Given that China remains a colossal market for several European brands, the EU must act judiciously to prevent inadvertently jeopardizing Western car manufacturers, especially giants like BMW, Renault, and VW that manufacture vehicles in China for European consumers.
