Chinese carmakers are under scrutiny in Europe

The flashy temporary pavilions in Munich city center showcasing the latest models from BMW, Mercedes-Benz and Volkswagen were the public face of IAA Mobility, Germany’s biennial motor show, which ended on 10 September. German vehicles were perhaps less in evidence in the showrooms a few miles away, where the Chinese electric vehicles (EVs) making inroads in Europe were clamoring for attention and floor space. Fears of a flood of well-made, well-styled and better-value EVs from the east that would compete with Europe’s established carmakers have now jolted EU makers into action.

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(Graphic: The Economist)

The European Commission announced an “anti-subsidy investigation” into Chinese car firms on September 13. Tariffs well above the 10% levied on Chinese imports could hit those found guilty In the first seven months of 2023, 189,000 Chinese cars were sold in Europe, equivalent to 2.8% of all car sales, but Chinese pure battery cars accounted for almost 8% of sales for this type of vehicle, estimates Schmidt Automotive Research , consultancy. (see chart) These sales have tripled in the last two years, led by Polestar and mg. Brands like Aiways, BYD, Nio, Ora and Xpeng are also on sale. A bank estimates that China’s share of all cars sold in Europe could reach 20% by 2030. They will all be electrified.

China’s rise is partly the result of its government’s desire to create a global force in car manufacturing. A slowdown in EV sales at home as the economy weakens and plenty of spare capacity has encouraged Chinese producers to look abroad. With the American market protected by higher tariffs and subsidies favoring domestic cars, they are looking to Europe instead. The more compact Chinese models are more suitable for all Europeans anyway.

Undoubtedly the Chinese carmakers benefited from government largesse such as cheap loans. But compliance with anti-subsidy charges will be difficult. Complaints from a European industry that has long been caught up in all forms of state support seem hypocritical. More importantly, as UBS notes, the 25% cost advantage over European rivals for the BYD Seal, a mid-market EV that will cost as little as €45,000 ($48,000), is largely the result of a high level of integration the firm’s vertical. and China’s low-cost supply chain, not government handouts.

Motorists in Europe are divided over the wisdom of the Commission’s move. At the top of the market, where brand loyalty is strong, Chinese firms like Nio are unlikely to challenge Mercedes and BMW, with or without subsidies. But by angering the government in Beijing, the investigation threatens Chinese profits from European companies. Half of German car firms’ net profits come from China, according to Bernstein, a broker. In contrast, marques such as Renault, which are not dependent on China but face a daunting challenge in the cut-throat mass market, are likely to succeed. Swing tariffs may save them from having to cut costs to compete with China’s influx. European car buyers, who probably don’t care if the Chinese government had a hand in keeping the price of EVs down, will suffer.

Correction (9 September 2023): In an earlier version of this article we confused the EU’s anti-subsidy investigation into Chinese cars with an anti-dumping investigation. I’m sorry.

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Updated: 14 November 2023, 05:27 PM IST

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