Author: Zhang Bei
With the imminent implementation of EU tariffs, the prospects of Chinese electric vehicles in the EU market have encountered some uncertainty. But it is also worth noting that in addition to tariffs, the cooling of the entire European electric vehicle market is a greater threat.
According to statistics from the European Automobile Manufacturers Association, from January to May this year, the growth rate of newly registered electric vehicles in the EU was 6.4%, far lower than the growth rate of 37% in the whole of last year. In the context of the decline or even withdrawal of electric vehicle subsidies in many European countries, and the European economy is still sluggish, ordinary consumers are more willing to choose more cost-effective models, and cheap electric vehicles are the biggest shortcoming of major European car companies.
Do tariffs work?
Higher tariffs on Chinese-made EVs will dampen sales of some Chinese-made EVs in Europe in the short term, but they will have little effect in the long run.
Tariffs have accelerated the establishment of Chinese automakers in Europe. At the end of 2023, BYD officially announced that it will land a vehicle plant in Hungary. This year, Chery's plant in Spain was also confirmed. As for the Geely brand, you can rely on Volvo's factories in Europe, especially Volvo's new factory in Slovakia. Just the construction of a factory is bound to mean a huge investment, which is not only the construction of the automaker itself, but also may be accompanied by the landing of the entire parts industry chain in Europe, including the battery factory.
Of course, the construction of a completely new factory in Europe is also protracted. It is basically a fool's dream to recreate Tesla's Gigafactory in Shanghai, and to go from piling to production within a year.
In addition, after the official announcement of the tariffs by the European Union, BYD's share price also rose. What does this mean? The tariffs imposed by the EU on BYD did not have much effect. On the contrary, with the landing of tariff boots, BYD's future prospects in Europe will be more certain.
Taking the Hiace launched by BYD in various European markets this year as an example, the prices of its two versions are 50,990 euros and 44,900 euros respectively, while the price of the same model in China is 166,800 yuan to 279,800 yuan. Therefore, BYD can choose to fully absorb the increase in tariffs on its own, or it can choose to transfer a part of the tariffs to local consumers in Europe. Even after the price increase, BYD Hiace is still quite competitive in price.
It should also be noted that it is not only domestic brand car companies such as SAIC, Geely, and BYD that sell electric vehicles in Europe, but also a large part of European and American car brands such as Tesla, Renault, BMW, and Volvo/Polestar that are produced and exported from China to Europe. Therefore, the EU's new tariff policy will not only suppress Chinese brand electric vehicles, but also local European car companies.
As a result, Volvo moved production of its EX30 electric car, the best-selling electric car in Europe, to its Ghent plant after the tariffs were introduced, while Stellantis also accelerated its plans to transfer production capacity of Leapmotor to its plant in Poland.
How did China's advantage come about?
The price of electric vehicles in Europe cannot come down, and the price of electric vehicles in China is too cheap, is it really the reason for the Chinese government subsidies? The answer is no.
In China's electric vehicle market, electric vehicles can be sold cheaply because of serious overcapacity. Not long ago, the 350,000 BMW i3 was sold at half price in the domestic auto market, which attracted the attention of the market. Earlier, there was the case of Volkswagen's dealers in Germany who exported the ID.6X from China to Germany for sale. Many domestic car companies are selling cars at a loss, and this practice is unwilling to be done by European and American car companies.
In particular, many new forces are using a set of Internet tactics to promote: in the early stage, they will seize market share through subsidies/low prices, and at this time, the losses can be solved by financing from investors or the securities market. Wait until the market is stable, and then harvest consumers. This is a style of play that traditional car companies have never experienced, and it is also the main reason why many domestic taxi companies have lost in front of Didi.
The cost advantage of Chinese automakers in the field of electric vehicles is all-round, and domestic automakers, including BYD, have achieved the goal of reducing costs through the vertical integration of parts. So what the EU sees is not so much the price advantage of our electric vehicles, but the result of the joint efforts of the entire parts industry chain.
Taking BYD as an example, it was originally a battery supplier, and the lithium iron phosphate battery it focuses on is the first choice for entry-level electric vehicles, which can achieve a good balance in terms of range, cost and safety. This is something that other European and Korean battery companies that have paid more attention to ternary lithium batteries have not been involved in before.
Recently, the European battery company ACC (full name Automotive Cells Company), which is jointly invested by Stellantis and Mercedes-Benz, will suspend the construction plan of two production bases and plan to switch products to lithium iron phosphate batteries. For the entire European EV value chain, they also need time to adjust their product strategy at the level of their products.
Of course, the engineering innovation of our engineers also contributes a lot. Previously, Caresoft Global, a well-known car dismantling research institute in the United States, dismantled a BYD Seagull. On this entry-level electric car from BYD, Caresoft found many ways for BYD to reduce costs. For example, a conventional car would have two wipers. And the seagull used a large wiper. This means that the BYD Seagull can save a wiper motor and a wiper arm, and at the same time save a process in the manufacturing process. All of these bits and pieces of engineering innovation and development come together to create a cost advantage for China's electric vehicles.
Can't get the price of electric cars in Europe?
In the case of domestic electric vehicle prices continue to fall, in the European electric vehicle market, electric vehicle prices have not shown signs of falling. This is not logical: on the one hand, since the beginning of this year, lithium mine prices have continued to fall, and the lower lithium mine prices have not been reflected in car prices; On the other hand, the volume of electric vehicle sales in the European market is already quite large, and the scale effect is also not reflected in the price of vehicles.
In fact, from last year's financial reports of major European car companies, it can be found that sales growth is limited or even negative, but revenue and profits have reached new highs. European and American car companies are likely to use electric vehicles as a new weapon to improve their profit margins.
According to a report by a well-known European institution, the cost of batteries is declining rapidly. At present, the cost of lithium iron phosphate batteries has dropped to $52/kWh, so the cost of a battery pack for a 50-degree battery will be around $3,000. The cost of supporting the motor, reducer, inverter and other powertrain is about $1,500. If you deduct the cost of a conventional internal combustion engine powertrain system, including the engine and transmission, the cost of an entry-level electric vehicle should be less than $3,000 higher than that of the same internal combustion engine model. But looking at Europe, you can find a fuel car for $10,000 in Europe, but you can basically find an electric car for less than $13,000.
So to some extent, European car companies may have hoped to take advantage of the opportunity of electric vehicles to improve the gross profit margin of their products. Seeing that China's cost-effective electric vehicles are slowly starting to penetrate the EU market, offering higher tariffs to keep Chinese-made electric vehicles out of the door, whether it is to create a better environment for the current sales of their own electric vehicles, or to buy time for the development and launch of more cost-effective entry-level electric vehicles.
It was also previously reported that Volkswagen is developing the ID.1 based on the MEB platform to better cope with the onslaught of cheap electric vehicles in China, but these will take time. The five-year tariff protection period is enough time for these old European car companies to complete the development and launch of their products.
The EU's tariffs, in fact, are still lower than the previous speculation of overseas media in terms of tax rates. On the face of it, the EU wants to curb the aggressive invasion of Chinese-made electric vehicles. After all, the automotive industry accounts for 7% of the EU's GDP output and contributes millions of direct and indirect jobs, making it an industry that the EU cannot afford to lose. But in fact, the EU's policy still leaves a back door for car companies such as BYD and Geely, and the damage may not be as great as imagined.
As long as Chinese car companies build factories in the local area, bringing investment and jobs, the EU will not drive out Chinese cars like the United States.
On the other hand, if the Chinese government's countermeasures are only rumored to be limited to 2.5L large-displacement imported fuel vehicles, then our sanctions against these European car companies will be extremely limited. The economic and trade relationship between China and the EU is very deep, and everyone needs each other's markets to bind each other. Therefore, the imposition of tariffs will have a certain impact in the short term, but it will not change the pace of China's electric vehicles entering the European market and even the global market in the long run. If European car companies still want to gain a foothold in the European and even global markets, they can only face up to Chinese car companies.