• Tue. May 14th, 2024

Europe goes on the defensive in the face of China’s engine landing

ByRita Wright

Oct 24, 2023
Europe goes on the defensive in the face of China's engine landing

While names like SAIC, Geely, BYD, and Great Wall Motors might not ring a bell for the average consumer, they send shivers down the spines of Europe’s automotive giants. These brands are seen as the vanguard of a massive influx of China-made cars, especially electric ones. China, having capitalized on its vast local market, sold 5.4 million units last year alone. Brands like MG, Volvo, Polestar, and BYD are just the tip of the iceberg.

The EU’s Stance on Alleged Subsidies

Recent statements by European Commission President Ursula von der Leyen indicate a growing concern. The EU has initiated an investigation into alleged state aid these companies receive, hinting at potential dumping practices. Preliminary findings suggest that these producers in China have benefited from various subsidies provided by the Chinese government.

The Chinese Market Share in Europe

While the overall European market share of these Chinese automakers stands at a modest 2.8% for the first seven months of the year, their share in the electric vehicle segment is a significant 8.2%. This is noteworthy, especially considering Europe’s 2035 deadline to phase out fossil fuel-consuming vehicles. As highlighted by Schmidt Automotive Research, MG, under SAIC’s leadership, is set to outpace European stalwarts like Peugeot, Renault, and Skoda in the EV segment by 2023.

The Competitive Edge of Chinese Automakers

Chinese automakers have managed to produce technologically advanced vehicles at prices appealing to Europeans. They’ve also secured a value chain, including raw material storage, giving them a competitive edge. An industry insider summarized the situation, stating, “Chinese cars aren’t competitive because they receive subsidies, but because they’re 3-5 years ahead of Europeans, allowing them to produce cheaper cars.”

The Global Ambitions of Chinese Brands

Pedro Nueno, a professor at the IESE business school and an expert on China’s auto industry, remarked, “Europeans and Americans saw an opportunity in China and went there to manufacture. Now, it’s logical for the Chinese to want to go global.” He referenced the influx of foreign automakers into China since the 1980s, which intensified in 1994 when China opened its market to European and American automakers, provided they formed 50-50 alliances with local partners.

China’s Electric Vision

In the 2000s, the Chinese government recognized the potential of electric cars as a platform to elevate its auto industry and reduce oil dependency. They launched various plans to boost this sector, with the latest aiming to produce three million electric cars by 2025, capturing a 20% market share. This goal was achieved in 2022, surpassing all previous targets. Meanwhile, Europe’s all-electric vehicle registrations barely touched 12%.

The EU’s Concerns and Potential Implications

The EU’s investigation could last up to 13 months, with preliminary measures possibly instituted within nine months. Alicia García-Herrero, an Asia-Pacific expert at the Bruegel think tank in Brussels, expressed skepticism about the effectiveness of such measures. She emphasized that Europe already has tools like the Carbon Border Adjustment Mechanism, which allows the EU to levy taxes on goods produced with laxer emission standards than Europe’s.

The Growing Influence of Chinese Automakers

Chinese automakers initially carved a niche in emerging economies in Asia, the Middle East, and Latin America. However, they’re now eyeing the more demanding and lucrative European market, which already accounts for 28% of their exports, a threefold increase in just six years.

The Road Ahead

Manuel Kallweit, an economist at the influential German automakers’ association, stated that it’s too early to comment on the Brussels-initiated investigation. However, Amadeu Jansana, Director of Studies at Casa Asia, believes the issue is more political than economic. He warned of potential risks, stating, “We can take measures to protect ourselves from Asian manufacturers, but there are risks as China can also retaliate.”