Chinese EV manufacturers may feel resentment toward the additional tariffs imposed by the EU, but in reality, they still have multiple options to maintain sales growth.
For example, they can transfer production to Europe and use their low-cost advantage to absorb part of the tariff impact. In addition, they can shift their sales focus to new markets in the Middle East, Latin America, and Southeast Asia. Although EVs only account for a small share of the passenger car market in these regions, they're steadily growing.
Bloomberg reported that, on June 13, the EU officially notified BYD, Geely, and MG's parent company SAIC Group that starting from July 4, 2024, additional tariffs will be imposed on EVs imported from China. SAIC Group will face the highest tariff at 48.1%. Given the fierce price wars in the domestic Chinese EV market and the accumulated technological advantages over the years, Chinese manufacturers are actively expanding into the European market.
Cui Dongshu, secretary general of the China Passenger Car Association (CPCA), pointed out that as Chinese automakers grow stronger, they will naturally face trade actions such as tariff increases. Even if Chinese car exports are restrained, he believes that Chinese automakers will not be defeated by the additional tariffs. Instead, this will only make them stronger.
BYD can absorb most of the tariff impact
Bloomberg Intelligence analyst Joanna Chen noted that BYD might be able to absorb most of the tariff impact due to its superior profitability compared to its peers. Moreover, the rate applied to BYD under the new EU tariffs is relatively low at 17.4%, compared to the industry average of 21%. SAIC, which owns the British brand MG, will face a tariff rate as high as 38.1%.
JPMorgan Chase & Co. analyst Nick Lai indicated that even with the increased tariffs, BYD's profits per car in Europe could still be about 1.5 times higher than the same model sold in China. The Financial Times (FT) reported that Citi analysts estimate that even with the new tariffs, based on the current production scale, BYD's European export business could still generate a net profit margin of over 8%, which is still higher than its domestic business in China.
Yale Zhang, managing director of Shanghai-based consulting firm Automotive Foresight, pointed out that even if Chinese EV brands sell cars in Europe at retail prices 50% higher than in China, they remain very competitive. BYD is also actively venturing into other export markets, including Mexico, Brazil, Thailand, and Australia.
In Brazil, BYD invested about US$550 million to build its first EV center outside Asia. BYD's first EV factory in Europe is located in Hungary, which helps avoid new tariffs through local production.
Shifting production sites and exploring new markets viable options
Other Chinese automakers are also looking to move production lines to Europe. In 2023, SAIC Group announced it had begun seeking potential production sites in Europe. Chery signed an agreement with Spanish company EV Motors to produce cars in Barcelona. Geely, which acquired Sweden's Volvo in 2010, may also have greater flexibility in adjusting production.
According to a partnership established in 2023, Leapmotor plans to use Stellantis' global factory capacity in the future. In mid-June 2024, Stellantis CEO Carlos Tavares confirmed that some Leapmotor products will be assembled at Stellantis' European plants.
The Middle East has also become a new market for Chinese EV manufacturers, including Chery, Xpeng, and Geely's Zeekr brand. NIO CEO William Li stated in early June 2024 that the EU's push for tariffs is simply the wrong direction, and NIO will start expanding into the Middle East later in 2024.
