Chinese EV dominance in Europe: collaboration or competition?

As Europe edges closer to its ambitious carbon-zero targets, the continent's electric vehicle (EV) market is increasingly dominated by Chinese investments and manufacturing prowess. Chinese President Xi Jinping's recent tour of Europe, accompanied by major Chinese EV and battery manufacturers such as Envision Group, SAIC Motor, and Xpeng Motors, underscores this trend. This visit comes at a critical juncture, as European automakers grapple with the strategic decision of whether to compete with or collaborate with their cost-effective Chinese counterparts.
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Source: Nikkei

China’s Growing Influence in Europe’s EV Market

China produced approximately 60% of the world’s EVs in 2022, positioning itself as a leader in the global EV market. European countries, while wary of rising Chinese EV imports, are simultaneously welcoming Chinese investments into their local industries. French President Emmanuel Macron’s invitation to Chinese investors exemplifies this dual approach. France, aiming to quadruple its EV sales to 800,000 cars by 2027, acknowledges the necessity of Chinese collaboration to meet its ambitious goals.

The European market has witnessed a significant influx of Chinese EV-related foreign direct investment (FDI). In 2023, Europe was the largest destination for Chinese EV-related FDI, attracting $7.6 billion. This follows a record-breaking $11.8 billion in 2022, highlighted by CATL’s $7.3 billion investment in a Hungarian gigafactory. Other notable investments include BYD’s factory in Szeged, Hungary, and Chery’s upcoming plant in Catalonia, Spain.

Strategic Partnerships and Local Production

Chinese carmakers understand that to secure a robust foothold in Europe, they need to invest in local production facilities. This strategy mirrors the approach previously taken by Japanese and Korean automakers, who only gained significant market share in Europe after establishing local manufacturing bases.

SAIC, China’s largest state-owned carmaker, is actively seeking a site for a European factory. BYD, now the world’s top-selling EV maker, is expanding its presence in Hungary and considering further investments in Western Europe. Chery’s joint venture in Spain and potential factory in Italy further illustrate the trend of Chinese manufacturers establishing local operations to cater to European consumers.

European Automakers’ Responses and Collaborations

European automakers are adopting varied strategies in response to Chinese competition. Some, like Volkswagen and BMW, welcome Chinese investments and imports, while others remain cautious. Stellantis CEO Carlos Tavares has warned of potential plant closures and job losses due to increased Chinese competition, particularly in mass-market segments where price is a critical factor.

To mitigate these challenges, European companies are forming alliances with Chinese firms. Stellantis has partnered with Leapmotor, investing €1.4 billion to gain a 21% stake in the Chinese brand. This joint venture will facilitate the export, sale, and production of Leapmotor vehicles outside China, with production expected to commence in Poland.

The Role of Battery Manufacturing

Battery production is a crucial aspect of the EV value chain where Europe is currently lagging behind China. Joint ventures such as the Automotive Cells Company (ACC), involving TotalEnergies, Stellantis, and Mercedes-Benz, aim to establish gigafactories in Italy, Germany, and France to bolster Europe’s battery manufacturing capabilities. Renault, collaborating with both European and Chinese partners, exemplifies the necessity of diverse alliances to secure a stable EV battery supply chain.

Navigating EU-China Trade Dynamics

The European Commission’s investigation into Chinese EV subsidies and potential tariffs reflects growing concerns about market distortion. However, the complex interdependencies between European and Chinese manufacturers complicate the situation. High tariffs could disrupt European production models that rely on Chinese components and manufacturing bases.

Looking Ahead

As the EU’s 2035 combustion engine ban approaches, the competition for affordable EVs will intensify. European automakers, while strong in premium segments, must address the challenge posed by competitively priced Chinese models. The evolving landscape suggests a future where strategic partnerships, local production, and innovation in battery technology will be crucial for Europe’s EV market to thrive amidst Chinese dominance.

Understanding the balance between competition and collaboration with Chinese EV manufacturers is essential. As Europe navigates this transformative period, the ability to leverage Chinese investments while fostering local innovation will determine the success of its transition to a carbon-zero future.

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