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EUROPE’S AUTOS HAVE WEAK DEFENCES AGAINST CHINA

The BYD TANG EV and the BYD HAN EV are displayed during an exhibition test drive
as the Chinese electric-vehicle producer announces its expansion to the consumer
market next year in Mexico, in Toluca, Mexico November 29, 2022.

Source: REUTERS/Toya Sarno Jordan




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1 Feb 2023 | By   Neil Unmack, Katrina Hamlin Follow @unmack1

Goose bumps.

China has been a golden goose for western carmakers like Volkswagen and BMW. But
increasingly it is looking like a threat. Chinese groups like electric vehicle
leader BYD are targeting foreign markets. Europe looks particularly vulnerable.

In 2022, electric vehicles made by Chinese carmakers already had a 9% market
share in Europe, nearly double the previous year’s figure, according to
forecasts by consultancy Inovev. But the pace is picking up. Besides BYD, those
looking to expand include MG, owned by state behemoth SAIC, electric vehicle
specialist Xpeng, and Volvo owner Geely, which in January detailed plans to grow
its Zeekr and London Electric Vehicle marques in Europe.

Chinese carmakers have numerous advantages. In recent years western brands have
lost market share in China, handing domestic players greater economies of scale
and efficiencies in areas like research costs. They benefit from a vast domestic
supply chain, including the world’s largest battery maker, CATL, which gives
them access to innovative technologies, like battery swapping, or lithium iron
phosphate batteries.

Some, like Xpeng, aim to compete with premium western brands on quality, touting
long ranges or smart entertainment software. For many consumers the appeal will
be lower prices. While western carmakers have ramped up the cost of battery
rides, Chinese groups halved the average price of an electric vehicle in China
between 2015 and the first half of 2022 to just 32,000 euros, according to
consultancy JATO Dynamics. Their greater efficiency, and the higher cost of
battery rides in Europe, means Middle Kingdom groups can export and compete
aggressively. On average, Chinese manufacturers can make an electric vehicle for
10,000 euros less than their western rivals.

The fresh competition will exacerbate a looming price war in electric vehicles,
which has already started in the United States, led by Tesla and Ford Motor.
Europe, however, looks particularly exposed. U.S. carmakers benefit from
drivers’ love of larger cars, and government subsidies for domestic production
under President Joe Biden’s Inflation Reduction Act. With European manufacturing
under threat, the continent could try to deter imports with extra tariffs, or
more subsidies for local players.

Yet governments themselves are in a bind. If Europe wants to phase out
combustion engine vehicles by 2035, it will need a large supply of cheaper
electric vehicles. At JATO’s estimate of 56,000 euros, the average price of an
electric vehicle in Europe is still too high for most punters.

Moreover, a trade war would be unpredictable. The lower cost of manufacturing in
China may help Chinese carmakers absorb tariffs, while western groups could
suffer from reprisals. The country accounted for nearly 40% of Volkswagen’s
deliveries in 2022, for example. Groups like Renault or BMW manufacture in the
Middle Kingdom and export overseas.

The result may be that western groups have to jostle for a smaller place in
their home markets but also cut prices, hurting profitability. Inovev reckons
that Chinese groups could grab 20% of Europe’s electric vehicle market by 2030,
while European brands would see their share fall from 66% in 2021 to a mere 45%.
The sector has had a good pandemic. Volkswagen, for example, pushed up prices by
around 10% on average over the last three years, RBC analysts reckon. China’s
growing threat means the lean years are starting.




CONTEXT NEWS

China exported 3.11 million vehicles in 2022, a 54.4% year-on-year rise,
according to the China Association of Automobile Manufacturers. Exports of new
energy vehicles, such as battery electric cars, rose 120% versus 2021.


SUBJECTS:

AutosCompanies & FundsElectric VehiclesManufacturingTradeTransportation


REGIONS:

Asia-PacificChinaEMEAEuropean Union


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