China carmakers rev up in Europe

A visitor taking a photo of a BYD Seal EV at a trade show in Frankfurt, Germany. BYD, which is China’s leading automaker, is constructing a plant in Hungary while its rivals expand through joint ventures in Europe as an answer to EU tariffs. — ©2024 The New York Times Company

THE leafy city of Szeged, Hungary, with its wide avenues, a renowned university and pale yellow villas, seems more a relic of the Hapsburg empire than a hub for Europe’s automotive future.

Yet at a 300ha construction site near the Serbian border, excavators are preparing for the first European assembly plant of China’s leading automaker, BYD.

Timing is key. By Oct 30, the European Union will decide whether to raise tariffs on electric vehicles (EVs) imported from China. These new duties, ranging from 9% to 35.3%, would be in place for five years, in addition to the current 10% tariff.

While less severe than the 100% tariffs imposed by the United States and Canada, the new rates arrive as Chinese carmakers are eager to break into Europe’s growing EV market.

BYD is already increasing its presence, collaborating with distributors in 19 countries to sell electric and hybrid models and even sponsoring the European Championship football tournament this year.

“They have very ambitious plans,” said Sandor Nagy, Szeged’s deputy mayor responsible for urban development, about BYD’s plant, set to launch next year.

Other Chinese carmakers, too, are working to convince European buyers that their vehicles are not only affordable but also enjoyable to drive, while simultaneously finding ways to avoid hefty tariffs.

Chery, another major Chinese brand, announced in April it would start producing EVs in Spain, in partnership with Ebro EV Motors. Meanwhile, Stellantis, the multinational carmaker that owns brands such as Peugeot, Fiat, and Opel, has partnered with China’s Leapmotor to begin producing EVs in Europe this year.

Geely, which owns Swedish automaker Volvo, is also scouting for a production site in Europe. Its vehicles, produced in China under the Polestar brand, are now being manufactured in South Carolina to supply both the US and European markets.

The rush to establish a presence in Europe is happening as debates over tariffs reach their final stages.

Wang Wentao, China’s Commerce Minister, has been visiting European capitals ahead of a critical meeting in Brussels with the EU trade commissioner.

EU officials are concerned that years of heavy government subsidies have given Chinese automakers an unfair competitive edge, threatening Europe’s auto industry, which contributes nearly 7% to the region’s economy.

Analysts suggest that moving production closer to the European market will benefit both sides. Europe would gain jobs and access to advanced technology, while Chinese carmakers would save on tariffs and transport costs.

“It doesn’t make corporate sense to think you can supply the global car market entirely from factories in China,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.Chinese carmakers are already seeing their market share grow in Europe.

In 2023, Chinese brands accounted for 3.7% of EV sales, up from 0.4% four years earlier, with that number expected to rise over the next five years.

Turkiye, which is not an EU member but enjoys favourable trade agreements, announced in July that BYD would build a plant there in 2026. The move highlights efforts to sidestep tariffs while still accessing the European market.

In Szeged, BYD plans to ramp up production over the coming years, creating thousands of jobs as it pushes to get its vehicles into Europe despite a recent slowdown in demand.

BYD has already been working hard to raise its profile across the continent, forming relationships with dealers and showcasing its vehicles at fan fairs in 10 cities during the European football championships.Germany, the largest economy and car market in Europe, is a key target.

However, convincing German consumers – who are loyal to brands like Volkswagen, BMW, and Mercedes-Benz – remains a challenge. Berlin’s decision to cut subsidies for EV purchases led to a 37% drop in new registrations through July compared to the previous year.

But Chinese carmakers remain eager to gain a foothold in Europe. At a recent trade fair in Frankfurt, several Chinese firms showcased their latest models, typically focused on automotive suppliers.“Even if some in Europe turn against us, we will never turn against the European market,” said Victor Yang, a senior vice- president at Geely.

It’s not just the carmakers making moves into Europe. Chinese suppliers, who provide essential parts for manufacturers, have been increasing their presence.Companies like BMW, which rely heavily on Chinese components, are looking to establish a more secure and cost-effective supply chain by moving production closer to European markets.

Despite tensions, China remains Europe’s second-largest trading partner, with bilateral trade worth €739bil in 2023.

During a visit to China, Pedro Sanchez, Spain’s prime minister, urged the EU to reconsider its stance on tariffs, arguing they could hurt European economies.

“We don’t need another war, a trade war,” he said. “We need to build bridges between the EU and China.” — ©2024 The New York Times Company