When it comes to fighting off China’s electric vehicle invasion, Europe’s carmaking superpowers are split straight along the Rhine.
Germany’s big three automakers — Volkswagen, BMW and Mercedes-Benz — see the prospect of antagonizing Beijing with an all-out trade war over clean cars as an unthinkable nightmare, while executives at their partially French state-owned rivals Renault and Stellantis have much to gain from pulling up the drawbridges and protecting domestic industry with tariffs.
That’s the strategic calculation the European Commission’s trade defense team has to weigh up as it decides whether to declare war on China’s EVs.
As reported this month, the French government and its proxies in French industry and the EU College of Commissioners are pushing Brussels — which steers trade policy for the 27 member countries — to launch anti-dumping measures against insurgent Chinese e-carmakers. This means Europe would be able to impose duties against Chinese vehicles it reckons are being sold unfairly cheaply to grind down European competitors.
“The French carmakers can say what others are thinking due to their minimal Chinese market exposure,” said Matthias Schmidt, an independent auto analyst. “The Germans have their mouths taped as they are petrified of a retaliation from their cash cow market where they are heavily — or now even potentially dangerously — exposed.”
While at present, Chinese brands such as BYD, Great Wall, XPeng and Nio make up just a small fraction of European car sales, their footprint is growing as they launch in national markets, build brand recognition and sign bulk deals with rental companies.
Their advantage is cost and scale, since China has a stranglehold on the global battery cell supply chain that its carmakers can draw on as they look to reverse years of dominance by the likes of VW, Mercedes-Benz and Peugeot.
While, all combined, China’s all-electric stake in Europe now hovers under 5 percent, one analysis by Transport & Environment estimates they will snag between a 9 percent and an 18 percent stake by 2025, big enough to disrupt domestic sales and eat up legacy brands.
That’s a bigger problem for Renault and Stellantis — a Dutch-headquartered company with French roots in which the French government has a small indirect stake — because they are more heavily exposed to the European mass market than Germany’s globe-trotting majors — which generally target the premium consumer.
It’s not a new problem either.
“We must wake up,” French President Emmanuel Macron said late last year in the run up to the Paris Motor Show. “Europe must prepare a strong response and move very quickly.”
The introduction of a 2035 phaseout date for the sale of new combustion engine cars across the EU set the starting gun on a race to electromobility for an industry used to sucking profits from diesel and gasoline vehicles, both at home and abroad. But those green rules come at a cost.
“Regulation in Europe
ensures that electric cars built in Europe are about 40 percent more expensive than comparable vehicles made in China,” Stellantis’ CEO Carlos Tavares told Automobilwoche in Las Vegas earlier this year.
“If the European Union does not change the current situation, the region’s auto industry will suffer the same fate as the European solar panel industry,” he said, referring to an earlier trade conflict with Beijing that saw China dominate a solar panel industry that had been largely developed in Europe. “I think we’ve seen this movie before … It’s a very bleak scenario.”
‘Second home’
For the Germans, it’s all about what happens inside China.
Sales in the Chinese market are critical for all of Germany’s automakers, but for VW it’s what makes it one of the largest car producers in the world.
The company has long called China its “second home market,” with some 40 percent of VW’s global car sales in China last year, up from 31 percent a decade ago, according to data from the Center for Automotive Management (CAM) in Cologne. Both BMW and Mercedes-Benz have similarly big stakes.
What’s even more alarming for industry captains in Germany’s car towns of Wolfsburg, Munich and Stuttgart is that their Chinese operations are under attack from China’s home-grown brands building quickly on dominance in battery cell technology.
Although the Chinese car market grew 10 percent last year, the German trio all saw their overall market shares drop, according to the CAM analysis.
“Mercedes has its largest plant in China. It would be stupid to start a [trade] war with China, because the Chinese would take counter measures,” said Ferdinand Dudenhöffer, a professor at the Center Automotive Research in Duisburg.
What’s more, production in China is increasingly hitting Germany. The country’s national statistics office said in May that imports of China-made electric vehicles had more than tripled in the first three months of this year compared to the same period in 2022.
China’s market penetration is huge. Cars produced in Chinese factories for global companies plus those of China’s own brands made up 28.2 percent of all EV imports into Germany. Added to that, 91.8 percent of the raw materials imported for EV battery production in Germany also came from China.
“Long and the short of it is that Europe usually forgets that China can do to it what it does to China,” said one automotive lobbyist in Brussels on condition of anonymity, referring to tit-for-tat trade measures. “Do European carmakers really want their access to the world’s largest EV market being fucked with?”
For the French, the risk of counter measures is far less acute.
Renault barely operates in China, and while the company’s CEO Luca de Meo has suggested a renewed focus there that’s yet to materialize. Tavares’ Stellantis isn’t much stronger.
It’s not all about France and Germany.
Since it closed its plant in the U.K, Japan’s Honda has exported cars produced in China to Europe. It’s currently building dedicated EV plants in China to serve its export markets, which would also be covered by any tariff hikes on Chinese output.
Build Your Dreams
Most crucially, the tariff threats could well all come down to a big trade-off, in which the Chinese will bring production to Europe.
BYD, a Shenzhen-based EV maker standing for Build Your Dreams, is the company to watch here. In addition to being a higher volume carmaker than Tesla, it is also the world’s second largest battery cell producer and is already eyeing up Europe.
Chinese carmakers are already shopping around Europe to find a factory location.
Ford Europe’s boss Martin Sander told Politico this month that staff at its assembly factory in Saarlouis, right on Germany’s border with France, would be updated on plans to sell the site this week — with BYD reported to be one of three bidders.
“We can only really take the Chinese [EV] invasion seriously once they build up local production capacity here,” cautioned Schmidt, the analyst. “Exporting from China to Europe isn’t an effective business model in the long term.”
Amid a scramble for inward investment, Schmidt says French saber-rattling on tariffs could also be part of a Macron strategy, aiming to amp up the costs of importing EVs to force Chinese carmakers to set up production on the Continent.
“We are not naive,” Ola Källenius, Mercedes-Benz’s CEO, told German tabloid Bild in April. “Of course, we see the political differences and tensions … We need to become more resilient here and more independent of individual states in the case of lithium batteries, for example.”
But China still holds a 76 percent share of all global battery production capacity, according to a European Court of Auditors study out Monday, and its companies are building battery cell plants across Europe, including in Germany.
“Unbundling from China is an illusion and also not desirable,” said Källenius.
Source: Politico
