European carmakers face a new challenger on their home turf: Chinese electric vehicle (EV) makers. On May 6, China’s Tesla challenger NIO announced its market entry in Norway. Other China-based EV makers, like Xpeng, have been exporting to European countries for several months.
At the same time, and seemingly unfazed by the current political arguments around the Comprehensive Agreement on Investment (CAI), European carmakers continue to integrate China into their globalized production plans and have doubled down on investment in China. Earlier this year, BMW started exporting its full-electric iX3 from Shenyang and Volkswagen started construction of a state-of-the-art EV plant in Anhui in late April.
MERICS take: Despite political tensions, automotive connections between the EU and China are becoming stronger. However, it is no longer a one-way street in which European carmakers invest in and export to China. Rather, wishing to profit from the dynamism of the leading market for EVs, European companies are increasingly investing in China to serve global markets.
Fuelled by these investments, Chinese EV exports to Europe are also picking up. Leading Chinese EV-makers, but increasingly also foreign carmakers in China like BMW and Tesla, have set their sights on Europe, where high purchasing subsidies and the phaseout of the internal combustion engine promises healthy profits. Indeed, Chinese exports of new energy vehicles (NEV) – a category that includes pure-electric vehicles, plug-in hybrids and fuel cell vehicles – have surged in the last two years. In 2020, China exported over 100,000 units, with the majority going to European countries among which Belgium, the UK and Germany ranked top.
While export numbers are small for now, China is keen to have several of its indigenous brands rank among the global top ten automotive brands by 2025 and is using its domestic economy as a lever to attract global production forces. In the automotive sector the strategy seems to be paying off, despite geopolitical tensions.
What to watch : Chinese and European carmakers in China will continue to unveil export plans to Europe. We should also expect that some of the major Chinese players in the field will follow in the footsteps of Chinese battery makers, Svolt and CATL, and try to localize production in the EU.
These dynamics could increase choice and the attractiveness of e-mobility, which would be good news for consumers and EU climate ambitions. Still, it is worth paying greater attention to how this might affect the EU’s market and industry, especially as some of the Chinese-based EV makers benefit from substantial government subsidies.