Germany: Struggling to Lead in E-Mobility Despite EU Tariffs on Chinese EVs

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In this issue, we delve into the recent tariffs imposed by the European Commission on Chinese electric vehicles, a move that has significant implications for the industry. Automotive analyst Matthias Schmidt provides his expert insights on the impact of these tariffs and what they mean for the future of the market.

Additionally, we explore how BYD is poised to surpass Tesla in the EV race, with a detailed analysis of the strategies and innovations driving BYDs rapid ascent. And also we have our headline roundup. Just give it a look.

We hope you find this edition insightful and informative!

Matthias Schmidt on EU Tariffs and their impact on sales of Chinese EVs in Europe

To what extent should the responsibility of competing against Chinese automotive manufacturers rest on European carmakers themselves, and when should the European Commission consider implementing regulatory measures, such as tariffs?

The EU, which is traditionally a market-driven economy, has come to the realisation, after being accused of being naive to China (by the US), that they must act against a trading partner that is bending the rulebook. As the EC has pointed out, these tariffs aren’t about destroying the playing field, which is the case in the US, with Biden using Trumpinomics protectionism to win votes, but about levelling the playing field. The investigation provides enough evidence to suggest the field of play has become uneven, and this is just about ensuring the conditions are fair for all operating in the same market environment.

So, in short, I believe this was a fair decision.

Of course, it has a hidden agenda of bringing more jobs back to Europe to reindustrialise the 27 EU free trade area and keep the Green Deal on track with green jobs. In order to place a tariff hurdle in the way, the EC is likely hoping Chinese and Western companies that are currently using China as a low-cost production base bring some of that capacity and a large part of the value chain to Europe, where Western companies can also learn from Chinese companies in a complete 180-degree role reversal of what took place over the past 20 years in China.

How do you anticipate the implementation of tariffs will impact the sales volumes and pricing of Chinese automotive manufacturers in Europe?

We expect prices for Chinese models to remain unaffected, with customers noticing little change. Chinese brands don't command enough brand equity to pass the increase onto consumers and will have to soak the additional tariffs up – if they are implemented following a vote by the EU member states, which still remains an open question – into their inflated margins. UBS produced a report concluding that BYD currently has a 30% cost advantage over Western OEMs, which is why we expected tariffs to land almost exactly where they did (including the existing 10% tariff).

We also believe that Sino OEMs likely also factored an increase in tariffs into their pricing and have benefited from high margins as a consequence, up to now. It also made little sense for Chinese OEMs to price low as there simply aren't enough PCTC shipping vessels to transport the models to Europe right now. So we expect little change in the European market in terms of sales numbers or pricing.

The only potential change in pricing could be from Western OEMs, such as BMW Group, which can partially pass some of the tariffs onto consumers for the IX3 and MINI, thanks to their brand equity, allowing for more flexibility on pricing. Geely's Lotus may also be able to do this.

Do you foresee Chinas retaliatory measures having a more detrimental impact on European automotive manufacturers compared to the effect of EU tariffs on Chinese manufacturers?

No. We expect most retaliation to likely hit other industries where individual OEMs are heavily exposed to China, and the CCP will exploit that to try and put enough pressure on those markets to not pass this when put to the vote at the European Council level.

We expect China to retaliate across other industries such as we have seen suggested for Danish and Spanish pork, or French brandy for example. The most exposed nation when it comes to autos is Germany, which has spoken fairly vocally against the tariffs, winning over confidence in Beijing. Germany and China also have very healthy bilateral trading agreements, and China won’t want to damage that either.

Tesla Under Pressure as BYD Closes the Gap in EV Sales

Tesla is increasingly under pressure to keep pace with its Chinese competitor, BYD. Currently, Tesla holds the global leadership position in the electric vehicle market. However, in the fourth quarter of 2023, BYD delivered 40,000 more vehicles than Tesla, marking a significant shift in market dynamics. Analysts from Counterpoint Research suggest that BYD could potentially overtake Tesla as the world’s largest EV manufacturer in 2024.

A critical growth driver for EV manufacturers is the sales price. In the head-to-head competition, Tesla may need to expand its offerings to include lower-priced models to remain competitive. BYD, on the other hand, boasts a diversified product range that includes luxury vehicles, pickups, and even supercars.

In 2023, Tesla led with 1.8 million deliveries compared to BYDs 1.6 million. Despite this, in the last quarter, Tesla delivered approximately 444,000 vehicles while BYD was close behind with 426,000, marking a sales increase of over 40 %. Teslas entry-level model is priced at around $31,900 in China, more than three times the price of BYDs cheapest model. This price disparity highlights a significant challenge for Tesla, especially as the US manufacturer saw a decline in overall sales figures, despite its two cheapest models exceeding market expectations.

The importance of this trend lies in the potential strategic shift we might witness. With BYDs increasing exports and Teslas weakening sales in China, there is a growing urgency for Tesla to diversify its portfolio to include lower-priced vehicles. According to Counterpoint Research, China is expected to account for 50 % of global EV sales by 2027, making it the dominant market with sales anticipated to be four times higher than in North America.

Additionally, in mid-June, the European Union imposed provisional tariffs on EVs manufactured in China, aiming to protect against a potential influx of unfairly subsidized vehicles. These EU tariffs, which can reach up to 38 %, could slow Chinas EV export growth by 20-30 %, according to a representative from a Chinese automotive association.

The competitive landscape between Tesla and BYD is evolving rapidly, with significant implications for both companies in China and the broader global market. We will see, who will take over the market on the long run.

Headline Roundup

💡 “We have already failed to make Germany a leading market for electromobility. You have to be in China now to really be able to make good electric cars with the latest batteries” - Herbert Diess (EAN)

💡 Volkswagen, BMW, Mercedes & Co: China's cheap e-cars are darkening the mood in the German car industry, according to Ifo (Business-Insider)

💡 BYD plans to build plant in Turkey (Manager Magazin)

💡 China steps up pressure with EU brandy probe hearing as EV tariffs begin (Reuters)

💡 Only 1 in 7 electric car manufacturers from China to become profitable (EAN)

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Sebastian & team | China EV Pulse