Europe is concerned about the penetration of Chinese brands/official website
There is something nothing short of ironic about the fact that Europe is now crying out at the possibility of widespread penetration of Chinese cars into its home markets. For years, European automakers have taken advantage of the cheap labor and high purchasing power of the Chinese market to open production sites for their cars on Chinese soil. But now that the pendulum is about to swing to the other side, they are crowding ranks and coming to the countries themselves and the European Union claiming that this is unfair competition.
The years of manufacturing and selling in China have been good for manufacturers, but not only for them. The Chinese had a condition, as part of their hospitality, that a certain degree of technology sharing and joint developments with the local manufacturer of each of the companies was required. It is not unreasonable to assume that some of the technological capabilities in the fields of design, engineering or even manufacturing that industry in China currently possesses come from the same joint ventures.
BMW iX3. Made in China and exported from there to other markets, including Israel/Keinan Cohen
But in recent months, the wind has changed direction, and it is Chinese manufacturers who are now looking to gain a foothold in the European market and not the other way around. What began as an early identification of the future of electric propulsion meant that Chinese manufacturers were better prepared than anyone else for a rapid transition to mass production, from battery material mining concessions to battery production and more. All this, of course, was done with the encouragement, push and support of the Chinese government, whose "phased plan" has shifted from flooding the domestic market with Chinese cars to export efforts.
On the other hand, European manufacturers are seeing how, while struggling to meet strict air pollution standards for cars and factories themselves, paying higher wages to workers than in China, facing higher production costs throughout the supply chain – Chinese manufacturers such as Saik, the landlord of MG, BYD, Great Wall, NIO, Link & Co and others are positioning themselves for broader entry into EU markets. The combination of initially lower entry prices, Chinese government support and the exploitation of EU subsidies to encourage electric vehicles could mean that competition will leave no chance for older automakers.
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And the stability of the old producers is not only a matter of theirs alone, but a concern of all EU countries. According to EU figures, the continent's automobile industry is responsible for the direct employment of 13.8 million Europeans, 6.1% of the continent's employment force. Car production itself employs 2.6 million people, or 8.5% of those employed in manufacturing in Europe.
The economic concern of penetration by Chinese manufacturers comes beyond the practical point of direct employment of many Europeans who will be harmed by it, but also from other economic effects such as the injection of "European money" such as tax breaks as part of encouraging the purchase of non-polluting vehicles – out of Europe rather than driving the local economy. And in broader circles, Europe also does not approve of the tightening of ties in general and in the auto industry in particular between China and Russia, which has been allocated due to revulsion and sanctions imposed since the invasion of Ukraine.
Everyone has their eyes set on the European market/manufacturer website
Against the backdrop of all this, what began with statements by senior automakers and rose to the political echelons within the countries, has now also been officially stated by EU President Ursula von der Leyen, who announced the opening of an investigation into the justification for subsidizing electric vehicles from China. And in the financial markets, there were declines in the prices of shares of Chinese manufacturers such as Saik and BYD, which lost just over 3% immediately after the announcement and almost 6% cumulatively at the time of writing.
In Europe, we can and should look with concern at the historical precedents of the American auto industry. There, in the first half of the 70s, the fuel crisis opened the door for Japanese automakers to sell small, economical cars at a lower price than the actual cost of producing an American car. The industry there took years to recover from this upheaval, some say until today.
Similar to those claims against the Japanese, this is again a reference to Chinese government intervention: "Global markets are currently flooded with cheap Chinese electric cars," the EU president said in her statement, "and their prices are kept artificially low by huge government subsidies."
If the EU takes action against Chinese manufacturers, it would mean reducing to the point of eliminating tax breaks in Europe and, in more extreme cases, imposing a tax on cars. While government involvement in the European auto industry is nothing new, Renault is a prime example, as the French government is one of its most prominent shareholders.
By the way, France, where there is no waiting for the unification, and the government announced that it will implement a subsidy program for a car at 100 euros a month on a lease track for European-made electric vehicles only. The goal is to hit Chinese trams, but the U.S. government also runs a benefits program for EV buyers, provided it was manufactured in North America.
In addition, the French government is examining changes in the way tax benefits ranging from 5,000 to 7,000 euros per car are implemented, so that they will not be paid to those who buy a non-European vehicle, i.e. Chinese. Of course, this kind of move becomes very complex when it comes to global trade laws, the French trick: to include it under regulations that concern the environment and public health rather than trade. Who will eat the frog? Vague.
France is already shifting gears in the struggle and not waiting for the EU/Reuters
If such steps are taken, and the Chinese government responds with its own measures, European manufacturers may find themselves in a difficult trap. For all of them, China is one of the main markets, and some even export cars they produce there to Europe: BMW with the iX3, Volvo with the S90, and Polestar or Volkswagen models, which will produce the Cupra Toscan next year.
It's no surprise that these manufacturers aren't making fambiguous statements like Stellantis CEO Carlos Tavaros, whose conglomerate has been scaling back its operations in China for several years. To this can and should be added the harm to them if the Chinese respond by imposing tariffs on European cars sold in China itself. Then manufacturers such as Mercedes, BMW, Porsche and others may find themselves in a problem of their own.
Against the background of this entanglement, assuming that the Chinese do not intend to back down from their plan and that Europe wants to preserve the auto industry, talks are being held between EU representatives and the Chinese government right now in order to find an agreed route through which mutual trade can be maintained. One of these paths, if it ripens into a real plan, will be to bring Chinese car production to Europe. This could leave both sides with a plausible compromise, the Europeans could maintain the promise of local employment and narrow the gap in production costs, and the Chinese could evade taxation and on the way to settle in the heart of the European auto industry when it comes to access to research and development centers. The Japanese and Koreans are already producing in Europe, there's no reason why it shouldn't also be the path the Chinese will follow.
With China as a growth engine, manufacturers like Porsche may find themselves hit by the political-economic/manufacturer-site duel
How will this affect the Israeli market? At this stage, there is no real influence on what happens here. The Chinese manufacturers saw and see the Israeli market as a kind of experimental laboratory, and the Israeli customer is an interesting case study (if not a mouse in the laboratory) of how the market absorbs new brands and models, certainly those with electric propulsion. This is also why we are often the first stop for Chinese brands on the way to Europe. When might we see a real impact? Well, a reduction in the price of Chinese cars is possible if the possibility of relocating Chinese car production centers to Europe matures, since they will be able to exempt themselves from the 7% tariff they are currently obligated to pay in the absence of a trade agreement with China. This, of course, assumes that the gaps in production costs themselves do not exceed the same amount.
- More on the subject:
- European Union