Chinese Cunning, European Neglect

Street ads for Chinese cars are flooding Polish cities. “The world’s number one manufacturer of electric and hybrid cars”, is how BYD promotes its Seal SUV at Warsaw’s Chopin Airport and train stations.

The campaign coincides with the entry into force of EU tariffs on electric cars from China which, depending on the manufacturer, range from 7.8 percent to 35.3 percent and are imposed on top of the tariffs already in place on imported cars. The European Union made its decision in October 2024 following an anti-dumping investigation showing that Chinese-made electric cars are subsidised by the government, which makes them around 20 percent cheaper than EU-made vehicles.

While the tariffs imposed by Brussels are significantly lower than those imposed by the US and Canada, they were introduced at a time when Chinese manufacturers were busy seeking to strengthen their position on the European market. Of all new cars registered in the EU in 2024, only 1 percent came from China, according to ING estimates. “However, for battery electric vehicles (BEVs), this share is already over 8 percent, reflecting a rapid increase over the past five years”, reported ING.

Divide and rule

Beijing wanted to grab an even bigger slice of the cake, and was hoping until the very last minute to convince the EU to drop its plans. Before the EU-27 voted on the issue on 4 October, China held one-on-one negotiations with Member States. What’s more, China threatened to introduce its own tariffs on imports of certain products from the EU, such as pork, dairy, and brandy.

This eye-for-an-eye approach was meant to target France, among others, which China believed was behind the tighter tariff policy. China is an important market for French brandy producers: last year, as much as 99 percent of the cognac exported to China worth USD 1.74 billion came from France. However, farmers in Spain, the Netherlands, and Denmark were also hit by Beijing’s retaliatory measures. The Chinese government wanted to drive a wedge between the Member States. The idea was to impede joint decisions that would be detrimental to Beijing’s interests.

Although China ultimately failed to prevent the new tariffs, it is hard not to acknowledge the country’s successes. Spanish Prime Minister Pedro Sánchez changed his mind on tariffs shortly after his visit to Beijing in September. Madrid abstained in October, despite being in favour in a non-binding vote held in July to gauge sentiment among the Member States. “We do not need another war, in this case, a trade war. We need to build bridges between the EU and China”, Sánchez argued during a four-day visit to China, where he met with Xi Jinping, among others.

Hidden origins

Sánchez stressed that the prospect of retaliatory action against Spain’s key sector of pork production had not affected his position on electric cars. “Pork has nothing to do with the automotive sector”, he said. However, it is hard not to see the connections: in 2023, Spain accounted for 22 percent of Chinese pork imports. Their total worth is around EUR 1.2 billion per year.

But the key influence on Madrid’s decision may have come with Chinese investments in Spain. In April, Chery, one of China’s largest electric car manufacturers, signed a deal with Spain’s EV Motors to set up a joint venture that would produce cars at a factory in Barcelona under the Chinese brand Chery and Spanish brand Ebro.

The first vehicles left the assembly line on 23 November. Investors say that the plant will be turning out up to 150,000 cars a year by 2029. “We are determined to move ahead with our operation in Europe in the long-term”, President of Chery Europe Charlie Zhang said the day after the EU tariffs were announced. He added that Chery aims to build up local research and development, manufacturing and distribution “to become a truly European company”.

By hiding their Chinese origins, Chinese corporations are protecting themselves against what they believe are hostile actions by the West. Polestar, a Swedish-based company owned by China’s Geely, which recently opened an electric car plant in North Carolina, argued in a recent dispute with the US Department of Commerce that much of its business takes place outside China, seven of its 10 board members originate from Europe or the US, and the chairman is German. Polestar stressed that it employs around 2,800 workers worldwide, including only 280 in China. “The Chinese used similar tactics in the TikTok dispute. When the CEO of ByteDance (TikTok’s owner – ed.) was questioned in Congress, he also argued that the company was independent of Beijing and had offices in various places around the world”, Matthew Geraci of the Atlantic Council told DGP.

Cooperation with Western car manufacturers gives Chinese brands an extra layer of protection. “Soon after the tariffs came up in Brussels, Chinese companies began to talk seriously about moving some production to Europe. They believe that it will allow them to circumvent the restrictions”, commented Camille Brugier of Upply in Paris.

The Chinese are learning from the experience of their neighbours. This strategy proved successful before when Japanese and Korean carmakers entered the US market. At the time, Washington was concerned that they would harm domestic car companies. “As early as 1995, President Clinton imposed 100 percent tariffs on 13 Japanese brands, including Mazda, Lexus, and Mitsubishi. The Japanese dealt with this by investing in production facilities in the US”, says Geraci. He emphasises that this helped the Japanese to take root in the US. “Today, we no longer see Japanese or Korean manufacturers as a threat”, adds Geraci.

That is why Beijing’s appetite was not quenched by the Barcelona deal. BYD, the world’s largest electric car manufacturer, is building its own factory in Szeged, Hungary. “We will start the ramp-up at the end of 2025”, BYD Vice-President Stella Li said in a recent interview with German business magazine Capital. The corporation is also planning to invest in western Turkey, where it will build a plant capable of producing 150,000 electric and hybrid vehicles per year. This is important because Turkey is part of the EU customs union, so BYD will be in a position to expand its supply chains in Europe, avoiding additional tariffs and gaining a price advantage in the internal market.

Geely, which acquired Swedish brand Volvo Cars in 2010, is also looking for a location for a production plant in Europe. Meanwhile, Dongfeng Motor Group is in talks with the Italian government to build the company’s European hub near Turin.

Punishment for tariffs

Until recently, the Chinese were also interested in developing cooperation with Poland, seen as a potential location for a Geely plant. In June, a joint venture between China’s Leapmotor and French-Italian-American conglomerate Stellantis, which owns brands such as Peugeot and Opel, began assembling Leapmotor’s T03 electric cars at the Tychy plant. The decision to move the model’s production to Europe was taken in February. At the time, Stellantis CEO Carlos Tavares openly signalled an intention to avoid EU tariffs on Chinese electrics.

According to Jefferies analysts, cars assembled from kits shipped to Poland can generate a gross profit of around EUR 3,200 per unit. If the cars were imported from China, the estimated profit would shrink under customs duties to around EUR 1,000.

That is why another Leapmotor model, the B10 SUV, had also been scheduled for assembly in Tychy. However, that intention will not come to fruition. Chinese authorities have decided to punish Warsaw for supporting EU tariffs on Chinese electric cars, Reuters reports.

That Poland, rather than the whole EU, is the target is clear as the B10 model is to be manufactured in another EU country, probably Germany or Slovakia, which did not support the tariffs.

On one hand, this shows how much pressure the Chinese government is putting on Europe and its manufacturers. On the other hand, in future Beijing will likely deal pri-marily with like-minded European countries, Hungary in particular. As the EU tightens its stance towards China, Chinese-Hungarian relations are gaining momentum: investment by Chinese giants are intended to make Hungary not only the manufacturing hub for Chinese electric vehicles in Europe but also one of the world’s leading manufacturers of lithium-ion batteries. “Hungary’s political and economic openness has allowed China to partially mitigate the adverse impact of its rivalry with the EU. Hungary is a key manufacturing and logistics base for Chinese technology companies such as Huawei. Moreover, Hungary is the only EU country to openly support China’s interests within the Union”, reports the Centre for Eastern Studies.

As a result, Budapest has recently become Beijing’s darling. A study by Rhodium Group and MERICS shows that Hungary received 44 percent of all Chinese foreign direct investment (FDI) in Europe last year, “more than Germany, France and the UK combined”. However, Beijing’s preference is based not only on the political openness of Hungarians but also the country’s strategic location between the European Union’s eastern border and its industrial heartland to the west. In fact, Hungary remains closely integrated into German supply chains, especially in the automotive industry. “Our friendship is as mellow and rich as Tokaji wine”, Xi Jinping said during his spring visit to Budapest.

Hungary’s continued support may prove necessary because the dispute with the EU will not end with electric car exports. The Chinese are also battling, for example, to dominate the road transport sector. According to the International Energy Agency (IEA), electric vehicles may account for less than 1 percent of all trucks sold globally, but “developments in climate policies and technology will drive wider adoption over the next 10 years”. China already accounted for 70 percent of electric car sales in 2023.

Chinese hybrids may also soon become a problem. As soon as the tariffs on electric cars came into force, experts suggested that they could boost exports of hybrid cars, which are not covered by the tariffs. “As with electric trucks, the share of Chinese hybrids in the European market started to increase at the end of 2023. We must get used to the fact that if the Chinese are good at something, they will push into other markets”, says Brugier. In her opinion, “This is not just an issue of China but also of European competitiveness. Our manufacturers were not interested in producing electric cars”. The problem is therefore twofold: China subsidises its automotive sector, which generates challenges, while Europeans have done little to strengthen their own production. ©Ⓟ