China's electric vehicle (EV) manufacturers are expanding their overseas production to circumvent rising tariffs in many parts of the world. This move comes as China emerges as a powerhouse in the global automobile industry, having surpassed Japan in 2023 to become the world's largest car exporter.
The EU started imposing tariffs as high as 46.3% on China-made EVs on July 5. Other countries are also imposing heavier duties on EVs imported from China: Brazil, 35%; Turkey, 40%; the US, 102.5%; and Canada, 106.1%.
China's EV makers are already feeling the impacts. In July, Chinese EV makers' sales in the EU dropped sharply. New registrations of Chinese brand EVs decreased to less than 14,000 units in Europe in July, down from more than 23,000 a month ago, and down 9.7% year on year. Sales of Chinese EVs from January to July 2024 fell 17% in the EU, and 10% in the US and Canada combined.
Although the overall exports of Chinese EVs have not shown major declines, the makers cannot ignore the pressure from the rising tariffs.
Chinese EV makers have been known for producing vehicles with high price-performance ratios. A breakdown analysis has shown that a China-made BYD EV can be less than one third of the production cost for a US-made equivalent, according to industry sources.
The high tariffs are threatening to increase China-based makers' export costs, underming their competitiveness. Constructing their EVs abroad is a way to evade the tariffs.
Building plants in Europe and Mexico
BYD and NIO have built manufacturing plants in Hungary, an EU member country. BYD, Chery Automobile, GWM and other Chinese automakers plan to set up manufacturing plants in Mexico. Cars produced in Mexico with 75% of components sourced locally can be exported to the US and Canada tariffs-free. Dongfeng Motor, Changan Automobile, and GWM, and XPeng are all planning to construct plants in Europe.
Labor cost is higher in Europe than in China, particularly in Germany, France and Italy. It means that making EVs in Europe may avoid the tariffs, but production costs will be higher than in China. It remains a challenge how Chinese EV makers can maintain competitive production in Europe against local rivals.
But the rising tariffs are forcing the Chinese EV makers to accelerate the pace of globalization.
Article translated by Rodney Chan
