China pressures its automakers to halt EU expansion

As tensions escalate over European Union tariffs on electric vehicles, Bloomberg reports that China is pressing its automakers from the backroom to halt their expansion plans into Europe.

Beijing allegedly advises Chinese car manufacturers to stop pursuing new production sites in the EU and avoid signing further agreements while negotiations with Brussels are ongoing.

In recent months, Chinese EV brands have gained traction in Europe, with September marking the second-highest month for Chinese EV sales on the continent. Yet the new tariffs, introduced to counter what the EU perceives as “unfair subsidies” provided to Chinese automakers, substantially threaten this momentum.

The issue has pushed China to consider retaliatory measures, with potential tariffs on European exports like dairy, pork, and brandy. At the same time, local carmakers have asked for excess duties on imported European cars with engine blocks over 2.5 liters.

Taking measures one step further

China has already warned its automakers to remain cautious about investments in trade-allied countries to the EU, like Turkey and Morocco. Still, it is now taking matters one step further.

While not legally binding, the new directive asks for downscaled plans for constructing car factories across the EU, to stop scouting for possible locations, and to keep the business profile low for the time being.

BYD is building a second site in Hungary, Chery is refurbishing an old Nissan plant in Barcelona, and Leapmotor has found a roof at the Stellantis site in Tychy, Poland.

Nio’s founder, William Li, adamantly denied that Nio was ever interested in Audi Brussels. MG, China’s most popular brand in the EU, is under strategic evaluation for building a site somewhere on the continent. As its mother company, SAIC, is state-owned, it might well yield to the new directive.

Hesitation has already set in

In fact, according to Bloomberg, some Chinese carmakers have already begun to scale back their assembly strategies for Europe. State-owned Dongfeng Motor Group has halted plans to establish a manufacturing site in Italy, citing the country’s support for the EU tariffs as a decisive factor.

Great Wall Motors closed its Munic EU headquarters, and battery maker Svolt announced its withdrawal from Europe, canceling German battery plants.

Changan Automobile, another state-owned carmaker, has canceled a brand launch event planned in Milan over the tariffs negotiations. But the reverse also holds. Despite Beijing’s recommendation, GAC Group, another state-owned enterprise, will continue its search for a European factory location.

While the Chinese government’s directive is non-binding, industry experts suggest that, given the centralized nature of Chinese state-run companies and Beijing’s authority, it could substantially impact how quickly manufacturers continue their European expansion.

Private companies, however, are expected to show more resistance. BYD, for example, is unlikely to slow down its progress in Hungary, where the new factory is slated for operation by next year.

Tariffs go live within three days

The mounting pressure from the national administration signals China’s intent to counter the EU’s proposed duties on Chinese EVs, which could increase import tariffs by as much as 45% on some models.

The EU already enforces a 10% import duty on Chinese cars, but the additional tariffs vary per manufacturer, hitting some as high as 37%. BYD faces a proposed 17.4% tariff, while Geely’s stands at 19.9%. SAIC, which owns the MG brand, has refused to cooperate with the EU’s investigation and now faces an excess tariff of up to 37.6%.

Talks between EU Trade Commissioner Valdis Dombrovskis and China’s Trade Minister Wang Wentao are ongoing, though an agreement remains elusive. There have been eight rounds of negotiations already, with a wide gap between both sides remaining. The tariffs go live on October 31st, 2024.