Europe Embraces Chinese EV Makers: A New Opportunity?
China’s Chery Auto has signed a joint venture deal with Spain’s EV Motors to set up its first European factory. Spanish Prime Minister Pedro Sanchez presided over the signing ceremony. Meanwhile, France has invited China’s EV giant BYD to establish a manufacturing plant in the country. The European market appears to be welcoming Chinese electric vehicle players with open arms. However, in this traditional automotive heartland dominated by German and French giants like Volkswagen and Renault, Chinese EVs face a mix of opportunities and challenges as they seek to gain a foothold.
The first China-branded passenger car produced in Europe is about to appear
On April 19th, Chery announced that it will establish a joint venture with Spain’s Ebro company in Barcelona, renovate the production plant, and start producing electric vehicles from the fourth quarter of this year. It is reported that Chery will become the first Chinese automaker to produce passenger vehicles in Europe.
Data from the China Association of Automobile Manufacturers shows that in the first four months of this year, China’s new energy vehicles exports totaled 114,000 units, an increase of 13.3% year-on-year. This is referred to in the industry as “counter-cyclical growth.” However, as the EU’s countervailing duty investigation against Chinese automakers continues to escalate, despite the good trend in overall vehicle export data, the industry is still inevitably anxious. Against the backdrop of the EU’s continued pressure on China’s new energy vehicles export industry chain, the “local manufacturing + brand direct sales” model for going overseas will gradually become mainstream in the future, and localized production is the inevitable choice for automakers to establish a foothold overseas.
More and more new energy companies are aiming for localized production, and Chinese automakers are rushing to Europe: After Chery officially announced the establishment of a factory in Europe, BYD also announced on May 9th that it will consider setting up a second assembly plant in Europe by 2025. Last December, BYD had already announced that it would build an electric vehicle factory in Hungary and start production within three years; Last year, SAIC Motor’s MG brand said it would make a decision on production in Europe within two to three years; On May 14th, Leapmotor and the Dutch automotive giant Stellantis Group announced the formal establishment of the joint venture “Leapmotor International” and the start of its operations. 2024 may become the year of Chinese new energy vehicle companies building factories in Europe. Facing this “hard nut to crack” that is the EU, as well as the potentially lucrative market and the challenge-filled track behind it, they are doing a difficult but right thing.
Chery Enters the European Market, Why Did They Choose Spain as the First Stop?
For the European automotive market, people are more familiar with the China-friendly Hungary, while Spain seems to be rarely mentioned.
In fact, Spain is still in the early stage of electrification transformation, and the overall market is still dominated by fuel-powered vehicles. On the streets of many Spanish cities, it is even difficult to see electric vehicles. In Barcelona, it’s the same, with more traditional European fuel-powered cars like Volkswagen, Renault, and Citroën on the streets, as introduced by car enthusiast Jason to the author.
However, this also represents the vast development potential. Data from the Spanish Electric Vehicle and Sustainable Mobility Association shows that by 2022, the sales of electric vehicles in Spain have reached nearly 80,000 units, 56 times the sales in 2014. Overall, the Spanish new energy vehicles market is in a period of rapid development and is expected to continue growing in the coming years.
Furthermore, the Spanish government has also introduced relatively comprehensive policies to support the transformation of the new energy industry. In 2020, the Spanish government announced the launch of the Strategic Plan for Economic Recovery and Transformation, which was approved by the EU and received a recovery fund of up to 19 billion euros. The Spanish government stated that 40% of the funds will be invested in the field of green transformation, and Chery’s cooperation with Ebro has also received support from this plan.
Of course, Chinese automakers’ choice to invest in Spain is not based on immediate interests, but the entire European market.
As a major exporter of automobiles, Spain is a major springboard for many automakers to enter the European market. According to the Ministry of Commerce report, Spain is the second largest automobile producer in Europe, and automobiles and parts are important export products. According to the annual report of the Spanish Automobile Manufacturers Association (ANFAC), in 2022, Spain exported 1.933 million vehicles, accounting for 87.1% of its total production, with a total export value of 37.92 billion euros, mainly to Germany, France, Italy, the UK and Turkey.
Chery is the Chinese automaker with the largest export volume, but its exports are still concentrated in less developed regions such as Latin America and the Middle East. Chery is said to have long been interested in developing markets in developed regions such as Europe and the United States. “Once the Ebro factory reaches sufficient production scale, we will plan to export to other regions and countries in Europe, making it one of Chery’s major export factories globally,” said Chery Executive Vice President Zhang Guibing.
Furthermore, according to public information, Chery’s localized production in Europe this time is through a joint venture with the local Spanish company Ebro (Ebro-EV Motors). The division of labor between the two parties is very clear, with the production factory renamed the Ebro Factory, controlled by Ebro, while Chery is responsible for leading the technology upgrade of its joint venture brand for electric vehicles and developing new products.
The electric vehicle media The EV Report calls Ebro the “rise of a Spanish automotive icon”. It is reported that Ebro is a long-established local Spanish automaker, but it started with the production of agricultural vehicles such as tractors and has been transforming towards renewable and eco-friendly energy since 2013, and has launched an electric pickup in recent years. Ebro’s excellent R&D capabilities and the accumulated audience base of many years in the local market have laid a good foundation for the subsequent development of electric sedans.
Establishing a joint venture with a local company to enter the market is also an old trick used by foreign companies to enter China in the era of fuel-powered vehicles, only now the steering wheel has turned over to the hands of Chinese new energy vehicle companies.
Against the backdrop of EU anti-subsidy policies, choosing to build factories and localize production in Spain may be Chery’s best choice at the moment. According to the agreement, the Ebro factory will start production in the fourth quarter of this year, with the first models being pure electric and fuel versions of the Omoda 5, and plug-in hybrid models of the Jaecoo 7 will be produced later. Efficient cooperation will make Chery the first Chinese automaker to produce electric passenger vehicles in Europe, which is very beneficial for seizing market share.
The EU’s Policies are Undergoing Transformation, is it Good or Bad?
In October last year, it was a critical moment for Chinese new energy vehicle companies as their export strategies shifted to “localized production” – at that time, the European Commission officially launched an anti-subsidy investigation into China’s electric vehicles, revealing a clear “protectionist” attitude. In addition to non-tariff barriers, the EU has continued to put pressure on Chinese new energy vehicle companies through measures such as the Carbon Border Adjustment Mechanism (CBAM), the Net Zero Industry Act, and the Critical Raw Materials Act.
After half a year, the export path has become increasingly difficult. Recently, the EU has issued warnings to the first three sampled companies in the anti-subsidy investigation – SAIC, BYD, and Geely – stating that they “did not provide sufficient information on subsidies, operations and supply chains”, and indicating that this could lead to unfavorable rulings by the EU, and may even result in “higher tariffs on imported products.”
Faced with the superimposed crisis of EU pressure and the global economic downturn, new energy vehicle companies, if they want long-term development, seem to have no choice but to forge ahead, with no possibility of retreat.
“The EU’s policies are clearly using the environmental pretext, and any ESG slogans are driven by interests, and protecting domestic industries is also very normal. We can only buckle down and face these challenges, using other paths – such as joint venture factories – to solve the problem in a roundabout way,” an employee of a leading new energy company told the author.
However, the attitudes of EU member states towards localized investment by Chinese companies do not seem to be consistent. For example, Hungary has maintained a friendly attitude towards China from the very beginning. As the first European country to join the “Belt and Road” initiative, when the EU issued the “European Economic Security Comprehensive Plan” at the beginning of the year, Hungarian Trade Minister Péter Szijjártó openly stated that this was a “political” attempt by the less competitive EU countries, aimed at obstructing China’s investment in key areas such as electric vehicles. After the recent visit of China’s top leader to Hungary, the Hungarian side’s attitude has also confirmed their strong willingness to cooperate.
In addition, there are countries that previously expressed caution towards China but have recently taken a “big turnaround” in their attitude. For example, France, which had previously been pushing the EU to conduct anti-subsidy investigations on China, but recently, its Finance Minister Bruno Le Maire “called out” saying that “if the Chinese electric vehicle company BYD decides to set up a factory in France, France will welcome the company.” Even Italy, which has always been very cautious about Chinese electric vehicles, has also started to attract Chinese companies to set up factories locally.
“The EU is not as united as people think, the markets and interests of each country are scattered, and the starting point of each government is ‘will this thing benefit our country?’ If Chinese car companies come and build factories, they can bring new energy technology and encourage employment, of course they are welcome,” Jason told the author. Unlike exports, local investment will bring a large amount of “hot money”, emerging technologies, and job opportunities, which are very necessary for European countries that are in the process of reviving their industries. “We are committed to electrification, which is an area where China is in a leading position. We should welcome them and also draw inspiration from their work – just like China welcomed Airbus in the past, and then they developed their own Commercial Aircraft Corporation of China,” Le Maire said.
How to Face the Uncertain European Market?
Facing the “factory building fever” in Europe, Chinese enterprises also need to maintain objectivity and vigilance.
First, localized investment is just the beginning, and does not mean that the auto companies have already occupied the local market, nor does it mean that the beautiful blueprint for the future has been fully unfolded. Building a factory is the first step – although it is important, it is only the beginning.
Brand acceptance is one aspect. “In most European countries, German and French automakers still dominate, and it’s not easy for Chinese automakers to establish brand awareness, which requires long-term cultivation,” Jason believes.
The cost of the supply chain also needs to be considered. In fact, in the short term, the cost of overseas factory construction may be much higher than the cost of exports, mainly because “China’s new energy vehicle component companies have just begun to go overseas to build factories, while most of the overseas industrial chains are not mature, and the supporting costs are high.” And Chery’s factory this time is an assembly plant, and the costs of purchasing and transporting parts and components cannot be underestimated. Although some component companies have accelerated their influx into the EU region – power battery company CATL has already built factories in Germany and Hungary, becoming the “number one” partner for new energy vehicle companies, but since the EU also has localization requirements for key raw materials such as lithium, cobalt, nickel and silicon for auto parts, automakers may still have a period of “not adapting to the local environment.” The most important thing is that when the unfriendly market suddenly “opens its arms” to welcome investment, Chinese automakers need to see the conditions and costs behind it.
Senior consultant Gu Deming of the Montaigne Institute in France has analyzed the issue from the EU’s perspective, saying that local cooperation means that Chinese cars will be produced in Europe, just like the practices of major fuel vehicle giants in China or other emerging markets in the past. But he believes that “the EU can set conditions, just like what China has done in similar situations for foreign direct investment (FDI).”
These conditions may be “accepting localization, including local suppliers, shared ownership and technology transfer,” or “reducing domestic automotive industry output and employment targets to ensure foreign acceptance.” At the same time, local European companies will learn “China’s production processes and software integration, just as they once learned quality control and lean production from their Japanese competitors.”
The EU expects to draw on the experience of Japanese and Korean automakers setting up factories in Eastern Europe, and overcome the competition brought by Chinese companies by setting restrictive conditions. Moreover, it may also increase the intensity of anti-subsidy investigations, making Chinese companies believe that the long-term interests of whole vehicle exports are far lower than localized investment.
“There are two sides to everything, setting up local factories is of course good, but the other side won’t just hand the market over to you for no reason,” Jason commented.
How should Chinese automakers face the uncertain European market? Perhaps they can only maintain vigilance on the one hand and bravely move forward on the other. Going back four years to May 28, 2020, Nissan announced that it would close its factory in Barcelona, Spain due to operational issues. Four years later, Chery and Ebroo have formed a joint venture and taken over this factory. Chery will become the first Chinese automaker to produce cars in Europe, and is now flourishing, just like Nissan when it came to Spain in the late 20th century.
Both are foreign companies entering Europe, but Nissan’s attack and gloom confirm Gu Deming’s argument that “once the EU sets restrictions, it can overcome the competition.” But the times are different, and we do not believe that Chinese automakers represented by Chery will repeat the path of Japanese and Korean companies in Europe. Gu Deming also acknowledged the strength of Chinese automakers: “China’s giants are already prepared… they require us to face reality, whether through subsidies, mandatory technology transfer, or persistent long-term planning, and now China is leading while we are lagging behind.”
