Trump Cannot Stop Chinese Electric Cars from Going Global
In October of this year, at the Paris Motor Show, at the BYD booth, a large screen displayed landmark videos from around the world: from the Christ the Redeemer statue in Rio de Janeiro to the Arc de Triomphe in Paris, signaling the determination of Chinese car companies to attract consumers worldwide.
Whether through television screens or by personally experiencing BYD’s electric cars, the power source behind viewing world landmarks relies on electricity. Before electric cars, from telegraphs, telephones, wireless radios to electronic computers, electricity has repeatedly changed the world, often unnoticed.
However, the most significant impact of applying electricity to the production process was the transformation of factory operations.
In 1835, Andrew Ure described early British factories as follows: “The term Factory, in technology, designates the combined operation of many orders of work-people, adult and young, in tending with assiduous skill a system of productive manchines continuously impelled by a central power.”
The use of central power allowed for increased efficiency and coordinated operations. To Ure, this was a major breakthrough, regardless of whether the power source was wind, water, or steam. However, this meant that machines could only be placed near the central power source, limiting the division of labor. If certain machines required more power, the entire production process could come to a halt. In early factories, machines driven by overhead driveshafts lacked power if placed too far from the central power source. Machines were scattered throughout the factory, with various semi-finished products constantly shuttling between machines.
Around 1889, only about 1% of factory power came from electricity, but by 1919, this figure had exceeded 50%. With electricity, factory production efficiency significantly increased. It was not just due to better lighting but also because machine placement could be flexible, leading to the restructuring of factory layouts. An engineering manager at Westinghouse Electric at the time remarked, the greatest advantage of electrically driven machines lies in their flexibility, allowing for freer planning of the factory layout and tool placement.
This marked the beginning of the American automobile manufacturing industry. Ford Motor Company was founded in 1903, with Henry Ford aiming to increase production and lower prices to penetrate the mass market. Electric power plants quickly enabled Ford to surpass an annual production of 200,000 vehicles, a staggering number at the time.
Ford summarized, With the new electric system, each tool could finally have its own electric motor, freeing industry from constraints of belts and driveshafts… Under conditions using pulleys and belts, it was impossible to develop high-speed tools, and without high-speed tools bringing superior steel, it would be impossible to develop what we now call modern industry.
Perhaps Ford did not realize at the time that electricity would liberate factories from the restrictions of a central power source. Not only could products manufactured in factories reach the world, but the factories themselves could expand beyond borders, unrestricted by brand or the nationality of workers, with a wider horizon.
Ford automobile production line
Modern automobile production line
In economics and international trade, Greenfield investment refers to multinational companies or enterprises establishing new production facilities or businesses from scratch in foreign countries. The term Greenfield is used because it vividly expresses the concept of building new facilities from the ground up on a green field, symbolizing a fresh start. In contrast, Brownfield investment refers to expanding or renovating existing facilities.
Greenfield investments typically involve constructing new factories, office buildings, and other infrastructure, representing the establishment of entirely new businesses or production lines, thus requiring significant capital and resource investment. The term highlights the characteristic of companies building from the ground up, much like embarking on new development activities on undeveloped land.
Tesla’s Gigafactory in the Lingang New Area in Shanghai, established as its production base in China starting from scratch, is an example of a Greenfield investment. With globalization and the rise of multinational corporations, companies from developed countries are establishing factories in target markets in developing countries to avoid import barriers and tariffs, thereby reducing costs and enhancing market responsiveness.
Globalization is currently facing challenges, with advocates of comprehensive tariffs like Trump being re-elected as President of the United States. The U.S. and the EU are also imposing tariffs on Chinese electric vehicles, and the hopes of international trade order and emission reduction agreements are akin to activities on these “green fields.”
In the second quarter of 2024, the EU’s Greenfield investment in China reached €3.6 billion, the highest quarterly level in history. In recent years, Germany has been the largest investor in China, with German automakers leading the way, accounting for half of the EU’s total investment in China since 2022. With intensifying competition in the domestic electric vehicle market, BMW and Volkswagen have increased their stakes in their joint ventures with Huachen and Jianghuai from 50% to 75%. German OEMs are also upgrading existing production facilities to adapt to China’s rapid shift towards electric vehicles. If industries like chemicals, information and communication technology, and machinery providing products for the automotive supply chain are included, the overall contribution to the automotive sector is even more significant.
In the early October vote on EU tariffs on Chinese cars, countries like Germany, Hungary, and Slovakia cast dissenting votes, considering the mutual Greenfield investments between China and these countries, which is not surprising. This also reflects differing views among European companies regarding the Chinese market. Some German automakers, in a more challenging competitive environment, are choosing to double down on investments in China, leveraging localization and self-sufficiency to reduce the risks of trade frictions.
In the automotive sector, significant investments in greenfield projects in China do not imply a threat posed by Chinese electric vehicles. It is a distortion to equate Chinese manufacturing with Chinese brands. The market share of Chinese brand electric vehicles in Europe should not be selectively exaggerated. In the pure electric vehicle market in Europe, European brands hold over half of the market share, American brands occupy 20%, and Chinese domestic brands are less than 10%. Chinese companies are relatively newcomers in the European market and do not pose the threat as artificially portrayed.
Among the Chinese electric vehicles exported to Europe, the majority are Western brands manufactured in China, with less than half being local Chinese brands. Tesla’s Shanghai factory exported 340,000 electric vehicles in 2023, with half of them going to Europe. Alongside international brands like Renault and BMW, Western brands constitute close to 60% of the market share.
Conversely, European manufacturing does not equate to European brands anymore. With Chinese companies venturing into greenfield investments, this is no longer the exclusive domain of multinational corporations from developed countries.
Chinese companies accelerated their internationalization efforts post-2000. Companies like Great Wall Motors and Chery began preliminary market development and export trials in Southeast Asia, the Middle East, and Africa. By around 2010, these companies shifted towards a greenfield investment model, setting up overseas factories directly to reduce transportation costs and enhance product localization. Geely expanded its international business footprint through a combination of acquisitions and greenfield investments, not only constructing new facilities in Sweden and the UK but also expanding its global production network through the acquisition of Volvo Cars. BYD actively established electric vehicle and battery manufacturing plants overseas, particularly focusing on production facilities in Europe. In recent years, Great Wall Motors accelerated its global market production capacity layout by constructing factories in countries like Russia and Thailand.
Overall, the entry mode for Chinese investors has shifted from acquisitions to greenfield projects. From 2005 to 2022, mergers and acquisitions accounted for 70% of the announced outbound foreign direct investment (OFDI) transaction value by Chinese companies. Since 2016, Chinese companies’ M&A activities have significantly decreased, with the relative share of mergers dropping from 85% in 2016 to 50% in 2021, and further declining to only 15% in the first half of 2024.
The reasons for this shift include increased regulatory barriers both domestically and internationally, leading to significant slowdown in M&A activities as Chinese companies face pressure. The announced transaction value of Chinese M&A deals has decreased from $240 billion in 2016 to $20 billion in 2023. Additionally, Chinese companies have mainly served overseas markets through exports. With the rise in overseas trade barriers, pressures for supply chain diversification, and intensified competition in industries like electric vehicles and batteries, capital-intensive sectors have seen a surge in greenfield investments. Since 2022, the value of greenfield projects has reached 80% of total outbound foreign direct investment.
In recent years, China’s outbound direct investment has shifted from developed economies to Asia and emerging economies. Since 2017, Asia has become the largest recipient of Chinese outbound direct investment. Investments in countries like Vietnam, Malaysia, Indonesia, and Singapore have all exceeded $1 billion in 2023 and 2024. Africa, Latin America, and the Middle East have also become significant recipients of Chinese capital over the past five years.
However, Europe remains a crucial destination for Chinese capital, especially in the realm of new energy investments. There has been a fundamental change in Chinese investments in Europe. While the share of China’s greenfield investments in Europe was only 2% in 2017 and averaged 9% from 2012 to 2021, it surged to 51% in 2022 and skyrocketed to 78% by 2023. Hungary has taken the lead in attracting investments related to electric vehicles, followed by the traditional powerhouses of the UK, France, and Germany, with countries like Poland, Czech Republic, and Slovakia also securing some projects.
Over the past two years, Chinese companies’ investments in the European electric vehicle supply chain have been more prominent than ever before. Last year, investments related to Chinese electric vehicles reached €4.7 billion, accounting for approximately 70% of China’s total direct investment in the EU. The largest investments included significant ventures by CATL and Zhejiang Huayou Cobalt Co. in constructing battery factories. It has been reported that more than ten Chinese power battery companies have announced plans to establish manufacturing facilities in Europe, including CATL, AESC Technology, EVE Energy, Gotion High-Tech, SVOLT, Pykib Technology, CALB Group, and Sunwoda Electronic.
Not only battery manufacturers but also automotive companies are accelerating their overseas expansion. Chery announced plans to revamp a factory in Barcelona, Spain, previously abandoned by Nissan. Chery will operate the Spanish plant in collaboration with Spanish automotive brand Ebro Motors, which has been defunct for 36 years and stands to benefit from Chery’s manufacturing expertise and electric vehicle technology. BYD’s estimated investment in Hungary is in the billions of euros, with an annual production capacity exceeding 150,000 vehicles. BYD has partnered with France’s Forvia for local supply agreements, established a joint venture, and attracted Austrian suppliers. However, BYD also announced that initially, it would import batteries from China and use Chinese steel for building the Hungarian plant.
In summary, Chinese companies are maturing and utilizing outbound direct investments to truly internationalize their businesses, rather than solely focusing on strategic or hedging asset acquisitions.
In the early waves of outbound investments, Chinese companies often targeted stakes in upstream natural resource assets such as oil, gas, or trophy assets like the Waldorf Astoria hotel. Today, Chinese companies are increasingly shifting their focus from strategic asset acquisitions and leveraging their own assets and advantages to establish a foothold in new markets. This is evident in the investment patterns within the electric vehicle industry. In the past, Chinese investments were relatively small, primarily concentrating on acquiring stakes in upstream resources like lithium mines. Now, companies like BYD have established technological and scale advantages and are utilizing foreign direct investment to capitalize on these advantages, localize production in key markets, and gain more market share in overseas electric vehicle markets, similar to how foreign automotive manufacturers entered China three decades ago.
The benefits of greenfield investments are well-known, including knowledge spillovers, job creation, and economic growth. European countries welcome Chinese investments in the electric vehicle industry, partly to revitalize their manufacturing sector. Additionally, China can transform the European new energy vehicle market, providing more choices for European consumers while reducing carbon emissions. Through equipment and technological support, Chinese enterprises are deeply involved in Europe’s zero-emission transition, accelerating the development of a green transportation system. BYD’s electric buses are now operational in over 100 major cities across 20 European countries.
Welcome Chinese investments also help ensure that European manufacturers face a certain level of competitive pressure. Without this competition, the drive for innovation and efficiency improvement among European companies may decrease. Chinese companies can also increase employment of local European staff. As reported, by 2023, the proportion of Chinese employees in CATL’s German factory was 40%, which, even though relatively high, still means that the majority of employees are local Europeans. The CATL project in Hungary, producing battery cells and modules, is expected to create 9,000 new jobs.
Lastly, a mention of the situation in the United States. In May 2024, the Biden administration raised tariffs on Chinese electric cars to 102.5%, essentially shutting them out. While the U.S. formally remains open to Chinese investments in electric vehicles, some projects have faced intense political backlash, such as Chinese battery manufacturer Gotion High-tech’s plans to build factories in Michigan and Illinois. Investments that are less obviously “Chinese,” such as the battery factories built by AESC and Volvo in South Carolina, have faced relatively less resistance.
Today, Trump has returned to office. While he hopes to block the import of Chinese cars, he remains open to Chinese companies hiring American workers through greenfield investments. Recently, Zeng Yuqun also indicated that if Trump opens the door for Chinese companies to invest in the electric vehicle supply chain in the U.S., CATL will consider building a factory there.
Trump has previously stated that in order to compel car manufacturers to relocate production lines to the U.S., he will impose high tariffs on imported cars, including those from Europe. He specifically called out Mercedes-Benz for conducting mere assembly work in the U.S., a production model he deemed unfair to American workers. High tariffs could force European car manufacturers to reassess their production and supply chain layouts. For car manufacturers relying on parts and raw materials from low-cost countries like China, this poses a difficult choice. Additionally, despite Musk’s moderation, Trump may still overturn Biden’s new vehicle emission standards and cut electric vehicle subsidy policies.
The response of the Chinese automotive industry will undoubtedly involve greater openness to the outside world. In European Union Chamber of Commerce in China’s latest European Business in China Position Paper 2024-2025 by the Automotive Working Group, the primary recommendations include comprehensive opening of the automotive industry, specifying market access requirements and approval processes for automotive manufacturing investments. Other key recommendations include: constructing a feasible cross-border data transfer regulatory framework for car companies, creating a legislative environment conducive to the sustainable development of new energy vehicles that is predictable, non-discriminatory, and balanced, ensuring transparent development of policies for intelligent connected vehicle driving for foreign companies, and allowing imported cars to participate in intelligent connected vehicle access and on-road pilot runs. These policy recommendations are likely under consideration.
Over a hundred years ago, as electricity began to drive factories, the reorganization of machinery locations fundamentally changed factory efficiency. Over fifty years ago, as multinational giants emerged, the geographical dispersion of production significantly reduced costs, mitigated risks, and made the global supply chain a major advantage.
Factories relying on equipment centralized in a central power source could not have given birth to Ford cars, nor could they have given birth to what Ford referred to as the “modern industry.” Forcing companies to centralize supply chains through policies and tariff measures will only significantly increase the fragility and uncertainty of the supply chain. Any problem in any part could lead to severe supply chain disruptions. During Trump’s first term, especially during the pandemic, people have already seen the consequences of this.
It is precisely because of this objective law that in Trump’s second term, no matter what means are used, Chinese companies cannot ultimately be stopped from going abroad, nor can overseas companies be stopped from continuing to invest in China.
