Shulou(Shulou.com)11/24 Report--

In the face of the Chinese car that hit the door, France was anxious and Germany was entangled.

Author | Zhou Yongliang

Editor | Jingyu

With the continuous expansion of Chinese new energy vehicles overseas, Europe has become an overseas market targeted by many domestic car companies.

However, Europe, which is full of auto powers, does not seem to adapt to the sudden rise of Chinese car companies.

The EU recently launched a countervailing investigation into Chinese imports of electric cars, a move that has sparked widespread controversy. According to the communique, the investigation will be completed within 12 months, and the EU may impose temporary "countervailing duties" on China within nine months.

As soon as the news came out, the relevant Chinese departments expressed their dissatisfaction one after another. Li Ke, executive vice president of BYD, also said that despite the EU countervailing investigation into Chinese electric vehicles, BYD will continue to promote strong growth in the European market.

Chinese brand cars have entered the European market for a short time, but they are growing rapidly. At present, Chinese-made electric cars have a market share of about 40 per cent in Europe, and the two countries with the largest exports are Belgium and the UK, including Tesla, Mingjue, Jixing, BYD, Xilai and so on.

More significantly, Deloitte said in a research paper that almost all Chinese car companies plan to set up major European markets such as Germany and France in the next three to five years.

Why did the EU launch a countervailing investigation against China? What will be the consequences of this move? How should Chinese car companies deal with it?

Tesla was also hit. In fact, since May this year, there have been some discordant voices in Europe.

On May 12th, the French government announced a draft law aimed at promoting France's green industry, most notably the French government's decision to significantly tighten subsidies for new energy vehicles.

Finally, on September 20th, the French government announced new "scoring rules" for car subsidies. According to the new scoring criteria, Chinese electric vehicles have low scores due to long-distance transportation and other reasons, making it difficult to get subsidies.

In addition to France, Chinese car companies have raised concerns at the EU level. In June 2023, the European Commission's trade department was discussing whether to launch anti-dumping or countervailing investigations into Chinese electric vehicles, according to the Statesman.

The so-called "countervailing investigation" means that a government or the international community adopts the main means of trade sanctions in order to protect the healthy development of its economy, maintain the order of fair competition, or adopt the main means of trade sanctions for the free development of international trade. take necessary restrictive measures against subsidies, including temporary measures and promises to levy countervailing duties.

In the coming months, however, there was relatively little news about the double-counter investigation. It wasn't until September 13 that European Commission President von Delaine announced in his annual "State of the Union address" that the European Commission would launch a countervailing investigation into Chinese electric vehicles.

During the National Day, the Boots finally landed.

Many people may be surprised by the EU countervailing investigation. The price of Chinese car companies in Europe is generally twice the domestic price. For example, the minimum price of Volkswagen ID.3 in Germany is nearly 40,000 euros (320000 yuan), which is 2.5 times the domestic price (119800 yuan). Why did the EU launch an investigation?

In fact, the final price of the car is not the focus of the countervailing investigation. The EU's most critical considerations include several aspects: first, it examines whether the government is involved in exports and whether it provides subsidies to companies. Second, the EU assesses a company's procurement process to verify that its raw materials are purchased entirely by the company's own needs, without being affected by other factors or official intervention, such as transfers.

Judging from the details currently announced, the countervailing investigation launched by the EU is mainly aimed at Chinese-made new single / multi-motor battery electric vehicles (BEV) with nine seats or less. This means that the survey is mainly aimed at terminal models, mixed cars, electric motorcycles, commercial vehicles will not be investigated, and there are no obvious restrictions on the localized layout of China's lithium industry chain.

At the same time, the survey will affect not only Chinese electric companies, but also foreign brands, including Germany's Mercedes-Benz, BMW, Volkswagen and Tesla of the United States. The survey covers the period from October 2022 to September 2023, and the assessment of countervailing damage can be traced back to January 1, 2020. At present, BMW, Audi, Mercedes-Benz and other car companies have been required to provide relevant materials.

02. Is Europe frightened? As for the reasons for the countervailing investigation, the EU said it had ample evidence that imports of lower-priced electric cars subsidized by China were growing rapidly in Europe and pushing prices down, putting pressure on local industries.

At the same time, both von Delaine and Macron mentioned the EU's "double reverse" investigation of Chinese solar photovoltaic products a decade ago. Macron said in his speech, "We must not repeat the mistakes we made in photovoltaic power generation in the electric car market. We have created dependence in Chinese industry and enabled its manufacturers to prosper."

In fact, this survey is an emergency response of the European auto industry to the threat, and the core goal is to protect the local auto industry and increase the proportion of localization. After all, cars are an important industry in Europe, employing 14 million people directly or indirectly, accounting for 6.1 per cent of the EU's workforce. The European Commission points out that Chinese-made vehicles currently account for 8 per cent of the European electric car market, which is expected to rise to 15 per cent by 2025.

At the same time, it is also a recognition of the strong. At the recent Munich 2023 International Auto Show (IAA), German Chancellor Schultz encouraged German car companies to say that "you should be encouraged, not intimidated by [Chinese car companies]".

"in the 1980s, people said that Japanese cars were surpassing all other markets; 20 years later, people began to worry about Korean-made cars; today, it's China's turn for electric cars. "

However, within the EU, there are differences in positions and interests between France and Germany. The countervailing investigation is mainly driven by France, because French car brands have an absolute advantage in the European market, but it is difficult to push forward in the Chinese market (with a market share of about 1%).

The chief technology officer of French car representative Renault has said Renault cannot fight a price war with competitors such as Tesla and China. About 70 per cent of Renault's sales come from Europe, but it accounts for only 10 per cent of the European market, making it "one of the riskiest companies in the European market", according to the UBS report. In China, French cars have been marginalized, with a market share of less than 0.5%, which can almost be ignored.

At the same time, it is reported that about 40% of France's electric car subsidies went to Chinese-made electric vehicles in the first quarter of 2023. In response, French President Macron said, "We do not want to use French taxpayers' money to accelerate industrialization outside the European Union." "

Germany is more cautious than France, worried about the consequences of the investigation. Senior German officials made clear their opposition and warned that it would cause damage to the German economy. German car companies have also said publicly that they do not agree with the EU's attempt to impose punitive tariffs on China.

This is because China is the largest overseas market for the German auto industry.

Sales figures show that Volkswagen, Mercedes-Benz and BMW, Germany's three biggest car groups, combined sold 4.71 million vehicles in China in 2022, accounting for 38.3 per cent, 37 per cent and 33 per cent respectively. In the first half of 2023, German imports of cars and parts into China increased by 75% compared with the same period last year. Once the EU is countered by China, it will inevitably affect the development of German car companies in the Chinese market.

However, countervailing investigations do not necessarily mean imposing tariffs, which requires the 27 member states of the European Union to decide through a voting procedure. The proposal will be passed only if it has the support of 55 per cent of EU member states or 65 per cent of the EU's total population.

03. Independent brands are the most "hurt" in the process of overseas expansion of Chinese car companies, the European market is particularly important.

At present, the two largest mature car markets in the world are the European Union and the United States. Compared with the high tariff of the United States (25%), the tariff barrier of the European Union is relatively low, only 10%. In addition, the EU's subsidy policy is also more transparent and universal, and both locally produced and imported cars can be enjoyed. Therefore, entering Europe, especially winning the high-end market, has become the key to the continuous technological upgrading and iteration of Chinese car companies.

Which companies will be affected by the EU countervailing investigation? Will this disrupt the overseas expansion of Chinese car companies?

First of all, the survey affects pure electric vehicles made in China, including not only self-branded products, but also Chinese-made Tesla Model 3, Volkswagen ID series and BMW iX3.

At present, Europe is the largest market for the export of electric vehicles in China, of which Tesla, SAIC and easy Jet (Dongfeng and Renault joint venture) contribute more, while other car companies export less; the overseas strategies of other independent brands are mainly concentrated in Southeast Asia, the Middle East, South America and so on, with little short-term impact.

However, foreign-funded enterprises have their own countermeasures. Tesla and Egett, respectively, are American and French companies, and they may digest the impact in other ways, just like Shanghai General Motors' Ankewei, which can be sold back to the United States even in the face of US tariffs.

MG 4 | the ones who are really "hurt" on the official Weibo may be their own brands, such as SAIC Mingjue.

Data show that SAIC MG sold a total of 150000 vehicles in the European market from January to August, an increase of 1.5 times compared with the same period last year, and its model MG 4 sold more than 30,000 vehicles in the first half of the year, making it one of the top 10 pure electric vehicles in Europe.

However, even if the EU imposes tariffs, Chinese car companies are not without countermeasures. The international trend of the automobile industry is basically carried out along the development of vehicle export, CKD assembly, joint venture and cooperation, and localized R & D and production.

For a long time, Chinese car companies are in the initial stage of vehicle export and CKD assembly, and their development is slow. The EU countervailing investigation is likely to accelerate the process of localizing Chinese car companies' factories and operations in Europe.

It is understood that many car companies have confirmed plans to build vehicle bases in Europe. SAIC, for example, announced in July 2023 that it would build a production base in Europe and is in the stage of site selection; BYD also plans to determine the address of its first European plant by the end of 2023.

Even after the establishment of factories in Europe, Chinese car companies still maintain their own advantages. Earlier, UBS dismantled 2022 BYD seals and found that even if it built a plant in Europe, it still enjoyed a 25 per cent cost advantage over North American and European car brands.

In the past 50 years, many car companies have tried to achieve internationalization, but only Japan's Toyota and South Korea's Hyundai have been really successful.

They have also faced various crackdowns and restrictions in the process of entering the international market, but they have grown into international car companies through localization. In the wave of transformation from traditional cars to smart cars, Chinese car companies have obvious advantages. The countervailing investigation is only a stopgap measure for Europe to trade time for space.

For Chinese car companies, going out to sea is an inevitable option, and it is also a part of the market entry to encounter the resistance of the corresponding regulators in the process of competing in overseas markets. Only by overcoming these man-made obstacles can Chinese car brands really grow into global brands.

This article is from the official account of Wechat: geek Park (ID:geekpark). By Zhou Yongliang.

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