China’s Automakers Are Back in Europe and They're Staying.
May 02, 2023
China’s automotive industry is rapidly pulling out of its pandemic-related slowdown and, as it does so, it’s starting to make significant inroads in Europe, primarily with its growing fleets of electric vehicles. And this time, the Chinese makers and suppliers are likely here to stay.
Around the world, original equipment manufacturers (OEMs) and suppliers were sharply affected by the COVID-19 pandemic as factories closed, sales slumped, and supply chains seized up. While the industry globally is now rebounding, the Chinese market has recovered significantly faster than Europe, and Chinese OEMs are ramping up their production volumes by considerably more than international competitors.
Within China, Chinese vehicle brands grew their production volumes by 25 percent between 2019 and 2022, compared to a decrease of 8 percent for international brands. In the global market, Chinese brands’ production volume was up by 11 percent in 2021-22, compared with an increase of only 5 percent for all other brands.1
A Dominant Position in Electric Vehicles
Electric vehicles (EVs) are powering this Chinese auto industry rebound, both domestically in China and internationally; China alone now accounts for more than 60 percent of all EV sales globally, three-quarters of them battery-powered EVs and the remainder plug-in hybrid EVs (Figure 1).
Figure 1: China Has Already a Very Strong Role in Electric Mobility
PHEV: Plug-In Hybrid Electric Vehicles
Source: China Association of Automobile Manufacturers (CAAM), EV-Volumes, FTI Consulting
China’s dominant role in electric mobility is likely to continue growing. This is due in part to support by the Chinese government, which has deemed electric mobility to be a strategic priority. It has passed enabling legislation to foster EV adoption, along with providing state investment and subsidies for manufacturers.
While automakers worldwide are looking to increase their share of EVs, OEMs and suppliers within China enjoy considerable cost and supply chain advantages. The Chinese benefit from massive economies of scale. Wage costs have been rising but remain substantially below European levels. Meanwhile, many OEMs invest heavily to build up digital factories to improve efficiency and offset the surging of labour cost. This gives them an edge at a time when EV prices have been declining, amid signs of an EV price war.
Tesla reduced prices of their vehicles around the world in January 2023, including a reduction of up to 13 percent in the United Kingdom,2 17 percent in Germany, 20 percent in the United States and 14 percent in China.3 Other manufacturers followed suit shortly after, including price cuts of up to 13 percent by XPeng in China.4
Amidst this price war, Chinese OEMs benefit from the country’s control over key elements of the EV value chain, from essential raw materials such as cobalt, nickel, and rare earths, to the basic components of batteries (Figure 2).
For example, China currently controls almost 80 percent of the world’s battery cell manufacturing capacity – and is continuing to expand at breakneck speed, building one battery Gigafactory every week on average.5 Consequently, the country is expected to maintain its dominant position as the leading supplier of lithium-ion batteries over the next five years, even as the expected capacity rises sharply to meet global demand for EVs.
Figure 2: China Controls Key Elements of the EV Value Chain
Chinese shares on global refining, production of raw materials and EV supply chain components
The Return to Europe
Even as they power their growth in their domestic market, Chinese OEMs and suppliers are now actively going global, with a particular focus on Europe. Chinese players still have low market shares in Europe, so there is a lot of room for growth.
In the past few months alone, leading Chinese OEMs and suppliers have announced plans to enter European markets through distribution deals and partnerships and, in some cases, open plants and service centres in Europe.
- Polestar opened a second manufacturing location in Finland in January 2023 with plans to start production of its Polestar 3 and has set a European sales target of 80,000 vehicles.6
- Great Wall has announced it will distribute some of its autos in Germany through the Emil Frey Group and will build a local plant if and when sales reach 50,000 units.7
- HongQi, a subsidiary of the FAW Group, is making its market entry into Europe through two countries that don’t have a domestic automotive industry, the Netherlands and Norway; the company sold 1,000 of its EVs in Norway in the first half of 2022.8
- Dongfeng has also started delivering its Voyah brand in Norway and is looking to enter the market in Sweden, the Netherlands and Denmark.9
- BYD already sells battery-powered electric buses in Europe and has presented plans to establish a UK retail network, aiming to set up 100 dealerships by the end of 2025, and now looking to distribute EVs through the Hedin Mobility Group.10
- Geely is opening a 14,000 square metre design centre in Milan and has announced a partnership with Hungary’s Grand Automotive Central Europe to commercialise 25 new models.11
- Chinese automotive suppliers are setting up facilities to accompany the manufacturers. Among others, XPeng has announced it will open delivery and service centres in Norway, the Netherlands, Sweden, and Denmark in the first half of 2023.12
- CATL has announced plans to build a 100GWh battery plant in Hungary.13
- Gotion has announced that it will build an 18Gwh battery plant in the German town of Göttingen that will start production in September of this year.14
These forays into Europe mark a return of Chinese automakers some 17 years after a failed first attempt that was dogged by quality and safety issues. The quality of Chinese cars has since improved markedly. And at a time when European consumers and regulators are pushing for more EVs to replace internal combustion engine vehicles, Chinese manufacturers are coming to market with lower-priced vehicles than many of their European competitors.
New Competition, New Jobs, More Consumer Choice
The European foray by China’s automotive makers marks a significant development for the European auto sector. It has the potential to create jobs and contribute to economic development and the upkeep of Europe’s industrial capacity.
For traditional European OEMs, it will heighten competition with potential implications for model choices and price points.
For consumers looking to transition to EVs, the Chinese models will offer greater choice, and at often lower price points.
For European suppliers, the arrival of Chinese manufacturers could be a significant opportunity if these companies start building plants locally, as many are suggesting they will do once sales reach a critical mass. For now, the majority of Chinese EVs are being manufactured in China and then shipped. Once that changes, European suppliers could become more active participants in Chinese automotive supply chains on the continent.
1: Production volume data from LMC Automotive, a GlobalData Company (date of publication Q4 2022).
2: Lease Plan - https://www.leaseplan.com/en-gb/blog/fleet-management/tesla-reduces-prices-on-model-3-and-y/#:~:text=Now%20Tesla%20has%20disrupted%20the,supply%20chain%20following%20recent%20disruption.
6: “Polestar delivers on 2022 global volumes target, Polestar press release, January 9, 2023. https://media.polestar.com/global/en/media/pressreleases/662836
7: Nathan Eddy, “Great Wall partners with Emil Frey to distribute Wey, Ora brands,” Automotive News Europe, August 9, 2022. https://europe.autonews.com/automakers/great-wall-partners-emil-frey-distribute-wey-ora-brands
8: “Hongqi signs sales partnership in the Netherlands,” electrive.com, August 25, 2022. https://www.electrive.com/2022/08/25/hongqi-signs-sales-partnership-in-the-netherlands/
9: Phate Zhang, “Dongfeng Motor’s EV arm Voyah begins sending first 500 vehicles to Norway,” CnEV Post, September 27, 2022. https://cnevpost.com/2022/09/27/voyah-begins-sending-first-500-vehicles-to-norway/
10: “Hedin Mobility Group strengthens its position in the European electric vehicle market as it is appointed “Dealer+” for e-mobility pioneer BYD in Germany and Sweden,” Hedin Mobility Group. https://hedinmobilitygroup.com/en/business-areas/distribution/vehicles/byd#:~:text=BYD%20vehicles%20will%20be%20sold,deliveries%20expected%20in%20Q4%202022
11: “Geely is moving on Eastern Europe,” electrive.com, November 14, 2022. https://www.electrive.com/2022/11/14/geely-is-moving-on-eastern-europe/
12: “Xpeng expands service network in Europe,” Businesswire, January 16, 2023. https://www.businesswire.com/news/home/20230116005280/en/XPENG-Expands-Service-Network-in-Europe
13: “China’s CATL to build a €7.2 bn 100 GWh battery plant in Hungary,” Industry Europe, August 16, 2022. https://industryeurope.com/sectors/transportation/chinas-catl-to-build-a-e7-2bn-100-gwh-battery-plant-in-hungary/#:~:text=Chinese%20battery%20maker%20CATL%20has,country's%20largest%20ever%20overseas%20investment
14: “Gotion High-Tech intend to invest in a production base in Europe with an annual production capacity of 18GWh, Cision, June 22, 2022. https://www.prnewswire.com/in/news-releases/gotion-high-tech-intends-to-invest-in-a-production-base-in-europe-with-an-annual-production-capacity-of-18gwh-854013665.html
May 02, 2023
Senior Managing Director
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