Introduction

At the Frankfurt Motor Show, Chinese cars shone brightly, and no one could stop their ambition to enter Europe.

In the past two days, Chinese cars have once again gained popularity in Europe, the birthplace of automobiles.

At the Frankfurt Automechanika being held at the Frankfurt Exhibition Center in Germany, nearly 900 Chinese auto parts suppliers and an electric vehicle alliance comprising Chinese automakers such as Geely, BYD, Avita, Hongqi, GAC, Seres, JAC, and others have arrived at the doorstep of the Germans to show off their strength.

Although the Frankfurt Motor Show (IAA), which has been held continuously for nearly 70 years, came to an end in 2020, this time the Chinese force took over, and the China Council for the Promotion of International Trade Automobile Industry Sub-Council jointly hosted the Frankfurt Electric Vehicle Expo (Frankfurt Electric Vehicle Show for short) with local partners. This is also the first time that China has participated in hosting a large-scale auto show overseas.

From the Frankfurt Motor Show dominated by European automakers to the Frankfurt Electric Vehicle Show dominated by Chinese automakers, this represents a change in a new automotive era. Chinese automakers are comprehensively counterattacking European automotive powers with their electric vehicle advantages.

Although national forces serve as a driving force, it is not easy for Chinese automakers to enter the European market. The first barrier they face is tariffs, which is the most direct and urgent challenge. In early July, the European Commission's temporary tariffs on Chinese electric vehicles officially took effect, with tariffs ranging from 17.4% to 37.6% for automakers such as BYD, Geely, and SAIC.

The EU hopes that Chinese automakers will establish factories locally, introduce industrial chains, and address employment and tax issues, thereby driving the local automotive industry's transition from traditional fuel vehicles to new energy vehicles.

However, there are often deviations between reality and logic. There may be uncertainties in Chinese automakers' entry into Europe, and the game continues. According to insiders, China hopes that Chinese automakers setting up factories overseas will enter foreign markets through the CKD (Completely Knocked Down) method and keep key electric vehicle technologies in China.

Twenty years, Chinese cars are different

Frankfurt is not unfamiliar to Chinese automakers, especially the Frankfurt Motor Show, known as the "Olympics of the World Automotive Industry." Its charm stems from the land it stands on – the birthplace of modern automobiles and the hometown of top global automakers. Despite a nearly 8,000-kilometer straight-line distance between Germany and China, Chinese automakers' enthusiasm and determination remain unwavering.

Let's rewind to 2005, 20 years ago, when Chinese automakers were still imitating German automakers. In an era when few dared to imagine selling cars to foreigners, Li Shufu of Geely brought five models, including the Free Cruiser, Haoqing, and Meirenbao, to German territory. He even invited a Peking Opera troupe from Zhejiang Province to perform an opening act, showcasing Chinese culture at the Frankfurt Motor Show.

At that time, it was indeed a novelty for Chinese automakers to debut at the Frankfurt Motor Show, and foreigners felt the same way. Local media even reported on Geely with headlines like "China Has Arrived," conveying a sense of challenge.

Since then, Chinese automakers have increasingly appeared at the Frankfurt and other European auto shows.

Brilliance Auto in 2007, Jonway Automobile in 2009, Changan Auto in 2011 and 2013, Chery Auto and Great Wall Motor's WEY in 2017, and Hongqi, Great Wall Motor, and new force Byton in 2019. Even though Chinese automakers couldn't directly compete with European rivals, they still attempted to learn and challenge, standing on the same stage with German automotive brands and industries.

In recent years, as many overseas automakers have been absent from major European international auto shows, Chinese automakers have taken center stage. Since the Frankfurt Motor Show moved to Munich in 2021, more and more Chinese faces have appeared at large European auto shows. By 2023, nearly 10 Chinese brands accounted for almost a third of the passenger car brands at the show, unleashing waves of Chinese power on the European continent.

Including the current Frankfurt Electric Vehicle Show, the new electric vehicle products and technologies brought by Chinese automakers and brands have greatly shocked the lagging German automotive industry in the field of electrification and intelligence.

Taking Geely, which once led Chinese automakers to debut at the Frankfurt Motor Show and is the only company to hold a press conference at this year's Frankfurt Electric Vehicle Show, as an example, its brands Geely, Lynk & Co., and Zeekr collaborated to showcase multiple heavyweight models such as Lynk & Co. Z10, Geely Galaxy E5, E8, Zeekr MIX, Zeekr X, and Zeekr 001. They also demonstrated the latest technologies, including the Shendun Dagger Battery, Second-generation Golden Brick Battery, and 11-in-1 Electric Drive.

Obviously, compared to 20 years ago, Geely, which is now deeply entrenched in the globalization race, has come a long way. Chinese automakers' offensive stance, influence, and confidence in the face of European automakers have all undergone a qualitative leap.

Certainly, foreign parties and local media have also noticed and acknowledged China's automotive progress. The exhibition organizer stated that the participation of Chinese electric vehicles at Frankfurt helps build trust in the professional field.

Indeed, on the one hand, China is the world's largest automotive market. On the other hand, China leads the global automotive industry in electrification and intelligence. Top executives of multinational automakers who have lived in Europe and America for a long time find it difficult to truly appreciate this rapid leap.

So when they see China's competitive products on their soil, they must have mixed feelings. Some stand in front of Chinese automakers' booths, contemplating; others delve into the interior and exterior designs; still, others bend down to examine the chassis structures. They can hardly believe that Chinese automakers can now produce large, high-quality, and affordable cars.

In response to this phenomenon, local newspapers bluntly stated that Germany, as a manufacturing hub, is experiencing further declines in competitiveness. The emergence of Chinese automakers has also sounded the alarm for German brands.

The Spanish newspaper El Economista reported that the collective presence of Chinese automakers at the Frankfurt Motor Show deserves attention. As Germany, the largest economy in the EU, experiences turmoil, Volkswagen is planning to close factories in Germany. Germany was once an industrial powerhouse but is now enduring a long-term downturn in manufacturing. The development of Chinese automakers in Germany is likely to deepen cooperation between the two countries in the automotive field.

Data from consulting agencies show that in the first seven months of this year, the market share of Chinese automakers' passenger cars in Europe increased from 12% in the same period last year to 17%. Meanwhile, China's auto exports also hit a new high, with Brazil, Belgium, and the UK being the top three markets for China's new energy vehicle exports.

This sends a strong signal: European users are increasingly accepting Chinese electric vehicle brands and products.

In addition to automakers, the large number of Chinese suppliers participating in the exhibition (almost twice as many as German suppliers) underscores their growing role in the global supply chain.

Barriers and Ambitions

It's not just about stepping onto the auto show stage. Today's Chinese automakers are counterattacking the European continent comprehensively.

Just before the auto show, Geely officially unveiled its fifth global test base – the European Test Base in Frankfurt and reached a strategic cooperation agreement with Applus+IDIADA, a renowned European automotive engineering, testing, and certification service provider. Yang Xueliang, Senior Vice President of Geely Auto Group, said, "Even if some people in Europe oppose us, we will never become enemies with the European market. Only through joint efforts and cooperation can the automotive industry become stronger."

Entering Europe has been a long-cherished wish for many ambitious Chinese automakers. Even though it's challenging, they must give it a try. On the one hand, it's a huge market with over 10 million vehicles annually. On the other hand, it's a crucial path for Chinese automakers to grow from big to strong. The European market, especially the developed Western European market, holds special significance for the globalization of Chinese automakers, as true globalization necessitates the baptism of mature markets.

Over the past two years, Chinese new energy automakers have launched over a dozen self-owned brand models in at least 16 European countries, including BYD, MG Motor, Polestar, Lynk & Co., Ora, NIO, XPeng, and others. However, when the situation turned unfavorable, local governments immediately considered erecting trade barriers against Chinese automakers by imposing tariffs to prevent Chinese electric vehicles from entering the market.

The EU's concerns are reasonable from its perspective. A PwC study warns that concerns about cost-effectiveness and reduced access to capital are making it harder for German auto parts suppliers to invest in innovative technologies. In contrast, Chinese companies are more likely to invest in improving batteries and software, thereby gaining market share from German and Japanese competitors.

However, tariffs seem inappropriate given the globalization of trade and the friendly cooperation between China and Europe. This explains why countries like Germany, Spain, Sweden, and Norway have competitively called on the EU to abandon sanctions against Chinese electric vehicles. Notably, German automakers, heavily dependent on the Chinese market, were the first to oppose the EU's actions.

Certainly, political games often come at the expense of the economy. But the essence of these games lies in the EU's desire to gain more benefits from China's electric vehicle sector.

Therefore, many EU countries have extended olive branches to China, suggesting that Chinese automakers establish local production facilities in Europe. This can circumvent import tariffs and, to some extent, drive local industrial transformation, employment, and tax revenue. Following the globalization strategy of other multinational automakers, this is indeed a necessary path to grow stronger in overseas markets.

For instance, BYD plans to build a $1 billion factory in Turkey with an annual production capacity of 150,000 vehicles and 5,000 employees. This will enhance BYD's access to the EU market, as Turkey has a customs union agreement with the EU and imposed a 40% tariff on car imports from China in June.

In Brazil, BYD and Great Wall Motor have expressed their intention to increase local production and procurement of components in the coming years, aiming to meet local content requirements for approximately 50% of their products, thereby facilitating tariff-free exports to other Latin American countries under trade agreements with Brazil.

In Spain, Chery Automobile, which is thriving in overseas markets, will collaborate with a local company to establish localized production at a former Nissan factory in Barcelona. According to Chery, the Spanish factory will assemble vehicles using the CKD method.

At this year's Frankfurt Electric Vehicle Show, Geely also announced that it is scouting for factory locations in Europe but has not yet fully committed to establishing a production base there. However, given that Geely Holdings' subsidiaries, such as Volvo and LEVC, already have a deep presence in the European market, Geely faces less difficulty entering Europe compared to other automakers. Lynk & Co., a joint venture between Geely and Volvo, will also launch its first Chinese-made electric vehicle in Europe next month and has stated that it does not intend to pass on the upcoming auto tariff costs to consumers.

Of course, barriers and games will persist. Not only does the EU have concerns about Chinese automakers, but China also has its reservations. Recently, relevant ministries and commissions held an internal meeting where concerns were raised about the potential impact of Chinese automakers' collective overseas trend on the development of China's automotive industry. For instance, large-scale investments in Europe could go to waste if the situation changes, similar to what Tesla experienced in its entry into Europe.

After all, countries inviting Chinese automakers to build factories are often those that impose or consider imposing trade barriers against Chinese automakers. China has also advised manufacturers to be more vigilant, avoid blindly following trends, and not fully trust foreign governments' investment appeals. It has even suggested that automakers should keep advanced electric vehicle technologies in China.

While some industry research institutions believe that the window for Chinese automakers to establish a presence in Europe is narrowing and that they should seize opportunities by leveraging their advantages in new energy vehicle development to accelerate their layout, ambitions intertwined with games and uncontrollable factors mean that Chinese automakers' entry into Europe will not be as smooth as anticipated.