How can Chinese automakers better 'go global'?

The EU has built a 'wall' against Chinese electric vehicles, but negotiations between the two sides continue.

According to the official website of the Ministry of Commerce, the Chinese and European technical teams held five rounds of consultations in Beijing from November 2 to 7. Prior to this, the EU announced the imposition of a final five-year countervailing duty on electric vehicles imported from China.

'The Ministry of Commerce of China has been organizing all Chinese automakers to respond, and we will wait for the unified planning of the government,' He Xiaopeng, chairman and CEO of XPeng Motors, told China Newsweek. 'All manufacturers are waiting for the outcome of the unified negotiations between the Ministry of Commerce and the EU, and we will definitely follow and implement it.'

'The EU hopes for automotive industry investments from China, but there are also many concerns,' said Sun Xiaohong, secretary-general of the Automobile Internationalization Professional Committee of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, at the 2024 Global New Energy Vehicle Cooperation and Development (Shanghai) Forum. 'The EU wants Chinese electric vehicles to enter, but doesn't want them to grow rapidly. They hope to increase employment and bring about technology transfer through industrial investment, but don't want China to dominate locally. This is the EU's contradictory policy.'

So, how can Chinese automakers better go global?

'Wall' and 'Game'

On October 29 local time, the European Commission announced the conclusion of the countervailing duty investigation and decided to impose a final five-year countervailing duty on battery electric vehicles (BEVs) imported from China, effective from October 31. The additional tariffs for different automakers range from 17.0% to 35.3%. Prior to this, China's electric vehicle exports to the United States in 2024 even saw tariffs increase from 25% to 100%.

On November 4, a spokesperson for the Ministry of Commerce of China said that China had previously filed a complaint with the World Trade Organization against the EU's preliminary countervailing duty measures on electric vehicles.

On November 8, a spokesperson for the Ministry of Commerce told reporters about the status of price undertaking consultations in the EU electric vehicle countervailing duty case: The Chinese and European technical teams held five rounds of consultations in Beijing from November 2 to 7, conducting in-depth exchanges on the specific content of the price undertaking scheme and making some progress. Both sides agreed to continue consultations via video or other methods.

China believes that advancing consultations based on the price undertaking scheme submitted by the China Chamber of Commerce for Import and Export of Machinery and Electronic Products on behalf of the industry is conducive to maintaining mutual trust, accelerating consensus, and resolving differences through consultations to avoid escalating trade frictions.

Image source: Ministry of Commerce of the People's Republic of China

On the same day, the Directorate-General for Trade of the European Commission issued a statement saying that the EU and China had discussed a possible agreement on price undertakings for battery electric vehicles in Beijing this week.

A team of Directorate-General for Trade officials traveled to Beijing for a week of intensive discussions with the Ministry of Commerce of China on a possible price undertaking agreement to replace the current countervailing duty on battery electric vehicles imported from China. Technical progress has been made on the elements that need to be addressed to ensure that the price undertaking is equally effective and enforceable. The contracting parties had in-depth and constructive discussions on how to determine the minimum import price for such complex products and the tools for monitoring and enforcing this commitment.

The EU also emphasized that under WTO rules, different companies involved in the investigation can provide price undertakings, so the negotiations between the European Commission and the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) do not exclude discussions with individual exporters.

Both sides agreed to continue technical discussions based on the progress made so far.

Image source: VOYAH

Lu Fang, CEO of VOYAH, said that currently, Chinese automobiles excel in electrification, intelligence, and user experience compared to European and American brands. 'So Europe adopts tax increases to prevent your exports or affect your local sales in Europe. This is a way to protect their own industry,' Lu Fang believes that such protection cannot make their enterprises stronger, and only through open cooperation can the automotive industry develop faster.

'Global economic weakness and downturn are inevitable. Currently, many countries in Europe have high unemployment rates. They also have an automotive industry and need to protect their domestic automotive industry from excessive impact. At present, whether in terms of technology or cost-effectiveness, our automobiles have the ability to compete head-to-head with mainstream European automakers,' said Chen Jingyue, executive vice president and secretary-general of the China-Europe Association for Economic and Technical Cooperation.

'European and American countries are very adept at using countervailing investigations and anti-monopoly investigations. China now ranks first in global exports of new energy vehicles, and many enterprises are emerging in the international market. Will this attract anti-monopoly investigations from these countries? This is worth being vigilant about,' Zhang Naixin, deputy director of the Global Economic Governance Department of the China International Economic Exchange Center, warned. 'Similar to Europe, the United States has issued the "Rebuild America's Manufacturing Framework," the "Manufacturing Promotion Act," and promoted policies such as the "National Energy Plan," the "Inflation Reduction Act," and the "Chip Act."

Europe is the world's second-largest new energy vehicle market after China, and China's exports of battery electric passenger vehicles to the EU reached 482,000 units (including used cars) last year, accounting for 45.1% of China's total electric vehicle exports during the same period.

'China's export share of the European market decreased from 39% in 2023 to 32% from January to September this year. However, China's exports to the North American market increased, and the growth in exports to the South American and Middle Eastern markets covered the decline in the EU market,' according to Zhao Yang, vice president of the Automotive Industry Branch of the China Council for the Promotion of International Trade. The main contribution to the increase in the North American market came from Mexico, with a growth of over five times compared to 2023, a 50% decrease in exports to the United States, and a 20% decrease in exports to Canada. The decline in the EU was covered by growth in emerging markets, and exports this year could still maintain a growth rate of around 20%.

'Going out' and 'going up'

Going overseas is the first step for automakers to achieve 'going out,' and they also need to better 'go up' to complete the significant leap from local automakers to global automakers.

'The current global economic environment has undergone significant changes. The main feature is that the growth rate of emerging economies and developing countries has significantly surpassed that of developed countries and European and American countries. In the future, larger markets may be in some emerging market countries and developing countries,' Sun Xiaohong said.

According to Sun Xiaohong, based on international customs data from January to June, Germany may not have exported a particularly large quantity but had a high value, indicating that the industry is still very strong. The second place was Japan, followed by China. 'Currently, the gap between China and Japan is less than 2%. Due to China's high export growth rate, China may surpass Japan in annual data,' Sun Xiaohong said.

Chinese automakers hope to establish a new brand image overseas. In the new energy sector, Chinese enterprises have an advantage. In terms of pricing, the current European pricing of Chinese electric vehicles is 50% or more higher than domestic pricing. If only considering the selling price, most companies can theoretically absorb the additional tariff levels. However, according to estimates by the Kiel Institute, the EU's additional 20% tariff will reduce China's electric vehicle exports to Europe by about a quarter, equivalent to 125,000 vehicles worth nearly $4 billion.

It is worth noting that at the Paris Motor Show in October this year, one-fifth of the participating brands were Chinese, attracting a lot of attention. Under the shadow of the EU's countervailing duty on Chinese electric vehicles, the determination of Chinese automakers to 'go out' and 'go up' has not changed.

Image source: XPeng Motors

'Both Volkswagen and Toyota sell well globally, but most of their sales are local production and local sales. From another perspective, Chinese automakers and other manufacturing enterprises should seek win-win cooperation with local parties when entering the global market to help themselves gain greater value,' He Xiaopeng told China Newsweek. 'Openness is a mindset and a win-win situation. I expect more Chinese manufacturers to go global in the next ten years and become well-known global brands.'

He Xiaopeng said that XPeng will make long-term layouts in the overseas mid-to-high-end market. 'Among models priced above 40,000 euros in the European market, XPeng ranks first in export sales of mid-to-high-end models among Chinese pure electric brands from January to September this year.' It is reported that the first step in XPeng's globalization was Europe. In December 2020, the first batch of XPeng G3s were officially delivered in Norway. To date, XPeng has entered 30 countries and regions and established 145 overseas after-sales service points.

'From my perspective, all overseas markets hope to better differentiate themselves technologically,' He Xiaopeng believes that the European market values whether you can do something different, preferably something technologically unique. 'XPeng will establish more R&D teams overseas to improve China's platform. Based on the platform, simple configurations can be made to reach the global market without targeted development. This is our technological differentiation overseas, with a mid-to-high-end, global perspective, long-term layout, and a win-win logic.'

Sun Xiaohong believes that Chinese automobile exports should focus on brand building and services in the future, rather than simply focusing on sales and exports as in the past. The focus should shift from sales to services, from products to brands, and from trade to a combination of trade and investment. Brand upgrading is the core issue.

Seeking opportunities

'Once countervailing and anti-monopoly investigations are initiated, the impact on our enterprises' exports will be significant,' Chen Jingyue said, using the bicycle industry as an example. 'So far, China is the world's largest bicycle producer, but not a single bicycle produced in China can be sold to the EU due to anti-monopoly and anti-dumping measures.'

'However, many people don't know that the EU's largest producer is a Chinese company. This company set up a bicycle factory in the Czech Republic before the EU's eastward expansion in 2003. After the EU's eastward expansion, this factory became a normal enterprise within the EU and now produces 30 million bicycles annually in the EU,' Chen Jingyue said. In her view, instead of confronting the rules, we should use the rules to develop our enterprises and rapidly expand our market share.

Chen Jingyue believes that Chinese automakers can refer to the export experience of Japan and South Korea when entering the European market. When Japan and South Korea entered the European market in the 1960s and 1970s, it was not smooth sailing either, but currently, about 60% to 70% of the traditional gasoline vehicle market is dominated by Japanese and Korean car brands.

'When entering the European market, Japan and South Korea set up many factories in Central and Eastern Europe,' Chen Jingyue said. She believes that there is still an opportunity now, and EU candidate countries are excellent investment destinations for China's supply chain and automakers to expand into the European market. 'EU candidate countries, especially those in the Balkan region, are a relatively special emerging region in Europe. Due to the disintegration of Yugoslavia, their overall economic level is not high, but their personnel quality and economic development are relatively good. So far, their relations with our country have also been good,' Chen Jingyue said. 'As EU candidate countries, they can already enjoy EU-related tariff-free policies, subsidy policies, and are not restricted by investment in the EU, including land policies and taxation.'

'It's not that the EU doesn't really want Chinese cars. On the contrary, since the explosion of the EU's new energy vehicle market in recent years, we have continuously received requests for research and cooperation on Chinese new energy vehicles from various EU countries. The demand is very strong,' Chen Jingyue said. The EU hopes that Chinese enterprises will truly invest there.

After becoming the world's largest exporter, if China wants to become a truly powerful automotive country, it will inevitably participate in competition with traditional automotive powers such as Europe and the United States. This is the only way for Chinese automakers to transition from a major exporter to a powerful exporter. However, this path is destined to be full of twists and turns.