The perception of Chinese automakers has quickly evolved from that of low-grade imitations to that of serious competitors to Western manufacturers. The country’s local market surpasses all others: China sold 27 million new vehicles locally in 2022, in comparison to the 13.75 million cars and light-duty trucks sold in America and the 9.25 million cars in the European Union.
Now Chinese manufacturers are prepared to begin selling vehicles to international markets, and Europe and the United States disagree over the best way to react. China claims that Europe is much more receptive to automobiles built in China than America, which has occasionally engaged in trade wars against China.
Tariffs are important in this situation. In Europe, all vehicles — both local and international — are qualified for incentives for EV purchases. The import duty on vehicles built outside of the European Union is 10%, whereas in America, only vehicles that adhere to strict guidelines for the procurement of battery parts and supplies qualify for government electric vehicle subsidies. In addition, the duty applied on imports is 27.5%. Also the United States, Mexico or Canada must be the country of final assembly for automobiles.
Certain EU political figures are starting to wonder whether loose import regulations could cause a flood of Chinese vehicles to enter Europe, overwhelming local automakers.
China maintains a commanding position in each step in the raw materials supply chain necessary to make all EV batteries, controlling 76% of the world’s production capacity for battery cells. This gives the nation’s automakers a competitive edge and the potential to produce electric vehicles at competitive pricing.
That might cause problems for automakers in Europe since the European Union wants to outlaw conventionally powered vehicles by 2035. When that occurs, who is going to provide customers with reasonably priced automobiles?
In the first quarter of this year, China became the top automobile exporter in the world, overtaking Japan for the first time ever. According to S&P, in 2022, automobile exports in China represented only about 3.5% of automobile sales in Europe. However, according to Transport & Environment, Chinese companies may end up controlling between 9% and 18% of the electric vehicle market by 2025.
The economy of Europe is extremely vulnerable. Cars, which account for 10% of all manufacturing activity, provide the greatest employment industry on the continent.
In North America, the situation for Chinese electric vehicle manufacturers is very different. Vehicles built in China must pay approximately three times as much tax to enter the American market as they do the EU market. The IRA’s strong electric vehicle subsidies are mainly intended to prevent Chinese automakers from flooding the American market with low-cost electric vehicles. Additionally, it aims to increase the procurement of EV battery materials locally.
It now remains up to companies such as Workhorse Group Inc. (NASDAQ: WKHS) to leverage the opportunities that exist in the North American EV market to establish themselves firmly in the industry.
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