The threat is about more than price. Cars built in China are of far better quality than the ones tried to force European consumers over a decade and a half ago. Europe’s automakers are already losing market share in China due to a lack of competitive EVs, and they risk doing the same domestically, where Chinese automakers already account for 5% of the EV market.
European politicians must not be naïve, but they should be wary of brandishing a big stick: Tough new trade barriers against China would increase the cost of electric vehicles while reducing pressure on European automakers to become more competitive.
China’s automakers are making strides after years of preparing to meet growing demand for electric vehicles and the batteries that power them. Automakers worldwide are working with Chinese battery makers to power their electric vehicle fleets.
Thanks in part to government generosity and an industrial policy that favored domestic manufacturers, Chinese EV brands are dominating their fast-growing local market, where they are trying to lower prices, which will further fuel adoption.
They’ve also made a step forward in software and infotainment features that Chinese consumers demand. With the exception of Tesla, western automakers have often not kept up.
The opportunity for China is clear: brand loyalty has yet to be established for electric vehicles and current battery-powered models are often very expensive. Western automakers have deliberately neglected the budget side of the European market, believing that high prices, not high sales volumes, will deliver superior profit margins.
Chinese companies are now using their economies of scale to ship cars to Europe at competitive prices. The scale of China’s ambitions was on full display at the Paris Motor Show in October, where brands such as Berkshire Hathaway Inc.-backed BYD Co. and Great Wall Motor Co. touted several technically impressive models.
However, there is still work to be done to better establish Chinese brands, dealer networks and service centers. Deals like the one BYD struck with German rental car company Sixt SE in October to buy around 100,000 electric vehicles will help raise consumer awareness.
Not surprisingly, Chinese-acquired Western brands like MG and Polestar have been the most successful. (MG is owned by SAIC Motor Corp., while Polestar is financially backed by Zhejiang Geely Holding Group Co.).
China’s advance poses a thorny issue for European politicians, who are under pressure to level the playing field. Currently, car imports into China are subject to a 15% duty rate compared to 10% for imports into the European Union.
Stellantis NV Chief Executive Officer Carlos Tavares wants Europe to increase tariffs on imported Chinese models. Meanwhile, French President Emmanuel Macron says buying incentives should be dependent on local production, as they are now in the US under the Inflation Reduction Act. Germany, whose auto industry has far more to lose if China counterattacks, has so far held back. German automotive executives are part of Chancellor Olaf Scholz’s delegation of business leaders to visit China this week.
Europe is already concerned about deindustrialization due to its sky-high energy costs. There are also growing political concerns about the continent’s commercial dependence on China – a valuable trading partner but increasingly viewed as a strategic rival. The fate of industries like solar panels — where German consumers effectively subsidized the rise of Chinese manufacturers and domestic producers went bust — shows the dangers of complacency.
While Western automakers have historically edged out competition from Japanese and Korean manufacturers, this time the threat is greater as EVs are a new technology and China is years ahead of batteries and associated supply chains. The European Union last week agreed to ban the sale of internal combustion engine cars from 2035; As a result, the continent’s manufacturers are stuck between a rock and a hard place. It is reasonable to get Chinese manufacturers to establish local production, as Beijing did with Western automakers. This could help Europe become more competitive and create manufacturing jobs here. Similar compromises have existed before. (Chinese battery makers are already building factories in Europe.)
Stalling Chinese car imports may be politically popular, but European consumers will end up paying in higher prices and inferior products. Ultimately, Europe can choose protectionism or affordability. But unfortunately it cannot have both.
More from the Bloomberg Opinion:
• Fear of driverless cars? China has the answer: Anjani Trivedi
• The Great Auto Affordability Crisis: Chris Bryant
• How China’s car batteries conquered the world: Anjani Trivedi
This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. He was previously a reporter for the Financial Times.
Anjani Trivedi is a columnist for Bloomberg Opinion covering industrial companies in Asia. She was previously a reporter for the Wall Street Journal.
For more stories like this, visit bloomberg.com/opinion