June 19, 2024
Electric & Hybrid Cars

European countries vie for Chinese electric vehicle factories and employment opportunities, amidst EU considering tariffs.

MILAN — European governments may be cautious of budget Chinese electric vehicles flooding their markets, but they are also fiercely competing for a share of the manufacturing investment and jobs that the new competitors bring.

While the European Union investigates China’s auto subsidies and considers tariffs on imports, national governments across the bloc are offering incentives to attract Chinese automakers looking to establish European factories.

Chinese EV makers such as BYD, Chery Automobile, and state-owned SAIC Motor have lower manufacturing costs at home. However, they are eager to set up in Europe to build their brands and save on shipping and potential tariffs, according to Gianluca Di Loreto, a partner at consultancy firm Bain & Company.

“Chinese automakers understand that their cars need to be seen as European to attract European customers,” he said. “This means manufacturing in Europe.”

The EU tariff decision is expected this week. Import taxes could potentially help European automakers compete better with their Chinese counterparts, but they could also encourage Chinese automakers to invest more heavily in Europe in the long term.

Chinese-brand car sales made up 4% of the European market last year and are projected to reach 7% by 2028, as per consulting firm AlixPartners.

Hungary, which produced around 500,000 vehicles in 2023, secured the first European factory investment from a Chinese automaker announced by EV giant BYD last year. BYD is also considering a second European plant in 2025.

Budapest is reportedly in talks with Great Wall Motor for its first European plant, offering incentives such as cash for job creation, tax breaks, and relaxed regulations in targeted zones to attract foreign investment.

Hungary has invested over $1 billion in recent years to support new battery plants of South Korean groups SK On and Samsung SDI, as well as Chinese battery giant CATL’s planned factory.

Representatives of BYD, Great Wall, and Hungary did not respond to requests for comment.

China’s Leapmotor will utilize the existing capacity of Franco-Italian partner Stellantis, with reports indicating that they have chosen the Tychy plant in Poland as a manufacturing base.

Poland currently has several programs supporting over $10 billion of investments, including initiatives favoring the transition to a net-zero economy and providing corporate income tax relief of up to 50% in high-unemployment regions, as stated by the country’s development and technology ministry.

Spain, Italy are in the race

Spain, which is Europe’s second-largest car-making country after Germany, has attracted investment from Chery. Chery is expected to start production in the fourth quarter at a former Nissan facility in Barcelona with a local partner.

Chery stands to benefit from Spain’s 3.7 billion-euro program launched in 2020 to attract electric vehicle and battery plants.

China’s Envision Group has already received 300 million euros in incentives under the scheme for a 2.5 billion battery plant creating 3,000 jobs. Spain is also a potential location for Stellantis’ planned fourth gigafactory in Europe, in collaboration with CATL.

Chery is reportedly planning a second, larger facility in Europe and has held discussions with governments including Rome, which is eager to attract a second automaker to compete with Fiat-maker Stellantis.

Italy can leverage its national automotive fund, valued at 6 billion euros between 2025-2030, to provide incentives for both car buyers and manufacturers. Several automakers, including China’s Dongfeng, have engaged in investment talks with Rome.

Italy’s industry ministry declined to comment, and Dongfeng and Chery did not respond to requests for comment.

SAIC, the owner of the MG brand, aims to establish two plants in Europe, according to sources familiar with the matter.

The first plant, based at an existing facility, could be announced as soon as July and would utilize a kit-assembly technique with an annual production target of up to 50,000 vehicles, one of the sources revealed. SAIC’s second plant in Europe would be a new build capable of producing up to 200,000 vehicles annually, as per the source.

Germany, Italy, Spain, and Hungary are reportedly on SAIC’s shortlist for potential locations.

SAIC did not respond to a request for comment.

Controlling costs in Europe

In Europe, Chinese automakers face higher costs for labor, energy, and regulatory compliance compared to their operations in China.

Exporting cars made in China can quickly add up in costs and impact already slim profit margins.

According to Di Loreto from Bain & Company, shipping-and-logistics costs for a 15,000-euro car produced in China range from 500 to 3,000 euros.

Chinese automakers may find labor costs in Northern Europe too high for competitive production, while countries like Italy or Spain offer a balance of lower labor costs and relatively high manufacturing standards, which are crucial for premium vehicles.

For lower-cost vehicles, attractive locations include Eastern Europe and Turkey, with the latter currently producing around 1.5 million cars annually, mainly for the EU. Turkey has been in discussions with BYD, Chery, SAIC, and Great Wall.

Turkey’s customs union with the EU and free trade agreements with non-EU countries ensure tariff-free exports of vehicles and components.

 

FAQ

What are some incentives offered by European governments to attract Chinese automakers?

European governments are offering incentives such as cash for job creation, tax breaks, and relaxed regulations in targeted zones to attract Chinese automakers looking to establish European factories.

Which European countries have secured investments from Chinese automakers?

Countries like Hungary, Spain, Italy, and potentially Poland have secured investments from Chinese automakers for setting up manufacturing facilities in Europe.

Why do Chinese automakers want to manufacture in Europe?

Chinese automakers want to manufacture in Europe to build their brands, save on shipping costs, avoid potential tariffs, and appeal to European customers by being perceived as European.

Conclusion

European countries are actively competing to attract Chinese automakers for manufacturing investments, offering various incentives and benefits to establish production facilities in the region. While there are challenges such as higher operating costs in Europe compared to China, the potential market access and branding opportunities are driving Chinese automakers to set up manufacturing plants in Europe.

With the ongoing developments and investments in the automotive sector, the competition and collaboration between European and Chinese players are expected to shape the future landscape of the industry in the region.

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