Chinese electric carmakers are taking on Europeans on their own turf — and succeeding

When Sjoerd Janssen was looking to buy a car in Denmark, he knew it had to be electric.

Janssen, like many other Europeans, is concerned about the environment, but he was also drawn to electric vehicles thanks to generous government subsidies for those willing to give up their gas-powered cars.

An IT manager, Janssen needed a car to commute every day, while at the same time offering enough space to take the whole family on road trips.

He and his family test drove a Tesla. They also looked at a Nissan and almost ended up with a Volvo. But they eventually settled on a seemingly unconventional choice: the Atto 3, a compact sports utility vehicle from Chinese automaker BYD.

It was a decision, Janssen says, that came down largely to price.

"The offer from BYD was about 20% lower than the Volvo," Janssen recalls.

The company also offered a number of other "goodies" such as free charging for two years.

Until recently, most Europeans had never even heard of BYD, or other Chinese automakers such as Nio or Geely.

China has long been a manufacturing hub for other companies, including in auto production, as well as a top global player in the manufacturing of batteries that power electric cars.

But now, with the expertise acquired from all that manufacturing, China is pouring tens of billions of dollars into developing its own auto companies with hefty subsidies and tax breaks.

What's stunned observers is how quickly these Chinese companies have succeeded. Chinese EV makers started by selling EVs in their own country and became so dominant, they've edged out foreign rivals. Now, they are aiming to go global, with big ambitions to become a top player overseas.

"China's auto industry has really fundamentally changed over the last 30 years, dating back to 1994 when [the government] issued its first auto sector industrial policy," says Scott Kennedy, senior adviser and Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies.

"But it's really the electrification of the propulsion systems that has opened up an opportunity for the Chinese carmakers and changed the dynamics of the auto sector because China has invested in electrification far faster than everybody else."

More sophisticated than many think

Chinese automakers undercut foreign rivals in their home market, and focused on cheaper cars, giving them a critical advantage.

But it did not all come down to just cost. Chinese consumers tend to be discerning, analysts say, so automakers quickly shored up their technology expertise while also focusing on design.

"Chinese customers are generally more styling focused and more technology focused. And I don't just mean like connecting your iPhone to the center screen," says Mark Wakefield of global consulting firm Alixpartners.

"I'm talking things like assisted driving. So all of these things that help you keep the lane and help you drive semi-autonomous. The takeaway rate on those features is much higher China than it is in the U.S., for example."

Take BYD, which counts billionaire Warren Buffet as an investor. It started off as a battery manufacturer in the mid-1990s, before entering the auto sector in the early 2000s.

Today, it has overtaken Tesla as the world's biggest seller of EVs, an astonishing accomplishment that reflects the breadth of China's ambitions to take over the world.

It's not just BYD. Nio, for example, plans to expand to 25 countries and regions over the next several years. And other companies like Geely have global ambitions of their own.

Targeting Europe

Nowhere have the battle lines been drawn more starkly than in Europe, where the push for a carbon-neutral transportation future has turned the continent into an ideal testing ground for those Chinese brands as they expand into Western markets.

European Union customs data shows that Chinese EV shipments to Europe have increased by 361% from 2021.

And while European car buyers remain somewhat wary of Chinese brands, their competitive prices have allowed them to gain market share.

With sales of more than 12,000 units last year, the Atto 3 was not only BYD's top seller but also the best-selling electric compact SUV in Europe.

The MG4 hatchback, a model produced by Chinese-owned MG, was the second best-selling electric car in the U.K. during the first seven months of 2023, only trailing market leader Tesla.

BYD and other Chinese companies have been so successful they are now threatening traditional carmakers like BMW or Volkswagen, which have dominated Europe's auto industry for decades but have been slower in transitioning towards an electric future.

More sophisticated than many think

BYD and Chinese rivals like Nio have succeeded in Europe in large part by keeping their price below their rivals, sometimes with a price advantage of as much as 25%. It's a strategy similar to the one they employed at home.

The Atto 3, the model purchased by Janssen and his family, sells for a starting price of 38,000 euros in Denmark, compared to Tesla's Model Y, which starts at 49,000 euros after the company led by Elon Musk cut prices last year.

Although the Model Y is larger and more powerful than the Atto 3, the difference has been critical in persuading customers like Janssen.

And there are signs that Chinese EVs are starting to overcome their biggest drawback: a perception of poor quality.

While their quality might not be up to some of the legacy brands, today's cars from China are vastly improved, according to Wakefield.

"These are very advanced vehicles. They are not quite up to the quality standards that the U.S. and European vehicles are, but they've come a long way and the difference is now pretty negligible," he says.

Worries rise in Europe

European auto executives have been quick to ring the alarm bells.

Speaking at a major auto convention in Munich last year where the number of Chinese brands on display has doubled compared to two years earlier, BMW CEO Oliver Zipse said that Chinese carmakers posed an "imminent risk" to Europe's auto industry.

The rise of Chinese EV makers has also alarmed European governments and regulators.

The European Commission launched an investigation into China's alleged unfair trade practices in September last year.

At the heart of European concerns is the heavy subsidies that China's government has steered towards its auto industry.

"Global markets are now flooded with cheaper electric cars. And their price is kept artificially low by huge state subsidies," Commission President Ursula von der Leyen said in September.

The probe, which could take up to 13 months, will determine whether the EU will impose additional tariffs on Chinese EV imports above the current 10% duty on the value of the car.

Beijing pushed back against the investigation, calling it "blatant protectionist behavior."

Competing — and depending — on China

Some of the earlier momentum seen by Chinese EV makers in their home market, however, has slowed after China removed a subsidy for domestic consumers, hitting profits for automakers.

But Chinese companies are determined to plough ahead with their expansions overseas.

"They've really led the way. They've gone really past that early adopter phase and they're into the mass market," says Wakefield.

And even if Europe ends up putting more trade restrictions in place, the global auto industry is currently still too dependent on China for its batteries and the processing of raw materials inside of them.

China controls a vast majority of the refining of materials that go into EV batteries. That means imposing additional tariffs on Chinese imports could risk retaliatory actions from Beijing, which in turn could lead to less affordable electric vehicles for everyone.

Could Chinese EV makers target the U.S. next?

The U.S. has long been concerned about the dependence on China for batteries and the potential threat from the country's automakers.

Washington currently imposes hefty EV-related tariffs on China, including a Trump-era levy of 27.5% on imports of Chinese-made cars, including gas-powered ones.

The U.S. is also trying to reduce China's role in the EV supply chain.

President Biden's massive climate bill passed in 2022 stipulates that a certain amount of an EV, including parts of its battery, has to come from North America in order to be eligible for a tax credit.

The actions are meant to boost the domestic supply chain for EVs, from raw materials to refining to final assembly.

And more action could follow.

The Biden administration is considering further hiking tariffs on some Chinese goods, including EVs.

U.S. lawmakers across the aisle are largely in agreement on the need to further target China.

"Companies from Detroit to Green Bay all across the Midwest are feeling the effects of the [Chinese Communist Party's] economic coercion and market manipulation and it impacts thousands of jobs and just about every country community in America," Congressman Mike Gallagher of Wisconsin told NPR.

Gallagher, who chairs a subcommittee on trade and competition with China, was part of a bipartisan group of lawmakers who asked the administration in November to impose additional tariffs and examine ways to prevent Chinese companies from exporting to the U.S.

'Cheating on your inhabitants'

For now, those barriers have made the U.S. too formidable a market for Chinese EV makers.

But Chinese automakers are at some point expected to target the U.S. — and there's plenty of reason for the U.S. to get concerned.

More than six months after buying the BYD Atto 3, Janssen and his family in Denmark are enjoying the car. They have already driven 10,000 kilometers, for everything from the daily commute to shopping trips.

"And also more weekend getaways than with previous cars because it's so extremely cheap to drive electric," adds Janssen.

Janssen believes EU efforts to use protectionist measures against Chinese EV makers is "just cheating on your inhabitants."

And he believes more European consumers will flock to Chinese cars, just like he did.

"I am a very satisfied customer, maybe too satisfied," he says.

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