Saturday, May 18, 2024

With America off-limits, China EV makers aim to conquer rest of world

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The 100% tariffs on Chinese EVs announced Tuesday in Washington are more of a symbolic blow than a practical one for Chinese carmakers. They have almost no business in the U.S. and already recognized that the political hurdles to entering the market were insurmountable.

The cold shoulder from Washington won’t change Chinese EV makers’ ambitions for global dominance, analysts said, but it will spur adjustments. The companies will emphasize emerging markets and localize production where possible, seeking to woo governments that are more open to Chinese EVs.

And some companies might focus on supplying EV technology, an approach that could lessen the political backlash and offer an indirect path to U.S. business.

“Chinese companies are very pragmatic about their routes to market,” said Denis Depoux, a Shanghai-based global managing director at consulting firm Roland Berger.

The tariffs reflect concern in the U.S. that Chinese EV makers, which often enjoy government subsidies, would try to dump their vehicles in America to grab market share.

Europe, for its part, opened a probe last year into Chinese electric-vehicle subsidies that is expected to result in tariffs in the coming months.

Thanks to America’s tariffs, U.S. carmakers will enjoy protection against low-cost Chinese competition. The flip side: “U.S. consumers will not have access to the world’s highest-quality and least-expensive electric vehicles,” said Cory Combs, associate director at the consulting firm Trivium China.

In China, the leading EV maker, BYD, offers a compact model with a range of about 200 miles on a single charge for the equivalent of less than $10,000. A version of its higher-end Seal sedan, with a range of around 340 miles, starts at around $25,000 in China. In the U.S., a version of Tesla’s Model 3 sedan with a similar range has a price tag of around $43,000, the carmaker’s website showed.

A Chinese Commerce Ministry spokesperson said the U.S. tariff increase was a result of domestic political considerations.

Global ambitions

Despite the geopolitical headwinds, Chinese carmakers are still eager to go overseas, aspiring to be the next Tesla or Toyota Motor. After decades of chasing American, European, Japanese and South Korean carmakers, they have found a globally competitive product in their EVs.

At home in China, more than 100 EV brands are battling for a slice of the pie, driving down prices and profitability. China’s capacity is running above domestic demand, and makers are looking abroad, where they believe margins will be higher and the competition less fierce.

China’s car exports have nearly quintupled over the past three years to about five million vehicles in 2023. While many are gasoline-powered cars shipped to Russia, others are EVs sent to Southeast Asia, Europe and elsewhere.

Another tactic is to open factories outside China in markets that are receptive to Chinese-branded EVs. BYD is opening new factories in Brazil, Hungary, Thailand and Uzbekistan and considering one in Mexico. The Chinese carmaker Chery Automobile plans to build cars in Spain with a local partner, Ebro-EV Motors.

The Biden administration’s move doesn’t say anything directly about a scenario in which a Chinese EV maker opens a plant in Mexico and tries to ship cars across the border to U.S. consumers. On paper, such cars could enjoy low tariffs.

But analysts said Washington was likely to block any Chinese-branded EVs from getting into U.S. showrooms. Tuesday’s move showed the type of aggressive tactics the U.S. now considers fair game to combat what the White House called “artificially low-priced exports” from China.

Both Biden and his likely Republican rival in November, former President Donald Trump, have suggested that any Mexican plants owned by Chinese carmakers could be hit with high tariffs.

European policymakers, while weighing tariffs on China-made EVs, see the matter differently from the U.S. They want to induce Chinese companies to build factories in Europe rather than blocking Chinese-branded vehicles altogether, analysts said.

During Chinese leader Xi Jinping’s visit to Europe this month, French Finance Minister Bruno Le Maire said China’s auto industry, including BYD, was welcome to pursue industrial projects in France.

At the Beijing auto show in April, some Chinese carmakers expressed longer-term interest in producing overseas. Among them were the electric-vehicle brand Zeekr, backed by China’s Geely Automobile, and the EV startup Xpeng.

Getting to the U.S.

When it comes to making cars in the U.S., hurdles are high for Chinese companies. Even if Washington permitted them to set up factories—itself a question mark in the current environment—they would have to deal with worker recruitment, pressure to accept unions, culture differences and potential local backlash.

Trump said at a March campaign rally in Ohio that he would welcome Chinese companies’ building car factories in the U.S. if they used American workers.

One approach for Chinese companies to overseas markets, including the U.S., is selling EV-related technology such as operating systems or batteries.

China’s CATL has been in talks with Tesla and other automakers to license its battery technology in the U.S., instead of building its own battery plant there.

Another route is partnerships with a non-Chinese carmaker. Leapmotor, a Chinese EV startup, and Jeep’s parent, Stellantis, said Tuesday that they would start selling Leapmotor’s mass-market EVs in Europe in September. Other global markets—but not the U.S.—will follow soon after, the companies said.

Those EVs would be exported from China or made at Stellantis plants around the world. Last year Stellantis said it was investing €1.5 billion, the equivalent of $1.6 billion, in Leapmotor.

Stellantis Chief Executive Carlos Tavares described the strategy as a way to accommodate different duties scenarios.

Write to Yoko Kubota at yoko.kubota@wsj.com and Sha Hua at sha.hua@wsj.com

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