@moritz Based on my research, I would rate the threat from Chinese-made EVs in Europe as low to medium between now and 2030. That said, I agree with Alixpartners that Chinese share of European automarket could increase from the current 6% to 12% by 2030. That is an increase of around 680,000 vehicles (based on 11,294,502 units sold in Europe in 2023). Given that Volkswagen controls around 25% market share, it means that it could lose around 170,000 units (around 30,000 units per year) to Chinese rivals. But that will depend on how it executes from now going forward. Here is my supporting evidence;
Positives
- Prices of a number of Chinese-made EVs sold in Europe doesn’t deviate much from that of European-made EVs implying that they are not interested in market share. For instance, BYD’s Dolphin compact car starts at 35,990 euros in Germany, around 1,000 euros less than VW ID.3.
- European vehicle customers are loyal to European brands and most of them are currently unaware of Chinese EVs sold in the region. A March 2024 Bloomberg survey of European consumers established that 74% of the respondents would have an issue buying an imported vehicle while 62% said they would prefer buying the same marque.
- The likelihood that Chinese EV makers will reduce prices in Europe to gain market share is low. This is because BYD and Li Auto are currently the only profitable Chinese EV makers. Reducing prices in Europe coupled with EU tariffs will increase their losses and liquidity risks. According to AlixPartners, only 19 of the current 137 Chinese EV makers will be profitable by the end of 2030.
- Some Chinese automakers such as MG Motor, one of the leading Chinese exporters to Europe will likely lose incentive to export to Europe following a 36.3% additional tariff by the EU Commission.
- The first major Chinese-owned plant in Europe is set to start productions in 2026 when European OEMs are set to launch more low-priced EVs. Other Chinese-owned plants will probably start production later since decisions on their locations are still being made.
- Only BYD (which sold around 14,000 units only in Europe in 2023) looks like a major threat. Its vertically integrated supply chain enables it to make 75% of EV components in-house. The result is a 15% cost-advantage over other Chinese EV makers.
Negatives
- The advantage enjoyed by Chinese EV makers in Europe is as a result of having the right architecture and using cheaper batteries and not due to subsidies. Majority of the subsidies (87%) provided by the Chinese government goes to sales exemption which doesn’t influence European sales. Also, around two-third of Chinese EV makers use LFP batteries unlike European OEMs which mostly use NMC batteries. LFP batteries were 32% cheaper than NMC batteries in 2023. The cost of the battery is important in that it makes up about 40% of the cost of an EV.
- Reviews indicate that the quality of Chinese-made EVs are almost at par with that of European made EVs. Additionally, Chinese-made EVs provide additional tech features as standard compared to its European rivals.
- A number of Chinese exporters will still have an incentive (though reduced) to export to Europe, but it will likely take some time for their deliveries to pick up. Again, BYD will still make a lot of profit by exporting to Europe despite the 17% additional tariff.
- Chinese EV makers could still enjoy lower production costs compared to the likes of Volkswagen by producing in low-cost regions in Europe such as Hungary and Poland. The cost of labor and energy in Hungary is around six times lower than in Germany.
- I think the possibility of European OEMs producing a B-segment 25,000 euros profitable EV needed by the European market is low at current efficiency and technology levels. According to BCG estimates, it would cost a European OEM 36,000 euros to make a profitable B-segment. That means to make a 25,000 euros EV, they would have to reduce production costs by almost 50%. We should, therefore, examine the possibility of Volkswagen producing a 25,000 euros EV.