VINACHEM

The go-global strategy of Chinese electric vehicle (EV) makers has hit speed bumps after Beijing warned them not to invest in certain markets and a battery maker's failed US$4 billion plan for production in Germany provided a bitter lesson.

Companies are realising that cost advantages and a grasp of core technologies are not enough to guarantee the success of multibillion-dollar investments in countries where consumers are not yet familiar with Chinese EV brands.

Insufficient knowledge of the legal landscape and a lack of charging infrastructure in overseas markets could also be stumbling blocks to growth outside mainland China, industry officials and analysts said.

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"Chinese carmakers got off an early start to develop EVs, and they are in a leading position now," Sam Wu, CEO of Ford Motor China, said at the Hongqiao Forum in Shanghai last week. "But they are still in search of a path to the global market so that consumers around the world can access their best products at the lowest prices."

Punitive tariffs slapped on Chinese EVs by the US and European Union have made it difficult for companies to crank up sales in major car markets. So building local plants to bypass the trade barriers has been a primary tactic for Chinese companies including BYD, the world's largest EV builder, and state-owned Chery Automobile.

Chery and Dongfeng Motor have been reportedly in talks with the Italian government on plant construction in the European country.

But last month China's Ministry of Commerce required mainland carmakers to refrain from making major investments in EU countries that backed additional tariffs of up to 35 per cent on Chinese-made EVs, according to Reuters.

"Besides geopolitical risks, business risks are huge for Chinese companies too if they rush to build factories and supply chains in the EU," said David Zhang, general secretary of the International Intelligent Vehicle Engineering Association. "Marketing and branding is important too. You need the local consumers to understand your brand and products before you can sell the vehicles to them."

The EU voted last month to impose an additional tariff of 17 to 35.3 per cent on Chinese EVs following an anti-subsidy investigation that began in September 2023.

Italy is among the 10 EU members that supported the action.

Chinese EV assemblers and vendors are at the global vanguard of the automotive supply chain because they have capitalised on core technologies for batteries, self-driving and in-car entertainment, according to David Xu Daquan, the China president of Bosch, the world's largest automotive-parts supplier.

China holds more than three-quarters of the world's production capacity for batteries. And mainland companies account for more than two-thirds of the market in all of the categories of components needed to assemble EVs, according to Beijing-based Insight and Info Consulting.

China-made pure electric cars cost 35 per cent less than those assembled in other markets, Stephen Dyer, Greater China co-leader and head of the Asia automotive practice at global consultancy AlixPartners, said in July.

"Rushed decisions aiming to overcome tariffs and take advantage of localised production facilities to increase overseas sales may lead to big flops," said Qian Kang, who owns car-component businesses in Zhejiang province. "The Chinese automotive industry is now learning a hard lesson from Svolt Energy's failure in Germany."

Svolt, China's seventh-largest EV battery maker, said last month that it had halted construction of two plants in Germany - after an initial investment of 30 billion yuan (US$4.16 billion) - after realising that the operations would never be successful due to inadequate orders and high costs.

China is the world's largest EV market, with sales of pure electric and plug-in hybrid cars accounting for 65 per cent of the global total in the first half of 2024, according to the China Passenger Car Association.

The country also has a fast-expanding charging network, and battery-powered vehicles with slick digital features such as voice control are popular with motorists. But the pace of electrification outside China lags far behind, which is likely to foil any strategy that depends on sizzling sales growth, said Phate Zhang, founder of Shanghai-based EV data provider CnEVPost. By the end of 2023, the mainland had one public charging station for every seven EVs, while in the EU the number is 13.

Despite the challenges, and despite the government's recent warning, Beijing remains committed to seeing the country's EV makers thrive overseas.

"Chinese carmakers will actively integrate themselves into the global automotive industry," China's vice-minister of commerce Ling Ji told the Hongqiao Forum last week. "We can better cater to global customers' rising demand for intelligent and green vehicles." – Source: SCMP –