China's electric vehicle makers face uphill battle in Europe

European policymakers warned a few months ago that the continent was being flooded with cheap Chinese electric vehicles . They accused Beijing of backing major production overcapacity, to allow China's automakers to grow their share of the global EV market.

The European Commission, the EU's executive arm, launched an anti-subsidy probe into the oversupply issue late last year and warned China's EV makers that they could face a new import tariff to offset what Brussels said was unfair competition for European carmakers. 

The United States is due to levy a 100% import tax on Chinese-made electric cars, up from the current 25%, which will effectively keep Chinese automakers out of the US market. The EU currently levies a 10% tariff.

Chinese carmaker exits Europe HQ

But if the threat from Chinese automakers is so large, why did Great Wall Motor — China's seventh largest car manufacturer — announce last week it was closing its European headquarters in Munich, southern Germany, due to disappointing sales?

The decision sparked speculation about China's ability to compete in the European automotive market and whether the canceled plans were part of Beijing's retaliation against possible EU tariffs or purely for economic reasons.

"Although there is lots of noise around the arrival of Chinese car brands in Europe, they are still something of a rarity — evidenced by the slow uptick in registrations over the past year," Felipe Munoz, senior analyst at the London-based auto research firm JATO Dynamics said in a recent research note.

Munoz told DW that not all of the 24 Chinese car brands currently expanding into Europe will succeed as it is a "very difficult market."

"People in Europe don't know these brands. You need to work to change the image that people still have that China produces only low-quality products. And that takes time, a lot of time," he said.

Chinese brands achieved a 2.35% market share in Europe in April this year, compared to 2.2% over the same month in 2023, according to JATO Dynamics data. Only one Chinese carmaker, BYD, made the Top 15 electric vehicle sellers in Europe in the same month.

BYD's Denza D9 was put on display at the International Motor Show in Munich last yearImage: Zhang Fan/XInhua/picture-alliance

UK legacy brand helps China's numbers

The lack of traction for Chinese automakers in Europe is made worse when you consider that MG, which has been owned by China's SAIC Motor since 2007, is still widely perceived as a British brand. In April, MG accounted for 68% of the 25,360 total units registered by Chinese brands in Europe.

Separate car tracking data of imports rather than sales, reported in the Financial Times, showed that 20% of all electric vehicle deliveries to Europe in the first four months of the year were made in China.

The FT reported that European sales of Chinese EVs had grown by 23% in the first four months of the year. Even so, European carmakers will likely have multiple advantages over their Chinese peers for some time to come, analysts say.

"Chinese companies have great cars but have less experience in marketing these vehicles," Ferdinand Dudenhöffer, director of the Center for Automotive Research (CAR), told DW. He added that Great Wall had hoped to use the existing dealerships of their competitors to sell their vehicles to European consumers, which he said was "the wrong approach."

Price cut seen as desperate measure

After disappointing sales — with just 6,300 new registrations in Europe last year, Great Wall then joined in a price war by some EV automakers, offering discounts.

"When you lower the purchase price, you destroy the resale value of the car, which damages your brand's reputation in the long term," Dudenhöffer explained.

The closure of the Munich headquarters is a major setback for Great Wall, which had previously sought to build its own factory in Europe as part of huge expansion plans for the continent.

The company last month pledged to sell a million cars abroad by 2030, up from 316,018 last year. The Chinese automaker insists it had no plans to exit the market and says its European operations will be managed from its headquarters in China. 

Battery makers U-turn on German projects

Great Wall's announcement came hot on the heels of decisions by two Chinese EV battery makers to scrap new facilities in Germany. Former Great Wall subsidiary SVOLT said last month it would no longer build a battery cell plant in the eastern German state of Brandenburg. The battery maker blamed the cancellation of a large customer order for its decision.

"There may be political reasons behind this decision. Beijing is really not happy about the prospect of EU tariffs, so we can expect retaliation measures," Munoz told DW.

In December, rival CATL also halted plans to expand its first cell plant abroad, in the eastern German state of Thuringia, again citing falling demand. However, the battery maker is building its second plant in Hungary, which has grown closer to Beijing even as some of its EU peers look to diversify away from China. 

Chinese EV battery maker CATL opened its first production site abroad in GermanyImage: Michael Reichel/dpa/picture alliance

Along with domestic players, Chinese EV-makers and battery producers are being impacted by easing demand for electric vehicles in Europe, as government subsidies are withdrawn and as European consumers remain wary of the many cons of e-motoring — including battery range anxiety and poor resale value of electric vehicles.

"Electric cars are still very dependent on [government] incentives," Munoz said. "We're still not there in terms of affordability because even a €20,000 ($21,000) electric vehicle is not an affordable car."

Other Chinese carmakers stick around

Other Chinese carmakers still plan ambitious expansion in Europe, including NIO, which has just added its seventh NIO House showroom on the continent, located in Amsterdam. As of May this year, the firm has 6 mass-produced EV models for sale in the European market.

Rival XPeng recently announced plans to enter the German, French, Italian and UK markets. The automaker already operates in several Nordic countries and the Netherlands.

Last month, Stellantis — the auto giant formed out of Fiat and Peugeot-owner PSA — said it had agreed on a joint venture with Chinese carmaker Leapmotor to sell its electric vehicles in Europe.

Edited by: Ashutosh Pandey