Western Automotive: Game over! Play Again? YES/NO

As of October 31st, 2024, the European Commission has implemented new tariffs on battery electric vehicles (BEVs) imported from China. These tariffs will be in place for five years, with the goal of slowing the rapid rise in Chinese car imports. The claim is that China has gained an unfair competitive advantage by Beijing offering subsidies and other incentives to support its EV industry, hence justifying the additional tariffs.

Is it “Game Over” for many Chinese EVs in Europe?

In the same month, Volkswagen (VW) announced, for the first time in 87 years, that it will close two to three factories in Germany, resulting in tens of thousands of layoffs. The VW-Audi factory in Brussels has already scheduled its closure for February 2025.

Contrary to media reports, the issue is not that European cars are being outsold by Chinese competitors in Europe, but rather that many European EVs are manufactured in China and then exported to Europe. These vehicles will also be impacted by the tariffs. Meanwhile, European car sales in China - accounting for about 40% of global sales for companies like VW and BMW - are rapidly declining at an alarming rate. The accompanying graph illustrates this trend more clearly.

The Wire China – 29-09-2024

Will any foreign automakers still be operating in China in five years? Sure. But in my opinion, none of the foreign car brands will maintain a top global position in the EV industry without continued success in China. To compete globally, automakers like VW, BMW, Ford, GM, and Toyota will need to keep producing and selling their EVs in China. Protectionist import tariffs won't protect them. They either collaborate closely with Chinese players or face a fast decline globally and slow decline in home markets. Many foreign companies have already grasped this reality. For example, Daimler has partnered with Geely, Stellantis with Leapmotor, VW with Xpeng, Hyundai with Xiaomi, and Renault with Dongfeng.

EVs are much easier to manufacture compared to internal combustion engine (ICE) cars. The innovation in EVs is primarily driven not by mechanical engineering but by advancements in battery technology, software and charging ecosystems, vehicle-to-everything (V2X) connectivity, new materials, and autonomous driving. In all these areas, China is leading the global innovation race and applying these advancements to the largest EV market in the world - China.

Although the European Commission officially states that new tariffs are intended to level the playing field between Chinese and European brands, I believe the true goal is to attract Chinese supply chains to Europe. Of course, they cannot say that openly. But as all car manufacturers now acknowledge that Chinese EVs are highly innovative and rapidly advancing, I hope politicians in Brussels will soon understand this reality as well.

The old model (or game) is over. We can no longer rely on the European car industry to keep creating jobs for building, designing, engineering, distributing, selling, and servicing cars. It's time to move beyond this outdated approach. The new normal of automotive is human-centric and energy-efficient, not car-centric.

Chinese brands understand this shift. They are leading in building ecosystems around battery production and recycling. They are at the forefront of new charging technologies and smart energy management models. They excel in vertically integrating supply chains, revolutionaizing in-car human-machine interfaces, and pushing advancements in autonomous driving applications.

The claim that Beijing propped up its car industry through subsidies is misleading. Had Brussels provided European car manufacturers and consumers with the same level of subsidies as China, it's unlikely Europe would have seen new European car brands emerge to challenge the established companies and their traditional business models.

In China, however, cell phone makers like Huawei and Xiaomi have ventured into car manufacturing because they excel in software ecosystems. Companies like NIO and Xpeng are innovating with battery swap systems and even building flying cars, as they envision a futuristic approach to mobility. BYD has flooded the market by making EVs more affordable through vertical integration and advancements in battery technology. Meanwhile, Geely has successfully combined Western and Chinese innovations to create a unique synergy. And the list goes on...

The success of China's EV industry is not due to subsidies, but to visionary leaders like Wang Chuanfu, Li Shufu, Lei Jun, He Xiaopeng, William Li, Robin Zeng, Ren Zhengfei, and Zhou Hongyi. If these names are unfamiliar, it's because their stories are underreported in the media. Yet, they share the same bold, visionary approach as Elon Musk. The rise of EVs is not about Chinese subsidies or import tariffs - despite what is often discussed - but about a new business model that Tesla pioneered, which China has adopted and perfected.

China has built its own EV ecosystem, and we have a choice to be part of it or not. Global car brands can choose to engage in this new Chinese-led EV game or opt out entirely. If we choose to play, it means both partnering with Chinese and competing within China. For brands that choose not to engage, it's game over.

I predict that U.S. car brands will once again face decline (as they did in 2008), but this time because they have lost their foothold in China and are not yet participating in this new game. However, this could be an opportunity for European brands - if they approach China smartly rather than confrontationally.

Do they want to play again? YES/NO