The rise of Chinese auto brands in Europe

In 2023, mainland China emerged as the largest car-exporting country globally, with the European Union becoming a significant destination for many Chinese electric vehicle (EV) exports. Interestingly, both Chinese brands and Western legacy OEMs are leveraging China as an export hub.

Market Performance

Chinese OEM MG has notably doubled its European sales for four consecutive years; it surpassed Tesla to become the #1 brand exported to Europe in 2023.

In the first half of 2024, MG sold approximately 130,000 units in Europe, while brands like Volvo and BYD saw significant sales increases.

However, not all brands fared well. Tesla's import growth in the region slowed due to local production of the Model Y in Germany. Dacia also faced challenges due to changes in France's EV bonus (incentive) system and the removal of EV incentives in Germany.

Meanwhile, other Chinese brands like Nio, Xpeng, and Chery Omoda are just beginning their expansion into Europe.

Tariff Implications

The European Commission imposed provisional duties on China-made EVs in July, following a nine-month anti-subsidy investigation. The provisional tariffs ranged from 17.4% for BYD to 37.6% for MG (SAIC), although these numbers have since been reduced. Individual tariffs are still subject to change. This move is expected to impact not only Chinese brands but also legacy brands and disrupters like Tesla. In 2023, 21% of all electric cars sold in the EU came from China; among those imports, two thirds were legacy brands and Tesla.

Negotiations between the EU and China are ongoing, and the potential for retaliatory measures from China could escalate tensions, affecting the global EV supply chain.

Strategic Adaptations

With tariffs looming, Chinese OEMs are reevaluating their product, price and production strategies in Europe.

More than 20 Chinese brands have either entered or plan to enter the European market in the future. If additional tariffs are finally implemented, many Chinese EV startups may struggle, while mainstream OEMs are better positioned to adapt by diversifying their product offerings. For instance, BYD plans to launch more plug-in hybrid electric vehicles (PHEVs), while MG and Chery will also introduce hybrid and ICE models, which are also very competitive.

Chinese brands have also started taking steps to move production to EU27 or the surrounding regions. The new tariffs could accelerate investment decisions by those that may have already been considering such investment.

Competitive Pricing

Chinese EVs generally enjoy a cost advantage due to China's efficient supply chain, low labor costs, and government support. However, higher tariffs could alter pricing dynamics. The pricing strategies of Chinese brands and high price differences between China and Europe hint a potential to absorb the tariff effect on prices in the future.

Notably, Chinese brands have achieved impressive safety ratings, with all tested models receiving five-star ratings, which helps alleviate European concerns about quality.

Future Outlook

In response to the punitive tariffs, S&P Global Mobility has made an initial adjustment to its sales forecast for EU27 markets that reflect the impact that these measures will have. Despite facing challenges, the long-term outlook for Chinese brands in Europe remains optimistic. The market share of Chinese brands in the region reached 2.5% in 2023, and projections indicate that this could rise to nearly 10% by 2034, with more than 1.2 million cars sold in the European market.

In summary, while the landscape for Chinese EVs in Europe is fraught with challenges — including tariffs and geopolitical risks — the potential for growth and adaptation remains significant. As local production increases and product portfolios diversify, Chinese brands are poised to make a lasting impact.

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.