HONG KONG — Chinese electric vehicle (EV) manufacturers such as BYD and Chery are ramping up their production within the European Union to circumvent tariffs and gain a competitive edge. Despite their initial advantage, their future success will depend on the evolving regulatory landscape in Brussels.
Chinese automakers are capitalizing on lower production costs, which offer them an advantage in the European market. For instance, UBS analysis highlights that manufacturing BYD’s pure-electric Seal sedan in Eastern Europe adds approximately $500 per vehicle, while setting up a factory in Germany would increase costs significantly. The additional expenses for energy and international suppliers could further impact production costs.
China’s early investment in electric vehicles has enabled its manufacturers to produce EV components more cost-effectively. Companies like BYD not only produce batteries but also develop crucial components, benefiting from lower research and development (R&D) costs in China. Last year, Geely Auto and BYD invested 4.4% and 6.6% of their revenue in R&D, respectively, compared to Tesla’s 5.1% with fewer new models.
UBS analyst Paul Gong estimates that producing a car in Europe for BYD would cost about 25,000 euros, which is 25% higher than in China but still about 10,000 euros less than European competitors. This pricing strategy allows BYD to offer competitive prices while maintaining profitability.
Although there are no real-world examples yet, as Chinese manufacturers have not launched their European production lines, data from Volvo Cars—owned by China’s Geely—provides some insights. Volvo’s EX30, an electric SUV developed with Geely’s technology, is reported to achieve a gross margin of 15% to 20%, contributing to Volvo’s highest-ever gross margin for battery-powered vehicles.
However, this advantage could be undermined by potential regulatory changes from the European Union. The EU has already imposed provisional tariffs of 17.4% to 37.6% on Chinese-made EVs, in addition to a 10% existing duty. New regulations could further disrupt the supply of batteries and components, adding uncertainty for Chinese manufacturers.
As European regulations continue to evolve, Chinese EV makers will need to navigate these challenges to maintain their competitive position in the European market.