On the 40th anniversary of SAIC Volkswagen, SAIC Motor and the Volkswagen Group signed an agreement in Shanghai to extend their joint venture (JV) until 2040. This marks a significant milestone in their long-term partnership, highlighting their commitment to the Chinese market, the Volkswagen Group confirmed on Thursday.

Strengthening Collaboration Amid Challenges

The extended agreement reflects the growing trend of China-European joint ventures, despite challenges such as the European Union’s (EU) protectionist tariffs on Chinese electric vehicles (EVs). Experts believe this partnership showcases the potential for win-win collaboration between China and Europe in the evolving auto industry.

Ralf Brandstätter, a Volkswagen AG Board Member for China, emphasized the strategic importance of the partnership. “We are now raising our collaboration with SAIC to the next level, focusing on product innovation, production efficiency, and decarbonization. By 2030, SAIC Volkswagen will launch 18 new models, with 15 exclusively developed for the Chinese market,” Brandstätter said.

Brandstätter also reaffirmed China’s role as a cornerstone of Volkswagen’s global strategy. He noted the company’s commitment to increasing investments in the region, in partnership with Chinese collaborators.

Broader China-European Automotive Collaborations

Despite the EU’s tariff measures on Chinese EVs, partnerships between Chinese and European automakers are flourishing. For example:

• Chery Automobile and Spain’s Ebro-EV Motors launched their JV in Barcelona, celebrating the production of the s700 SUV. Signed in April, their agreement aims to create 1,250 jobs and produce 150,000 vehicles annually by 2029, according to Xinhua News Agency.
• Leapmotor International, a JV between Chinese automaker Leapmotor and global auto giant Stellantis, began European sales operations in September. The JV plans to expand into markets in the Middle East, Africa, Asia-Pacific, and South America later this year.

These collaborations highlight the complementary strengths of Chinese and European enterprises as they navigate an evolving market and expand product offerings to meet consumer demands.

Market Challenges and Opportunities

Zhou Mi, a senior research fellow at the Chinese Academy of International Trade and Economic Cooperation, noted that such collaborations align with mutual interests and are driven by market dynamics. However, the EU’s decision to impose extra tariffs on China-made EVs could harm global supply chain cooperation.

Jian Junbo, Deputy Director of the Center for China-Europe Relations at Fudan University, warned that these tariffs might:

• Strain trade relationships between China and the EU.
• Hinder the global EV industry’s technological innovation.
• Slow down EV adoption in the EU, potentially weakening European automakers’ competitive edge.

While the EU announced the tariffs on October 29, it also indicated plans to continue price commitment consultations with China, Xinhua reported.

The extension of SAIC Volkswagen’s JV to 2040 reflects the enduring partnership between Chinese and European automakers, despite political and economic challenges. As collaborations like Chery-Ebro and Leapmotor-Stellantis demonstrate, shared strengths and complementary goals continue to drive the global auto industry forward, ensuring innovation and progress in a competitive market.

China has called on its auto manufacturers to pause significant investments in European Union (EU) countries that support the recent imposition of tariffs on Chinese electric vehicles (EVs), according to sources cited by Reuters.

The directive comes in response to new EU tariffs, which can reach up to 45.3%, following a comprehensive year-long investigation. At an October 10 meeting with the Ministry of Commerce, major Chinese automakers such as BYD, SAIC, and Geely were advised to suspend major investment activities, including plans for building factories, in countries that align with the tariff policies.

This strategic measure by the Chinese government aims to strengthen its position in ongoing discussions with the EU about alternative solutions to the tariff issue. Beijing hopes to maintain the flow of EV exports to Europe, a crucial market that accounted for over 40% of China’s EV shipments in 2023. With existing 100% tariffs on Chinese-made EVs in the US and Canada, a significant drop in European exports could exacerbate domestic overproduction problems faced by Chinese automakers.

While nations such as Italy and France have expressed interest in Chinese auto investments, they have also raised concerns about the influx of affordable Chinese EVs and their impact on European automakers.

State-owned SAIC is currently exploring potential sites for an EV manufacturing plant in Europe and is preparing to launch a parts distribution center in France. Simultaneously, Italy is in discussions with automakers such as Chery and Dongfeng Motors for potential investments. BYD, another key player, is constructing a facility in Hungary and considering relocating its European headquarters there to cut costs.

This week, EU and Chinese officials have agreed to continue technical discussions to find alternative solutions to the EV tariffs. Despite eight rounds of dialogue between the European Commission and Chinese officials, “significant remaining gaps” in their positions persist.

Mercedes-Benz Group's CEO, Ola Källenius, is in China this week, seeking to expand local technology partnerships that could help reverse the company's declining sales in its most important market. Källenius, who has made several trips to China this year, is joined by other members of Mercedes’ management and supervisory board, according to sources familiar with the matter. The key objective of the visit is to make Mercedes' new electric vehicles (EVs) more appealing to Chinese consumers.

Targeting the Next-Generation Electric Vehicle Launch in 2025

According to sources, the new partnerships aim to enhance Mercedes' next-generation EVs, particularly for the 2025 launch of its battery-only CLA, the first model based on the company's new electric vehicle platform. This launch is seen as critical in the battle to regain market share from Chinese automakers, which have been outperforming international brands in the EV segment. The focus is on collaborating with local companies that provide key in-car technologies, such as mapping and entertainment systems, to tailor the CLA and other models specifically to Chinese consumer preferences.

A Mercedes representative in China confirmed that staff from headquarters would be visiting but declined to provide additional details.

Navigating Challenges in China’s Competitive Market

China remains Mercedes-Benz’s largest market, contributing 36% of its global sales in 2023. However, the company is under increasing pressure to regain momentum amid a stagnant Chinese economy and intensified competition from domestic automakers. Last week, Mercedes followed rival BMW Group in cutting its full-year profit outlook, citing weaker demand for luxury cars in China.

To counter these challenges, Källenius has launched a sales offensive with new products and localized innovations. Last month, Mercedes-Benz announced a collaboration with ByteDance Ltd., the parent company of TikTok, to integrate generative AI applications into its in-car systems for the Chinese market, enhancing the appeal of its vehicles with cutting-edge technology.

Strengthening Strategic Partnerships

Källenius may also meet with Li Shufu, Mercedes’ top shareholder and the founder of Zhejiang Geely Holding Group Co., during his visit. Geely is a crucial partner for Mercedes in China. Meanwhile, Mercedes-Benz continues to deepen its ties with other local partners. In his previous visit, Källenius announced a joint investment of 14 billion yuan ($1.99 billion) with long-time partner BAIC Motor Corp. to produce electric and light-commercial vehicles specifically designed for Chinese consumers.

These models will include an extended-wheelbase version of the electric CLA, a GLE crossover, and a new luxury electric multi-purpose vehicle. These China-focused offerings are a crucial part of Mercedes’ strategy to compete more effectively with local automakers who have been dominating the EV market with competitive pricing and faster innovation cycles.

A Broader Trend of Localization

Mercedes-Benz isn't the only German automaker accelerating its localization efforts in China. Volkswagen Group has also intensified its focus on faster production and development in China, optimizing costs by leaning heavily on local supply chains. VW has partnered with Chinese EV startup Xpeng Inc. to roll out new products in China, while also investing in new joint ventures with local suppliers like Horizon Robotics, reinforcing its commitment to staying competitive in the world’s largest EV market.

As competition heats up, these localization strategies are essential for traditional carmakers to retain a foothold and drive future growth in China’s rapidly evolving automotive industry.

BYD is taking control of its German distributor, Hedin Electric Mobility, as the automaker's leadership grows increasingly frustrated with sluggish sales in Europe's largest market. Germany is crucial to BYD's strategy of capturing a 5% share of the European auto market in the midterm. The company has set a goal of selling 120,000 cars in Germany by 2026, but as of July, it had only registered 1,432 vehicles, representing just 0.1% of the market, according to the KBA motor transport authority.

Despite a significant marketing boost as the automotive sponsor for the European soccer championship held in Germany this summer, BYD’s sales in the country have remained disappointingly low.

Hedin Electric Mobility has been BYD's general importer in Germany since 2022, supplying cars and parts to around 30 BYD dealerships nationwide. By acquiring Hedin's business, BYD aims to streamline its operations, allowing it to sell directly to dealers and gain more control over pricing and vehicle availability.

Although BYD is taking over the distribution, Hedin's German dealerships will continue to operate as BYD partners. Additionally, Hedin will maintain its role as BYD's importer and distributor in Sweden. The financial terms of the deal, which is pending regulatory approval, have not been disclosed.

This move comes as Chinese EV manufacturers, including BYD and SAIC's MG brand, face challenges expanding in Europe. These include weakening demand and new tariffs on EVs imported from China. In July, registrations of Chinese EVs in Europe dropped, with Chinese brands capturing just 9.9% of the overall EV market.

Chinese automotive brands secured an unprecedented 11% share of the European battery electric vehicle (BEV) market in June, marking a significant milestone. This surge in registrations occurred as manufacturers rushed to beat the European Union’s newly imposed tariffs on electric vehicles, which came into effect earlier this month.

Leading the charge was SAIC Motor, which made substantial shipments of its MG4 hatchback to European dealerships. Vehicles registered before July 5th were exempt from the new tariffs, allowing them to be sold without the additional duties on imported EVs. In total, Chinese brands registered over 23,000 BEVs across Europe in June—a record pretty high. 

This 72% month-on-month increase in registrations outpaced the overall growth in European EV registrations, which saw a more modest rise. It's worth noting that Chinese-manufactured vehicles from Western companies like Volvo, BMW, and Tesla are also subject to these new duties.

The sustainability of these volume gains remains uncertain as the impact of the EU tariffs takes hold in the coming months. Under the new regulations, SAIC faces an additional 38% tariff, while BYD will incur an extra 17% on top of the existing 10% customs duty.

Both European and Chinese automakers are scrambling to establish local EV manufacturing in Europe to bypass these tariffs, with concerns growing that the situation could escalate into a trade conflict between Beijing and Brussels.

While SAIC led the influx of Chinese-branded imports, about 40% of the MG4s registered in June were self-registrations by dealers, a trend that Dataforce's Head of Product Gabriel Juhas described as "not a very healthy growth." SAIC has been offering attractive leasing deals, including a two-for-one promotion for the MG4 in Germany, where EV sales have struggled.

In contrast, BYD, the world’s largest EV manufacturer, showed signs of progress. A marketing campaign centered around the Euro Cup Championships in Germany resonated well with consumers, according to Julian Litzinger, a Dataforce analyst.

Another key factor driving the European EV market in June was the introduction of new incentives in Italy, which helped to double the country’s battery-electric sales compared to the previous year. The Italian government allocated about €200 million in subsidies for new EVs, which were exhausted in less than nine hours. Around 60% of the funds were utilized by families, with the remainder claimed by companies.

This surge in sales propelled Italy, previously lagging in EV adoption, into the top six of the regional market, which includes EU member states as well as Norway, Switzerland, and the UK.

A trade war between Europe and China could slam the brakes on German car companies. The European Union's decision to impose tariffs on Chinese electric vehicles has angered China, which is expected to retaliate with counter-tariffs. This could be a major blow to German automakers, who rely heavily on China for sales. In 2023, nearly a third of their cars were sold there.

The danger zone for Germany lies in its luxury car market. While most vehicles sold in China are manufactured locally,many high-end models with bigger profit margins are shipped in from Germany. This makes them prime targets for retaliation. Porsche, for instance, exports all its cars to China, leaving it particularly vulnerable.

Analysts predict that counter-tariffs could focus on large-engine vehicles, a specialty of German brands. This could significantly reduce profits for German automakers, with estimates ranging from 4% to 10%. Some brands, like Porsche,might be able to raise prices to compensate, but this strategy has its limits.

The impact varies across German car companies. Porsche faces the biggest risk with a quarter of its sales coming from China and all its cars being imported. Volkswagen is less exposed, with only a small portion of its China sales relying on imports. However, any boycotts of German goods would still hurt the company. Mercedes and BMW also have a significant presence in China, with a sizable chunk of their sales coming from imported vehicles.

Other European automakers are not immune, but the threat seems less severe. Volvo and Stellantis have a smaller footprint in China. Ferrari, with a smaller market share in China, might be able to offset tariffs by raising prices on its luxury cars. Renault's operations in China are limited.

The situation remains uncertain. The nature of China's retaliation is yet to be determined, leaving German automakers in a wait-and-see mode, hoping for a peaceful resolution to the trade dispute.

Chinese EV Makers Plan Major Market Push

Starting in the 1980s, European automakers dominated the Chinese market, reaping millions in sales with minimal local competition. Now, these companies must defend their home ground from a surge of advanced Chinese electric vehicles.

Chinese automotive giants BYD, Chery, and Great Wall Motor are planning to launch around 20 new models over the next five years. These companies are heavily investing in sales and marketing to secure a significant share of the European market, according to industry experts and insiders.

Strategic Market Penetration

Having spent years gaining market share from foreign competitors in China, the world's largest automotive market, Chinese EV manufacturers are now focusing on Europe. They have been studying European car buyers, hiring industry veterans, and selecting knowledgeable distributors to prepare for this move.

BYD and Chery have announced plans to manufacture cars in Europe. Chery will start production at Nissan’s former factory in Barcelona this year, while BYD aims to open its first European passenger car factory in Szeged, Hungary, by 2026.

Building Brand Awareness and Infrastructure

Chinese automakers are employing various strategies to break into the European market, from sponsoring major sporting events to expanding dealership networks and improving service operations to enhance resale values, which are crucial for fleet buyers.

Despite their current low sales volumes in Europe, Chinese brands like MG, owned by the state-owned SAIC, are gaining recognition. However, Great Wall recently announced it would close its European headquarters in Germany, though it remains committed to its launch plans in the region.

Rapid Expansion and Competitive Pricing

The influx of China-built imports into Europe is accelerating, with BYD tripling its European sales to 15,000 vehicles in 2023. BYD has introduced six electric models in Europe, rolling them out across 20 countries, and plans additional launches in the UK this year. Great Wall aims to release a new model annually in Europe over the next five years, while Chery plans to launch eight SUV models under its Omoda and Jaecoo brands in the next two years.

Learning and Adapting to Local Markets

Chinese EV makers have adapted their strategies based on extensive market research. They are designing models specifically for European consumers and leveraging substantial government support, which allows them to focus on long-term growth rather than immediate profits.

Chinese automakers enjoy cost advantages due to government subsidies and their dominance in battery minerals refining. In China, a fierce price war has led to extremely competitive EV pricing, alarming automakers in the US and Europe. In response, the US and EU have increased tariffs on Chinese EVs.

Comprehensive Market Strategies

Chinese manufacturers are not just competing on price. They are offering vehicles with high levels of standard equipment and features often sold as extras by Western automakers. Their approach is reminiscent of Japanese automakers' strategies when entering Western markets decades ago.

Chinese companies are focusing on ensuring high safety ratings, robust repair and service operations, and effective distribution networks to enhance resale values. This attention to detail reflects their understanding of the European market, where the total cost of ownership, including maintenance and resale values, is crucial for consumers.

Building a Presence and Consumer Trust

To boost brand recognition, Chinese automakers are investing in social media, event sponsorships, and partnerships with established dealer networks. For instance, BYD is rapidly expanding its dealership network in the UK, aiming for extensive coverage by next summer. Awareness of Chinese cars is growing, with more European consumers considering them as viable options.

BYD’s sponsorship of the Euro 2024 soccer championship, previously held by Volkswagen, is expected to significantly boost brand familiarity. This high-profile presence will showcase BYD's EVs and increase recognition among millions of viewers.

The French government has established a comprehensive agreement with the automotive industry to set new targets for electric vehicle (EV) sales. This pact, developed in collaboration with French business groups and unions, aims for significant increases in the sales of battery-electric cars and light commercial vehicles by 2027.

The agreement targets a fourfold increase in annual battery-electric car sales to 800,000 and a sixfold increase in electric light commercial vehicle sales to 100,000. While the pact does not specify exact amounts for new subsidies, it promises continued support for EV purchases and leases. Additionally, the contract includes a section on "ensuring our sovereignty," which involves stress testing supply chains for critical materials.

This new "strategic sector contract" is introduced as France and other countries raise concerns about the risk of over-capacity in China's EV market overwhelming their domestic industries. The European Commission has responded to these concerns by launching an investigation into China's support for its EV sector.

"The auto industry is part of our industrial culture and is facing a once-in-a-century change," said French Finance Minister Bruno Le Maire. "The transition is difficult, with strong competition from other countries, particularly China, so we need solidarity in the sector."

To counter the influx of Chinese imports, France has restricted financial support for EV purchases to vehicles with the lowest carbon footprint in production, effectively excluding many Chinese-made models. France is also the first country to use new European rules to support its emerging battery industry with green tax credits.

"Europe must adopt a trade policy that protects our industry, our jobs, and our technology," Le Maire said. "I decided to limit bonuses for EVs to cars that meet the strictest environmental norms, to enhance our production and confront increasingly tough competition."

The wide-ranging agreement also includes a framework for cooperation on innovation, retraining, strengthening the sector’s supply chain in France, and expanding the network of recharging stations.

The pact coincides with Chinese President Xi Jinping's state visit to France, during which EU-China tensions over EVs were expected to be a key issue. These tensions have escalated into a broader conflict, with Beijing launching a liquor dumping probe that could adversely affect French cognac producers.

Shares of Nio Inc., a prominent Chinese electric vehicle manufacturer, surged by 20% on Thursday following news of a significant increase in vehicle deliveries for the month of April. The company's Hong Kong-listed shares soared by as much as 23% to reach 44.20 Hong Kong dollars, marking their highest level in over six weeks. Nio's robust performance also contributed to a 2% increase in the broader Hang Seng index during midday trading.

Nio reported a remarkable year-on-year increase of 134.6% in vehicle deliveries for April, with a total of 15,620 vehicles delivered. The delivery breakdown included 8,817 premium smart electric SUVs and 6,803 premium smart electric sedans, as stated in the company's statement released on Wednesday. So far this year, Nio has delivered 45,673 vehicles, representing a 21.2% increase compared to the same period last year.

In addition to bolstering its vehicle deliveries, Nio has been actively expanding its battery swap partnerships, aiming to enhance the infrastructure aspect of the electric vehicle ecosystem. These efforts are geared towards alleviating consumer concerns regarding driving range limitations.

Other major Chinese electric vehicle manufacturers, including Li Auto, Xpeng, and BYD, also reported their April deliveries on Wednesday. Li Auto delivered 25,787 vehicles in April, experiencing an 11% decline compared to March. Meanwhile, Xpeng reported a 4% increase in April deliveries, totaling 9,393 EVs. BYD's sales volume for EVs in April reached 313,245 units, marking a 3.6% increase from March.

Amidst escalating competition in the Chinese electric vehicle market, manufacturers have engaged in a price war, particularly with U.S. automaker Tesla. Various EV makers have slashed prices as they strive to outperform Tesla by offering advanced technology and competitive pricing strategies. Tesla recently reduced the starting price of its Model 3 in China and other key markets, prompting similar moves from competitors like Li Auto.

The intensifying competition saw Chinese smartphone giant Xiaomi entering the electric vehicle market in early April with the launch of its SU7 electric car. Priced approximately $4,000 lower than Tesla's Model 3, Xiaomi aims to capture market share by offering a longer driving range. Despite selling its new EV at a lower price point, Xiaomi's CEO Lei Jun expressed optimism about the vehicle's sales performance, indicating a potential to achieve profitability sooner than expected.

Chinese automotive giant BYD has reported a significant decrease in profits, attributing it to reduced demand for electric vehicles (EVs) and intensified competition in the global automotive landscape. The company disclosed that it generated $630 million (£502 million) in the first quarter of the year, marking a notable drop of over 47% compared to the preceding quarter.

As BYD vies with Elon Musk's Tesla for dominance in the EV market, it has encountered challenges in maintaining its position as the world's leading EV seller. Despite briefly surpassing Tesla in sales at the end of last year, the US-based Tesla reclaimed the top spot earlier this month.

BYD's sales of battery-only cars totaled just over 300,000 units in the first quarter, a decrease from the record-breaking 526,000 units sold in the final quarter of 2023. The company's latest financial results indicate a potentially more favorable performance compared to Tesla, which recently reported its first quarterly revenue decline since the onset of the pandemic in 2020.

Amidst a price war among EV manufacturers in China, BYD and its competitors are grappling for market share amid a backdrop of slower economic growth. To stimulate demand, BYD has implemented price reductions on select models, aiming to attract buyers who exhibit greater caution in making substantial purchases like cars.

In response to softer demand within China, BYD has embarked on an expansion into new international markets. The company exported 240,000 vehicles in 2023 and anticipates a significant increase in exports this year. However, its aggressive expansion strategy has triggered concerns in the US and Europe, where governments are inclined to safeguard the interests of domestic automakers.

In addition to bolstering its export initiatives, BYD has diversified its product portfolio by introducing higher-end models. At the Beijing auto show, the company showcased its latest luxury vehicles, underscoring its commitment to innovation and market expansion despite prevailing challenges in the EV sector.