How China Is Assisting A European Suicide
Tariffs won't help. Stellantis, Mercedes, Renault and Volkswagen are in deep trouble.
How China Is Assisting A European Suicide
China now ships hundreds of thousands of cars a year to Europe. The EU Commission has hit Chinese automakers with punitive tariffs, citing subsidy abuse. Tensions are escalating fast.
What happens next?
I played out possible scenarios in my mind last week while at I Fratellini, a charming little cafe in downtown Florence. Behind the counter, I noticed a pair of Italian men crafting the sandwiches. Next to them, a young woman working the register.
"Where are you from?" I asked her in Chinese. "Fujian," she answered with wide eyes. "And that's my boss," pointing to an Italian man walking up, his arms full of supplies for the kitchen.
Domenico shook my hand. "I met my wife in China 7 years ago.”
"He's the owner here," the young woman from Fujian chirped from behind the register, "I just help watch the money."
In a few words, the young lady captured how China is conquering the European car market: European products upfront, Chinese in charge from the back.
• • •
Think of the new European tariffs on Chinese cars like a glancing blow thrown by a fading heavyweight fighter, one that will not stop China's advance. The reality is that the Chinese are already woven into the fabric of Europe's car markets—and often in partnership with the Europeans themselves.
Made-in-China EVs headed for Europe will top 500,000 units this year, one out of every four EVs sold in Europe. Chinese automakers will ship a further 400,000 gasoline powered vehicles to Europe as well.
Many of those Made-in-China cars will carry European badges - familiar names like Volvo, Mini, and Smart, and less well-known ones like MG and Lotus.
Some European companies will be unwitting accomplices to further gains by Chinese automakers on the continent.
How did we get here?
Planting Seeds, Taking Names
In some ways, the Chinese have been preparing for this moment for two decades.
Standing in line for a taxi in front of the Peace Hotel in downtown Shanghai in early 2005, I overheard British dealmakers talking about selling the MG brand.
A few months later, a small automaker from Nanjing bought the rights to the MG brand name from Phoenix Motors.
Five years later, in 2010, Geely-founder Li Shufu acquired Volvo from Ford for $1.8 billion. Chairman Li understood that buying Volvo would give him two things he did not have: world-class R&D, and a globally powerful brand.
Chairman Li extended his reach into Europe in 2018 when companies under his control invested $9 billion to acquire 9.6% of Mercedes-Benz.
With a single stroke of the pen and a series of highly disguised wire transfers, Li became the single largest shareholder in Germany's most prestigious brand.
That is not all. In recent years, Li has added Lotus and London Taxi Company, spun out Polestar, and created Lynk & Co within his portfolio of European brand names.
Then, in early 2020, Geely formed a 50-50 joint venture with Mercedes to build Smart vehicles in China and sell them worldwide.
Geely was not the only one with significant interest Mercedes. In 2021, Beijing Automotive Industry Corporation — Mercedes' main partner in China — revealed that it has been holding a 9.9% stake in Mercedes since 2019. Link
China Speed, China Shock
From 2005 to 2020, Chinese moves to acquire European assets were seen as quaint and curious, but not alarming: "Look at that, a Chinese entrepreneur few people have heard of is the No. 1 shareholder in Mercedes."
Chinese automakers like Great Wall had tried to enter Europe before—and had fallen on their faces. What was there to worry about?
Fast forward to 2024, and sirens in Europe are now blaring. It feels to European automakers like the Chinese are everywhere, all at once.
• BYD, China's largest automaker, has set up 230 dealerships in 19 countries across Europe. A plant in Hungary will start producing BYD vehicles within three years. BYD executives say that they will reach 5% market share in Europe prior to that.
• SAIC will sell 300,000 MGs in Europe this year, 40% more than in 2023. Link
• Volvo delivered a record 700,000 cars globally last year and is on track to go higher in 2024. Many of the vehicles were produced in one of Volvo's three China factories.
• Chery, China's largest exporter, plans to launch three new brands in Spain and Italy — Exlantix, Omoda, Jaecoo -– as it negotiates acquisition of a shuttered Nissan plant in Barcelona. Link
Reverse JVs, Too
European companies themselves are accelerating China's move into Europe.
In October 2023, Stellantis invested $1.7 billion to acquire a 20% share in Leapmotor. The company leaders agreed vehicles sold outside of China are to carry a Stellantis brand.
Stellantis will start selling 6 different Leapmotor-based models in 9 European cities this September.
This week, Stellantis started building China-sourced EVs at a plant in Poland. Those EVs are designed and developed by Leapmotor. But they will have Stellantis brand names: Citroen, Fiat ... even Jeep. Link
Volkswagen and Audi are likely to follow that playbook. In 2023, Volkswagen invested $700 million for a minority stake in Xpeng, a promising EV startup selling in several European markets already. Link
Jaguar Land Rover will revive the Freelander as a Made-in-China EV using Chery’s EV platform. Link
Weaving In
Meanwhile, Chinese companies are also working hard to win European hearts. China's No. 1 automaker, BYD, is the official sponsor of the high-profile UEFA Cup. BYD has also opened a flagship store on that prestigious Parisian avenue, the Champs-Elysées. And another one off of Piazza del Duomo, home of the most coveted real estate in Florence.
So, What Now?
EU Commissioner Ursula von der Leyen is fighting a heroic battle to keep the Chinese at bay. She championed the anti-subsidy probe last autumn that uncovered enough evidence to warrant higher tariffs on Chinese products.
She was not wrong about China's extensive use of subsidies to support its EV industry. BYD alone has collected over $3 billion in subsidies since 2021.
But the tariffs may be too late and too little. The Chinese are already inside – and they have all the leverage. As one Western executive put it to me this week: "The Europeans are screwed."
• China's massive scale, efficient supply chains, and extensive subsidies allow Chinese automakers to produce at 20-30% lower cost than competitors in Europe. The new, higher tariffs will be a minor speed bump.
• Stellantis, Mercedes, Volkswagen, Renault and Jaguar Land Rover have investments in Chinese companies, aligning their interests closely with China.
• Mercedes, Audi and BMW are paralyzed by constant worry about Chinese retaliation to their lucrative businesses in the PRC.
European Allies
Some powerful European leaders are now voicing pro-China views.
In May, Mercedes CEO Ola Kallenius spoke out against higher tariffs on Chinese cars. "Don't raise tariffs," Kallenius said. "Take the tariffs we have and reduce them."
Is it just a coincidence that Geely and BAIC now own 20% of Mercedes?
Like the young woman behind the cash register in Florence said:
"Europe is the owner. We are just here to help watch the money."
Future Cars & Markets
Electrics
Ferrari Elettrica. Ferrari’s first all-electric vehicle will be priced north of $530,000. The plug-in hybrid SF90 Stradale currently on starts at $528,000. Link
Italia EVs: Pochissimo. One of the most surprising takeaways from my 8 days traveling through Rome, Florence and Milan? The scarcity of EVs. The nation bought some 50,000 EVs in 2023 but I saw only 3 or 4. The nation loves its small cars. EVs - not so much. And did I mention the art of parking? Bellissimmo.
Lucid Air. You cannot get better than to have Marques Brownlee call your vehicle the “best sedan ever made.” That is how Brownlee describes the Lucid Air Sapphire in this review. When my colleague visited the Lucid showroom today as a prospective customer, he had two key takeaways: The product is extremely impressive. The large number of the options around motors and materials and sound systems made the buying process a little overwhelming. Simple is still better.
Batteries / Supply Chains
Northvolt’s Tarnished Star. For a while, Northvolt appeared to be the shining hope for Europe’s battery industry. Founded by former Tesla executive Peter Carlsson, Northvolt once declared that it had won $50 billion dollars of orders. This week the company said it is cancelling plans for a second plant in Sweden. It is hard to play catch-up with the Chinese on batteries when the Chinese are running at full sprint. Link
Advanced Technologies
TSMC - Trillion Dollar Club. Despite heavy geopolitical risks, TSMC’s valuation punched through $1 trillion this week. The unexpected surge is being attributed to the explosion of AI applications. In April, TSMC promised to expand its investment in the United States to $65 billion. Link
New Numbers / Milestones
China Export Freight Train. China exported 1.8 million vehicles in the first four months of 2024. Seventy-five percent of these were powered by gasoline engines. Russia and Mexico were the top two export destinations. Brazil became the number one market for Chinese new energy vehicle (EV and PHEV) exports. Link
Detroit Out of China? Ford has lost an estimated $5.5 billion in China since 2020. GM China lost $100 million in the first quarter of 2024. Bank of America advises Detroit automakers to retreat from China as soon as possible. “China is no longer a core strategy for GM, Ford or Stellantis” Link
Verge Of EV Surge? Mary Barra says that GM expects to produce 200-300,000 EVs this year, a sensational increase over the 5,800 Cadillac Lyrics sold in Q1. Link
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Another insightful commentary, though the first to make me yearn for an Italian sandwich. I do wo under if the tarrifs will help secure jobs in the EU and Mexico, though that might have happened anyway in the modern de-linking era.
I base my comment on a few key points. Firstly, Western governments pretend to guide the economy, but they are not. In contrast, China’s economy is based on the opposite approach, addressing the economy with stable and supported long-term plans. This stark difference is now glaring, and Western politicians see it as ashes in the eye.
Western car makers have been in China for decades, milking profits and flying thousands of meters above ground as if there were no end to the dream. Scores of managers, enjoying wonderful bonuses, failed to notice the avalanche coming. European and American politicians remained totally blind until the massive flow of EVs arrived from the Middle Kingdom. No lessons were learned until the last two years when a cold shower woke up all of the West.
Retaliation is the most wrong move; passive defense is an insurance policy for death. Instead of waking up and running to catch up with the advantages of Made-in-China, with EV cars being industrially cheaper due to their less complex components, the West pushes for more futile resistance against the yellow avalanche. Why didn’t they pump up support to European carmakers? Why didn’t they boost R&D for EV technology? It seems that in Brussels, they are more concerned about not losing a single vote than about the real future of the EU.
It is too late; the avalanche is already running fast towards us. The cultural differences nurtured by two totally different governing systems are now showing the weaknesses of the loser and the strengths of the winner. As the young woman behind the cash register in Florence said, "Europe is the owner. We are just here to help watch the money."