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Chinese electric cars were once pretty much synonymous with small, cheap vehicles. Last year, however, local electric car manufacturers began to move into the premium market.
So the timing of the new 100% US tariff on imported Chinese electric vehicles is unfortunate for these companies, as it hit them just as they were making inroads around the world with their high-end cars.
Not all companies will be affected equally by the tariffs. For example, the BYD Seagull electric hatchback, with a price tag of around $9,600 in China, would still be considered price competitive in most overseas markets even after a 100 percent tariff. That’s less true for models like the Zeekr 009, an electric utility vehicle starting at $69,700. Some manufacturers may decide that the US expansion is not worth the additional cost. Others may find a solution by setting up manufacturing plants in countries such as Mexico.
But one thing is certain: winning over Europe has just become much more important for the future of China’s EV groups.
For these manufacturers, going the high-end route is now less a matter of choice than a necessity to avoid getting into a price war with BYD, China’s largest EV maker, which is leading global growth in the lower-priced segment.
This strategy, which means contending with the brand power of European luxury carmakers, would have seemed a stretch not long ago. However, an unexpected change in consumer trends caused higher-than-expected sales of premium electric cars made in China last year.
In China, the definition of luxury in an EV has evolved rapidly. Brands, luxurious car interiors and faster acceleration are some of the traditional draws for consumers. Additional features such as proprietary software and advanced battery and intelligent vehicle technologies are now increasingly in demand.
Take Zeekr, the flagship electric car brand of Chinese automaker Geely, which also owns a portfolio of global brands including Volvo and Lotus. His popular Zeekr 001 electric sedan offers traditional high-end features such as zero to 100 km/h in 3.8 seconds and car seats with back massage functions.
But the bigger draw for many buyers was the latest technology used in its intelligent cockpit, advanced radars, steering assistance system and also a battery that charges in half an hour. A close relationship with China’s largest battery manufacturer CATL, from which it received early funding, gives it a significant edge over its competitors. Early access to the latest battery technology is key to staying ahead as EV manufacturers are constantly looking for longer-range, lighter and cheaper batteries.
Demand for high-performance electric sports cars was strong, with overall sales doubling in the first quarter. But the problem is that, while Zeekr’s sales rose by two-thirds last year, most of it has so far been in the domestic market.
Although China is the world’s largest auto market, there is a limit to how fast premium EV makers can grow at home. National disposable income per capita was Rmb39,218 ($5,415) last year, with GDP per capita at $12,720, according to government data. Tesla, which has been slashing prices in the country, remains a popular choice among locals.
For new growth – and to offset steep development costs – EV makers have little choice but to expand overseas. But the US, the largest auto market after China, looks challenging.
Some hope is offered by government targets and mandates in the next largest market, Europe. In Germany, the government aims to have at least 15 million electric cars on the road by 2030, including plug-in hybrids. The EU’s decision to ban the sale of new cars with internal combustion engines from 2035 should also mean higher demand for electric cars.
Last year in Germany, EV sales fell by 16 percent, according to data from the local automotive industry. This is partly due to rising prices. While electric car battery prices in China have more than halved in the eight years to 2023, average European prices have risen by €18,000. Meeting the government’s targets on schedule will require a much wider range of affordable options, leaving a gap for Chinese EV makers to fill.
Even then, it won’t be easy. The European Commission’s ongoing investigation into subsidies provided to electric car manufacturers in China could result in steep tariffs on Chinese imports in the near future. This leaves a very small window for EV manufacturers to come up with a clear strategy for expansion in Europe.
june.yoon@ft.com