At a time when shifting trade barriers have thrown global markets into disarray, there is a window of opportunity for the UK to secure a win-win deal with Chinese electric vehicle (EV) makers. But what might this deal look like?
Intense competition in China’s EV market is forcing the dominant players to explore new overseas markets. Currently, there are 169 domestic and foreign brands selling EVs in China, making it the most fragmented car market in the world. The average discount offered on the sale of new cars in China in 2024 was 13.5%. For Chinese EV makers, the route to sustainable growth is to pursue markets overseas via localisation strategies.
But with global trade in turmoil, opportunities for Chinese EV localisation are narrowing. The 100% tariff imposed by the US on Chinese EV imports in May 2024 effectively turned the world’s second largest EV market into a no-go area for Chinese makers, and the EU has proposed an additional anti-subsidy tariff for Chinese EV imports ranging from 17.4 to 37.65 (on top of the standard 10% tariff). By comparison, the UK EV market is an attractive option, with domestic EV demand growing rapidly to keep step with the government’s electrification agenda and tariffs on Chinese EV imports set at 10%.
Chinese EV makers have already begun developing localised supply chains and manufacturing footprints closer to UK and European markets. BYD has a plant in Hungary, where government-backed support and incentives are available to inward investors, and is building another in Turkey. Germany is another target country for Chinese EV localisation, as is Spain, where Stellantis and CATL have a joint venture agreement to build a large-scale battery plant providing 50 GWh of batteries annually.
Deciding where to locate, and when, requires careful planning. Chinese EV makers targeting the UK market must consider whether to make everything there and source locally, or focus on assembly, with a view to expanding UK-based production when a customer base has been established. The upfront costs associated with localising production and establishing a supply chain in a fast-developing market where skills and technological know-how are lacking, are considerable. At the same time, maintaining a competitive price point is critical to success when breaking into a market.
To mitigate risk, Chinese EV makers have been taking a phased approach to localisation. The first step is to sell in the UK, which is achieved via dealerships. Then they aim to manufacture locally, which could be achieved via a joint venture agreement or by building a new factory. The third step is to deepen localisation, for example, by sourcing locally. Building on the success of BYD and MG, the Jaecoo and Omodo models, made by Chery Automobile, are now on sale at 70 UK-based dealerships and other Chinese brands are coming soon. Joint venture and licensing agreements involving Chinese and UK manufacturers are also becoming more prevalent. Some of these deals have involved investing in infrastructure to establish a localised supply chain, as seen with EVE Energy’s reported investment of £1.2bn (US$1.6bn) in a new battery gigafactory in the UK.
For the UK, the ongoing global tariff war has created a window of opportunity to strengthen the EV industry and boost the economy. However, the recent UK-US trade deal could mean that the government’s hands are tied when it comes to doing deals with Chinese producers due to restrictions imposed by the US administration. Instead, UK-based manufacturers that recognise an opportunity to embrace Chinese skills and know-how and accelerate their pathway to mass production of competitively priced EVs, may have to reach out directly.
With Chinese EV makers setting their sights on the UK market, UK-based OEMs across the EV value chain may need to act quickly to secure collaborative agreements that could deliver value and growth in the long term.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Beibei Sun is a managing consultant and EV industry specialist at Vendigital
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