Officializing the EU’s investigation into alleged market disruptions caused by China’s subsidies to electric car makers, European Commission President Ursula Von der Leyen declared that “Global markets are flooded with particularly cheap Chinese electric cars” However, looking at the price lists, we can calmly say that this invasion, in Europe and in Italy, does not exist, or at least has not yet been seen.
If we look at the price lists of the major Chinese manufacturers, BYD above all, we will see how cars are priced two to three times higher than those charged in China, and perfectly in line with those of European manufacturers. Prices charged by Chinese manufacturers in Europe which, depending on the case, may remain attractive, but which are certainly far from the Chinese “madness”, where an electric city car can cost even less than 9,000 euros.
It is therefore normal to ask why the price of a Chinese electric car doubles or triples in the Old Continent. An answer to this question is a report from the Reuters news agency, which reaches a very clear conclusion: European prices are so high because Chinese manufacturers sell to Europe with very high profit margins. And this profit allows Chinese manufacturers themselves to fight the price war at home.
In the report, Reuters focuses largely on BYD, given its dominant position in the domestic market. And one of the most striking examples is that of the Atto 3 crossover. In China the car costs, at the exchange rate, around 18,000 euros, in Europe around 40,000 euros. In Italy, BYD’s Act 3 starts at 38,790 euros. We are talking about a clear doubling of the price, which places the Chinese crossover in a price range not too far from the main European competitors. Same leitmotif if we look at the Dolphin – less than 15,000 euros in China and around 35,000 euros in Europe – or at the other cars marketed by the brand.
Chinese cars exported to Europe cost 100% to 178% more. A Model 3 only 37% more
A significant difference: “Price differences between vehicles that are marketed globally are usually narrower” declares Sam Fiorani, analyst at AutoForecast Solutions. It is clear that transport, compliance with the strictest European regulations and, in general, a richer technological equipment and more refined fittings have a cost. A car sold in Europe will never be able to maintain its same price as in China, such clear price differences go beyond normal compliance costs.
In fact, Reuters quantifies the right markup for a car crossing the ocean to land in Europe at 30-40%. He gives as an example the Tesla Model 3, which produced in China and then sold in Europe has a price difference of 37%. In the case of BYD, but also of other Chinese producers, the difference is much higher, almost always reaching three-digit percentage values.
Electric batteries have never cost so little. Consequence of the “war” between CATL and BYD
All this while electric car batteries have reached a new peak in price decreases. In other words, Batteries for electric cars have never cost so little as they do in this historical moment. And BYD, also thanks to its exasperated vertical integration, is one of the producers to benefit the most from this collapse in prices.
With the margins made on cars in Europe, Chinese manufacturers fight a price war at home
The response to this pricing policy that appears strange at first sight is, as mentioned, entirely aimed at obtaining very high profit margins in Europe. Chinese brands are fighting each other at home with price cuts. BYD has cut the prices of its cars in China by an average of 17%. With some particular models, the cut has even reached 30%. An approach that led BYD to become, for a quarter, the largest manufacturer in terms of number of electric vehicle sales in the world. But it also had a direct consequence on the company’s accounts.
BYD, 2023 a good year. But price wars and market slowdowns do not spare her
The spiral of price cuts in China has spared virtually no manufacturer. In fact, Tesla immediately responded to BYD, with similar consequences in terms of financial data. All the other smaller producers followed suit.
“Chinese manufacturers are struggling to break even on the costs of producing cars in China. They rarely manage to make a profit from the sale. For this reason they try to make high margins in Europe” writes Ben Townsend, an analyst at Thatcham Research in the UK.
Is the EU investigation the grain of sand that jams the mechanism?
The conclusion of the aforementioned European Union investigation could cause this mechanism to jam. In July this year the European Union could in fact decide to impose heavier duties on electric vehicles produced in China and then exported to Europe.
According to the first rumors coming from Brussels, the European Union intends to raise duties on Chinese electricity from the current 10% up to 27.5%. The 27.5% rate is the same tariff to which Chinese electric vehicles exported to the US market are subject. A market which, also thanks to the high level of taxation, has remained “sheltered” from Chinese expansionist aims.
