Li Mingyang

Li Mingyang

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Production | Tiger Smell Automotive Group

Author | Li Mingyang

Head image source | Visual China

Article Summary

The article discusses the impact of tariffs imposed by the United States on Chinese electric vehicles, as well as the strategies adopted by Chinese car companies to respond.

• •    Chinese electric vehicles face challenges from US tariffs, but the impact is limited

• •    Chinese car companies may accelerate the establishment of factories/joint ventures in Europe

• •    Toyota has gone through ups and downs, inspiring Chinese car companies to move towards internationalization

The internationalization path of Chinese automobiles is approaching the 2.0 era.

On May 14th local time, the Biden administration announced that tariffs will be imposed on Chinese electric vehicles and other products. Among them, the tariff on electric vehicles in China will be increased from the current 25% to 100%.

In September last year, European Commission President von der Leyen announced that he would launch a countervailing investigation on Chinese electric vehicles to determine whether to impose punitive tariffs on them.

Image source: Visual China

After more than a decade of rapid development, as Chinese car companies are about to embark on a journey abroad and make the global market aware of Chinese electric vehicles, they are facing unprecedented tariff pressure, which happens to come from the two most mature global car markets, Europe and the United States.

What are the countermeasures for China's electric vehicles going abroad against the tariffs imposed by the United States and the European Union?

Limited impact on the US market, Europe may accelerate factory construction/joint ventures

When talking about the US market, Lao Zhou (the general manager of a certain domestic brand stationed in Mexico) said to Tiger Smell Motors:

1. At present, Chinese cars are mainly driven by gasoline vehicles when going overseas, and the share of electric vehicles is not as large.

2. At present, the export of complete vehicles is mainly focused on markets in Russia, South America, the Middle East, and Southeast Asia. Apart from Polestar, there are not many Chinese made passenger cars exported to the United States.

Looking at the global new energy vehicle market, China itself holds more than half of the market share, with Europe accounting for 30% and North America accounting for only over 10%, so its impact is limited.

When discussing the impact on the European market, Lao Li (the general manager of a certain independent brand's European branch) told me that many international companies of automotive companies are more like trading companies at this stage. This underlying logic determines that companies generally do not actively engage in heavy asset investments, but rather focus on exports.

The European Union may follow up on tariffs like the United States, but it should not raise them so high. If the CKD (Complete Knock Down) method is not feasible, this incident may indirectly accelerate the progress of building factories in the local area.

Image source: Zero Run

But he also believes that the joint venture between Zero Run and Stellantis may be a solution to the problem. Chinese car companies like Zero Run can leverage their advantages in electronic and electrical technology, while Stellantis can leverage its manufacturing base and sales network in Europe to pave the way for Chinese electric vehicles to enter the European market and reduce resistance.

Toyota also experienced trade frictions back then

The trade friction faced by China's electric vehicles was actually experienced by our East Asian neighbor, Toyota of Japan, several decades ago.

Under tariff pressure, they were not defeated, but instead leapt to become the world's best-selling automotive group, expanding their business to over 100 countries.

Toyota's overseas growth path may not be 100% applicable to current Chinese automotive brands, but it must have reference value. They each went through the 1.0 export stage; 2.0 Joint venture stage; 3.0 Full system sea going phase.

After World War II, Toyota gradually exported economy sedans to the international market, mainly in the United States, through self operated sales outlets and trade partners. This is the 1.0 version of Toyota's overseas business: an export-oriented strategy.

The local labor prices in Japan are low, and people can also endure hardship. With the progress of the production system, the competitiveness of products has greatly improved. Encountering the oil crisis again, Japanese cars have gradually opened up the international market by taking advantage of their small displacement and more fuel-efficient advantages.

Image source: Visual China

But similar to the tariff pressure faced by electric vehicles in China today, in the 1980s, the Reagan administration announced the implementation of export restrictions and quotas on Toyota. In order to address the impact of international trade frictions and break through quota restrictions, Toyota has adjusted its overseas business to version 2.0: attempting a strategy of joint ventures with local brands to build factories.

After 1985, Toyota began direct investment and established a joint venture with General Motors in the United States. We not only produce cars in the United States, but also create jobs and contribute to taxes, and integrate Toyota's lean production into it.

By transferring mature technology and utilizing local resources, the development speed of overseas business has shifted from green cars to high-speed rail.

Afterwards, for specific markets, Toyota began to establish local research and development institutions, connecting business strategies, technology research and development, product planning, production and manufacturing, marketing, channel management, after-sales maintenance, and the entire business chain. The international business strategy of version 3.0 has established Toyota's position among global automotive giants.

The story between China and the United States today is certainly very different from the story of the United States and Japan back then, but the story of Toyota becoming more and more courageous despite setbacks may also inspire many Chinese car companies.

International car companies need to go through a complete economic cycle

I once worked for a leading new car brand and spent a year and a half in the European market. I deeply understand how difficult it is for Chinese car companies to enter a mature overseas market.

Technology and products are just the first step in the Long March. Research on local laws and regulations, understanding of user habits, how to solve certification, warehousing, logistics, after-sales parts and charging and energy supplement services, and how to create a talent organization that is both adapted to local culture and can connect with Chinese enterprises.

Without the support of these systematic capabilities, Chinese car companies want to communicate their brand and product strength in unfamiliar overseas markets, just like the NBA rookie wall, where hitting a wall is a high probability event.

Image source: The author took a photo at a store in Amsterdam, Extreme Krypton

The above is only the level of technique. At the level of the road, if a car company wants to truly embark on the internationalization track, there are more dimensions that need to be improved.

Li Bin once said in an interview about the topic of going abroad that there should never be a conqueror mentality. Although we are proud, we do not have the concept of "I am stronger than you".

I have a deep understanding of this in my dealings with overseas partners. Wolf like behavior, internal competition, and zero sum games seem commonplace to us. Even statements like missing a child's birth while working overtime and fighting for the job four times in a row can appear at a certain brand's press conference.

But this kind of realistic narrative, if placed in overseas markets, will largely only attract strong resistance. Why does the topic of ESG (evaluating the sustainability of business operations and their impact on social values from three dimensions: environmental, social, and corporate governance) exist? The significance lies in this.

Looking back at the development history of the global automotive industry, truly international car companies must have experienced a complete economic cycle. During this year's Spring Festival, I took my family to visit the Mercedes Benz Museum in Stuttgart. There is a wall inside the museum that records the growth history of car inventors.

Image source: The author took a photo at the Mercedes Benz Museum in Stuttgart, documenting the globalization process of Mercedes Benz

World War I, World War II, trade war, Cold War, economic crisis, oil crisis, disintegration of the Soviet Union, division and merger of East and West Germany. Mercedes Benz faced several crises, but in the end, it persevered and survived.

In the era of rapid development of Chinese car companies, it was not only a peaceful period, but also a rare economic upward cycle under the background of reform and opening up and joining the WTO. Although Chinese electric vehicles have made significant progress, they are still too young and have experienced too few setbacks compared to century old brands.

Looking back many years later, this tariff incident is just a temporary footnote for Chinese car companies to move towards internationalization.

This content is the author's independent viewpoint and does not represent the Tiger Smell position. Reproduction is not allowed without permission. For authorization matters, please contact us hezuo@huxiu.com

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