How Chinese EV makers will respond to steep US tariffs

Chinese electric cars were once largely synonymous with small, inexpensive vehicles. But in the past year, local EV makers have started repositioning themselves for the premium market.

The timing of a new 100 per cent duty by the US on imported Chinese EVs is thus unfortunate for those companies, hitting them just as they started going global with their high-end cars.

Not all companies will be affected equally by the tariffs. In the low end, the BYD Seagull electric hatchback, for example, with a price tag of around $9,600 in China, would still be considered price-competitive in most overseas markets even after a 100 per cent tariff. Less so for models like the Zeekr 009, the electric multipurpose vehicle starting at $69,700. Some manufacturers may decide US expansion is not worth the added costs. Others may find workarounds by setting up production facilities in countries like Mexico.

But one thing is for certain: winning over Europe has just become that much more important for the future of Chinese EV groups.

For these manufacturers, going the high-end route is now less a matter of choice than necessity to avoid getting caught up in a price war with BYD, China’s largest EV maker that is leading global growth in the lower price segment.

That strategy, which means contending with ​the brand power of European luxury-car makers, would have seemed a stretch not so long ago. But an unexpected change in consumer trends has driven stronger than expected sales of Chinese-made premium EVs in the past year.

In China, the definition of a luxury feature in an EV has been evolving rapidly. Branding, fancy car interiors and faster acceleration are some of the traditional attractions for consumers. Now other features are becoming more sought after, such as proprietary software and advanced battery and intelligent vehicle technologies.

Take Zeekr, the high-end electric car brand of Chinese carmaker Geely, which also owns a portfolio of global brands including Volvo and Lotus. Its popular Zeekr 001 electric sedan offers traditional high end features, such as accelerating from zero to 100kph in 3.8 seconds and car seats with back massage functions. 

But the bigger draw for many buyers has been the latest technology used in its intelligent cockpit, advanced radars, driving assistance system as well as a battery that charges in half an hour. A close relationship with China’s largest battery maker CATL, from which it received early funding, gives it a significant edge over rivals. Early access to the latest battery technology is key to staying ahead as EV makers search ceaselessly for longer range, lighter and cheaper batteries.

Demand for its high performance electric sports cars have been strong, with total sales doubling in the first quarter. But the problem is that while Zeekr sales surged by two-thirds last year, most so far have been in its home market. 

Despite China being the biggest auto market in the world, there is a limit as to how fast premium EV makers can grow at home. The nationwide per capita disposable income was Rmb39,218 ($5,415) last year, according to government data, with GDP per capita at $12,720. Tesla, which has been slashing prices in the country, remains a popular choice among locals.

For new growth — and to recoup steep development costs — EV makers have little option but to expand overseas. But the US, the largest auto market after China, looks challenging.

Government targets and mandates in the next largest market, Europe, offers some hope. In Germany the government aims to have at least 15mn EVs, including plug-in hybrids, on the road by 2030. The EU’s decision to ban new combustion engine cars sales from 2035 should also mean higher EV demand.

In Germany, EV sales fell by 16 per cent last year, according to data from the country’s automobile industry. That is partly to do with rising prices. While battery EV prices have more than halved in China over the eight years to 2023, average European prices have increased by €18,000. Meeting government targets on schedule will require a much wider range of affordable options, leaving a gap for Chinese EV makers to fill.

But even then it will not be easy. An ongoing investigation by the European Commission into subsidies given to EV makers in China could result in steep tariffs on Chinese imports in the near future. That leaves the EV makers a very small window to come up with a clear strategy for expansion in Europe.

june.yoon@ft.com