Chinese electric vehicle makers like BYD and Chery are charging up production in the European Union to dodge tariffs.On paper,they have an edge,but how long they keep their pole position will hinge on Brussels.
Some home advantages don't travel well.Labor costs add around$500 per car if BYD's pure electric Seal sedan is made in Eastern Europe,UBS calculated in 2024.A factory in Germany would more than quadruple that figure.Additional energy costs are harder to measure and could be even higher.Using international suppliers costs a further$4,000 for this specific model.
But what's under the bonnet counts.China Inc's early push into electric vehicles means it can make an EV's platform and electronics more cheaply.Some players,like BYD,develop batteries and components as well.It helps that research dollars go far further in the Middle Kingdom:both Geely Auto and BYD launched multiple models in 2024,when they invested 4.4 percent and 6.6 percent of revenue in R&D respectively.Meanwhile,Tesla spent 5.1 percent of the top line but christened just one new model in 2023.
Taking all of that into account,UBS analyst Paul Gong estimates that today it would cost BYD roughly 25,000 euros($27,120)to produce a car in Europe,some 25 percent more than in China.But that is still about 10,000 euros cheaper than similar models put out by European peers.
Seal sedans exported from China to Europe sell for around 45,000 euros.That implies BYD would still earn a handsome profit per car and has scope to undercut EU rivals on price while remaining competitive.
There are no real-world examples to confirm the thesis,as China Inc has yet to start up its first European production lines.Nor do carmakers typically break out specific financials that quantify the value of engineering.
But Sweden-based,Chinese-owned Volvo Cars'disclosures give a hint.The recently launched EX30,a pure electric compact SUV,is its first electric car to use an underlying body developed by parent Geely for Zeekr and Polestar EVs.It can achieve a gross margin of 15 to 20 percent,the company said in February.That helped nudge Volvo into its highest-ever gross margin for battery-powered vehicles in second-quarter results.
However,even careful sums could still be upset by nasty surprises from Brussels.The bloc could threaten fresh probes,tariffs and rules,especially if Chinese marques made in Europe fuel member states'concerns for their legacy automakers.
Evoking new regulations on sourcing and foreign subsidies would disrupt supplies of batteries or other parts,for instance.China's upstarts are formidable rivals,but they still need to test their speed limit on European roads.
Volvo Cars,controlled by China's Geely group,said on July 18 that its net income grew 60 percent to 5.7 billion krona($525 million)in April to June,compared with a year earlier,as sales fell 1 percent to 102 billion krona.The company added that its gross margin for battery-electric vehicles increased to a record high of 20 percent compared with 3 percent a year earlier.
（Picture: Veer）
