China's hybrid vehicles accelerate into the European market under EU electric vehicle tariff policy

China's hybrid vehicles accelerate into the European market under EU electric vehicle tariff policyDecember 6, 2023 Faced with high EU tariffs on Chinese electric vehicles (EVs), Chinese automakers are cleverly exploiting a loophole by accelerating exports of hybrid vehicles to Europe and actively preparing more new models. This strategy is driving significant changes in the European hybrid vehicle market

China's hybrid vehicles accelerate into the European market under EU electric vehicle tariff policy

December 6, 2023 Faced with high EU tariffs on Chinese electric vehicles (EVs), Chinese automakers are cleverly exploiting a loophole by accelerating exports of hybrid vehicles to Europe and actively preparing more new models. This strategy is driving significant changes in the European hybrid vehicle market.

In late October, the EU imposed anti-subsidy tariffs of up to 45.3% on imported Chinese EVs to protect its domestic auto industry and address what it perceives as overcapacity fueled by Chinese government subsidies. The European Commission believes China's annual EV production capacity of 3 million units is double the size of the EU market. However, this policy doesn't cover hybrid vehicles, offering Chinese manufacturers a new market avenue.

Murtuza Ali, an analyst at Counterpoint Research, noted, "The shift by Chinese automakers to plug-in hybrid electric vehicles (PHEVs) to circumvent the new tariffs on battery electric vehicles (BEVs) imported from China is driving the growth in hybrid vehicle exports." He predicts a 20% increase in Chinese hybrid vehicle exports to Europe this year, with even faster growth potentially next year.

Data shows that since launching its anti-subsidy investigation into Chinese EV imports in October 2023, some Chinese automakers have adjusted their European market strategies, shifting their focus to hybrid vehicle exports. From July to October this year, Chinese hybrid vehicle exports to Europe more than tripled to 65,800 units, effectively reversing the sales slump seen in 2023 and early this year. In the third quarter, PHEVs and conventional hybrid vehicle exports accounted for 18% of total Chinese car exports to Europe, doubling from 9% in the first quarter, while EV exports fell from 62% to 58% during the same period. This trend suggests a continued rise in the proportion of hybrid vehicle exports.

Hybrid vehicles, as a transitional model between traditional combustion engine vehicles and pure EVs, offer fuel efficiency alongside electric power, at a relatively lower price point. This makes them increasingly attractive to European consumers, particularly in the current inflationary environment.

Chinese automakers are leveraging this advantage to aggressively expand into the European market. BYD has launched its first PHEV model in Europe, the "Seal DM-i," priced at 35,900 (approximately RMB 276,000), 700 less than Volkswagen's best-selling PHEV, the Tiguan, and 1000 cheaper than the Toyota C-HR PHEV. BYD is also considering manufacturing EVs and hybrids at its Hungarian factory to further reduce production costs and enhance competitiveness.

Zhang Yu, Managing Director of Automotive Foresight, stated, "This segment could show even greater growth potential, particularly among price-sensitive consumers, as Chinese automakers offer more affordable options for European consumers." He further suggested that launching the "Qin PLUS" in Europe at a price of 20,000 would create a significant market disruption.

SAIC Motor has also adjusted its European market strategy. Facing additional tariffs of up to 35.3% on its EVs exported to Europe, SAIC stated it plans to offer products with multiple powertrain systems to address the tariff challenge.

Geely, China's second-largest automaker, launched a PHEV model under its Lynk&Co brand in Europe last month, noting that the global trend among automakers is to launch more electrified hybrid models, in line with consumer demand and purchasing trends. Geely did not comment on the EU's trade restrictions.

It's noteworthy that against the backdrop of growth in the European conventional hybrid market, Japanese automakers are also actively responding to Chinese competition. Honda's car sales in China fell by 29% in the first nine months of the year. Currently, Honda exports two conventional hybrid vehicles, one PHEV, and one BEV from China to Europe, attempting to maintain market share in a highly competitive environment.

While the increase in Chinese car exports may intensify price competition in the European hybrid vehicle market, some experts caution that Chinese companies may proceed more cautiously to avoid triggering another round of EU tariffs. The expansion of Chinese automakers in the European market will undoubtedly bring a new competitive landscape, offering consumers more choices.

China, leveraging its leading position in the EV sector, surpassed Japan last year to become the world's largest automotive exporter. With the US and Canada imposing tariffs of up to 100% on Chinese-made EVs, Europe has become one of the most obvious export markets for Chinese automakers. The European Commission has yet to respond to requests for comment on the increased influx of Chinese hybrid vehicles. With more hybrid models entering the European market, the market will face fiercer competition and greater transformation. Whether Chinese automakers can successfully challenge the PHEV market currently dominated by European and Japanese manufacturers remains to be seen, but their expanding footprint is already having a significant impact on the European automotive landscape.