As new trade policies in North America and Europe aim to curb the influx of affordable electric car models and subsidized batteries from China, Chinese companies are actively exploring strategies to circumvent these restrictions.
The unstoppable force of commerce is unlikely to be easily halted if they have a say in the matter.
BYD’s Expansion into Turkey
The European Union recently implemented new tariffs on EVs imported from China amid ongoing trade negotiations. Simultaneously, South China Morning Post reported Turkey’s imminent announcement of a $1 billion deal with BYD to construct an electric car factory in the western region.
This factory would strengthen BYD’s presence in Europe amidst escalating trade tensions. While Turkey is not a member of the European Union, it participates in the European Union/Turkey Customs Union. BYD is seemingly betting that the EU won’t enforce the new tariffs against cars from a country with a special trade agreement.
Reversal on Chinese Import Tariffs
In a surprising turn of events, Turkey reversed its plans to impose a 40% tariff on all vehicles from China, citing efforts to attract investment. This decision followed talks between President Erdogan and China’s President Xi Jinping during a Shanghai Cooperation Organisation meeting in Astana, Kazakhstan.
BYD’s Global Expansion
BYD has emerged as the largest automobile seller in China and the leading plugin vehicle seller globally. The company has pledged to introduce its more affordable EVs to Europe, including the Seagull hatchback, projected to retail for under €20,000 ($21,700).
BYD recently opened a new factory in Thailand and acquired a former Ford factory in Brazil. It is reportedly exploring factory locations in Mexico and is currently constructing its first European car factory in Hungary.
Record Sales for BYD
BYD’s sales surged to an unprecedented 982,747 vehicles in the second quarter, a year-over-year increase of over 40%. While European sales have been slow so far, the company is launching a major marketing campaign in the region, including taking over Volkswagen’s sponsorship of the European Championship football tournament.
Circumventing the Inflation Reduction Act
Following the passage of the Inflation Reduction Act in the United States, which offered substantial subsidies to boost domestic electric car production and challenge China’s supply chain dominance, Chinese manufacturers began investing in an unexpected location – Morocco. This move is strategic, as Morocco has a free trade agreement with the US.
Chinese companies have announced plans for new factories in Tangiers and industrial parks near the Atlantic Ocean to produce EV parts that might qualify for $7,500 tax credits for car buyers in the United States. Similar investments have been unveiled in other countries with free trade agreements with the US, including South Korea and Mexico.
Chinese Battery Makers’ Investments in Morocco
At least eight Chinese battery makers have announced new investments in Morocco since the IRA’s passage. By relocating operations to US trading partners like Morocco, Chinese companies, which have long dominated the battery supply chain, are seeking to capitalize on the growing demand from American carmakers like Tesla and General Motors, according to Kevin Shang, a senior battery analyst at Wood Mackenzie.
Navigating New US Regulations
In May, the US finalized eligibility rules for its electric car tax credits. To qualify for these subsidies, carmakers must not source critical minerals or battery parts from manufacturers in which China or other “foreign entities of concern” hold a controlling stake exceeding 25% of the company or its board.
Chinese companies hope the manufacturing boom in Morocco will allow them to meet rising demand and navigate the rules designed to exclude them from the Inflation Reduction Act incentives.
Morocco’s Strategic Advantage
Officials in Morocco have actively worked to cultivate relationships throughout the automotive supply chain, both domestically and internationally.
The country is home to over 250 companies that manufacture cars or their components, including Stellantis and Renault, as well as Chinese, Japanese, American, and Korean factories producing seats, engines, shock absorbers, and wheels. The industry exports nearly $14 billion in cars and parts annually.
Concerns Over Protectionism
While Morocco benefits from its position in the global EV market, officials are worried that anti-competitive policies like tariffs and subsidies could hinder future investment. Ryad Mezzour, the country’s minister of industry and trade, expressed concerns about a “new age of protectionism” and acknowledged that Morocco has lost out on some projects due to such policies.
Political Backlash in the US
In Washington, Chinese firms’ efforts to access American subsidies have raised alarms. US Representative Jason Smith, a Missouri Republican, criticized the new guidelines, stating, “Under the Biden administration’s electric vehicle regulations, America’s working families will have to watch their hard-earned tax dollars go to line the pockets of Chinese billionaires and businesses with links to the Chinese Communist Party.”
Challenges of Decoupling from China
China’s long history of subsidizing companies involved in critical battery mineral extraction, cathode, anode, and electrolyzer manufacturing, and carmakers like BYD has made decoupling them from the supply chain a complex and lengthy process.
Chris Berry, an advisor to battery companies and investors, emphasized that a lithium-ion battery supply chain without Chinese influence is unlikely in the near future.
Conclusion: The Complexities of Global Cooperation
Ideally, all nations would recognize the global imperative of transitioning to zero-emissions transportation and work together to achieve this goal as quickly as possible. However, this contradicts historical patterns of human behavior.
While China can rapidly drive the EV revolution, this outcome may not align with political preferences. The fate of our species may ultimately depend on the complex interplay of global cooperation, economic interests, and political considerations.