General Discussion Banter GLN, page-15516

Could the EU's punitive tariffs further strengthen BYD's market power vis-à-vis its domestic competitors?

I would like to comment on the provisional punitive tariffs recently imposed by the EU on Chinese EV- imports, because I have already read various misinterpretations about the impact on demand.

Until now, there has been an import duty of 10 per cent; from now on, the duty will amount to between 17 and 38 per cent of the sum of the list price and transport costs, depending on the manufacturer

Specifically, a provisional punitive duty of 17.4 per cent is in place for the manufacturer BYD, 19.9 per cent for Geely and 37.6 per cent for SAIC. Geely produces the electric Smart models #1 and #3 and the Volvo EX30, among others. SAIC builds the MG4, which is popular in Germany and came second in the German registration statistics for electric cars in May, just behind the VW ID3.

For other manufacturers, such as TESLA, 20.8 per cent is planned, and companies that did not cooperate with the investigation would face a 37.6 per cent penalty.

Paradoxically, from Beijing's perspective, Brussels has done the Chinese car industry a big favour. The EU's new import tariffs on Chinese e-cars strengthen the market position of BYD - the most dangerous new competitor of German and international car manufacturers - by weakening its domestic competitors.

I have created a calculation overview of the successful model "Yuan Plus" (Chinaname) = "Atto 3" (Europe, Australia).

An Atto 3 currently costs $16650 (after subsidies) in China and 41,000 US dollars (EUR 38k) in Germany. A price difference of approx. 150 %. In the above list, I have estimated the costs incurred by the authorisation procedure in the EU as well as freight costs, import duties, distribution, setting up a workshop network, etc.

There are no more state subsidies in Germany. Until 17 December 2023, you still received an environmental bonus of up to 7,300 US dollars from the state when buying an electric car. The subsidy has been stopped.

The factors in the above estimate taken together double the Chinese sales price. However, the margin in Germany is still an incredible 23%. In China, BYD can be happy if they achieve 5%.

BYD has been in the German market since 2022 and the sales figures are insignificant so far. No wonder with the prices.

We know some success factors from the EV development in China, where the penetration rate for sales is now 50%:

- Price parity in the volume segment with combustion engines (in China, EVs are already sometimes cheaper than combustion engines)

- Price advantages compared to hybrids

- adequate charging infrastructure (especially fast charging offers)

- Reliable workshop network

- Flexible financing offers available (attractive leasing conditions for private and corporate customers)

- Government subsidies

What is the average price of a new car in Germany?
On average, German car buyers invested around 48,350 US dollars when purchasing a new car in 2023. In the volume segment, the average new car price is 32,500 US dollars.

So why doesn't BYD currently offer a vehicle like the "Atto 3" at a lower price in Germany? They could easily attack the volume market with a price reduction, despite the provisional import duty of 17.4 %. Especially with the cheapest model "Seagull" (price in China 9,750 US dollars). Assuming a necessary doubling of the sales price, the price would still be less than 20,000 US dollars.

BYD has an enormous price advantage and better technology, so they could do well in the race, but it is a challenge in a market where people are very loyal to well-known brands.

In my opinion, BYD's strategy is as follows:

- Market entry initially via large car hire companies (Sixt, WeGo)- has already been done

- Analysis of the German electric car market

- Analysis of the discerning German car buyer

- Local preferences: Adapting design and functions to the tastes and needs of German consumers

- Building trust: Demonstrating technological advances and reliability to gain the trust of German consumers.

- BYD do not want to be perceived as a low-cost provider, but as a reliable quality provider

- Slowly building a brand (for e.g. currently sponsoring the European Football Championships in Germany in a big way!) Painful to see in the car country Germany.

- Entering the volume market with a fleet of cars tailored to the German market

- Establishment of a nationwide dealer network

- Establishment of a nationwide service network

- Clever partnerships with leasing companies (leasing industry leader Ayvens)

- Development of a sustainable supply chain

- Offering a wide range of vehicles

All of this takes time but the ideal thing for BYD is: They have time and they take their time! The competition, including Tesla, is not exerting any pressure. In the meantime, BYD is building its first European production plant in Hungary. The first cars will roll off the production line from 2026. Duty free!!!

According to Reuters, Shu, Managing Director for BYD Europe, emphasised that BYD wants to become a leading manufacturer of electric cars in Europe by 2030. "Our goal is to become a European company, not a Chinese company that does business in Europe!“

Nobody should be fooled by the currently weakening sales figures for EVs in Germany or Europe and by the new trade restrictions. When I ask my friends and acquaintances, 9 out of 10 are considering whether their next vehicle will be an EV.

The only thing holding them back is the price. There is a huge secret demand!

Incidentally, the average useful life of cars in Germany is 9.5 years in the private sector and 5 years in the business sector. There is currently a reluctance to buy new cars in the private market, mainly due to inflation. However, there are also regulatory reasons. From 2035, only new cars with combustion engines that emit no CO2 when driven will be allowed to be registered in the EU. The EU's medium-term goal is to enable climate-neutral mobility. Consumers are increasingly focussing on this date when deciding on the right time and type of drive for their purchase.

There is no doubt that political support from the individual countries of the EU in the form of subsidies is helpful in speeding up the transformation process.Unfortunately, the so-called environmental bonus was cancelled in Germany and this had a direct impact on sales figures. However, the flat rate of US$ 7.300 was the wrong approach for me anyway. Ultimately, it subsidised an elitist clientele that can afford easily a car from 50,000 US dollars. The approach should now be the other way round. Higher subsidies for purchases in the low-price segment with a decreasing scale towards the high-price segment.

Example:

5000 US dollars for purchases under 20,000 US dollars

4,000 US dollars for purchases under 30,000 US dollars

3,000 US dollars for purchases under 40,000 US dollars

This would create incentives where they are really needed and generate significant volumes in EV sales.

In principle, the EU has rolled out the red carpet for the global EV market leader by reducing customs tariffs for BYD but increasing them for its competitors. Initially, there will only be (feigned?) indignation from China; in the worst-case scenario, European car manufacturers will even be hit much harder by a chinese tariff countermeasure?

The medium-term consequences of punitive tariffs can therefore have a positive impact, even if this is not the intention of the initiators

Just my two cents. I expect BYD to take the European car market by storm from 2026 and by then at the latest, some demand forecasts for the second largest EV market will have to be revised.