Do we’d like low-cost Chinese manufacturers to make EV possession inexpensive?

On 5 July, the European Union announced it will impose massively hiked provisional import tariffs on Chinese electric cars.

After an eight-month EU investigation into cheap Chinese imports, new additional duties of up to 38 per cent were placed on individual manufacturers in a bid to raise the price of cheap battery-powered cars arriving from the Far East.

However, with the move criticised by industry figures, the UK has so far decided not to follow suit, as British motorists appear to welcome cut-price EVs from brands such as Shanghai-owned MG.

But are Chinese EVs only cheap because of subsidies? Or is there more to the story than competition wary countries, governments and manufactures say? 

And should a wave of more affordable EVs be welcomed as the switch to electric intensifies rather than rejected? 

This is Money decided to get the other side of the story by speaking to bosses at these Chinese car brands…

It’s not just the EU hiking tariffs on Far East EV imports.

In May, President Joe Biden hit China with a slew of new tariffs, primarily targeting the country’s electric vehicle manufacturers, increasing levies from 25 to 100 per cent on every battery motor shipped to US soil.

And Canada said it would follow suit with 100 per cent tariffs on Chinese EV imports announced last month.  

‘Car makers in other countries also get subsidies; it is not just China…’

In March 2024, the EU Commission said it had ‘at its disposal sufficient evidence tending to show that imports of the product concerned [EVs] from the People’s Republic of China’ are being subsidised‘.

The alleged subsidies consist of, among others, ‘direct transfer of funds, government revenue forgone or not collected, and government provision of goods or services for less than adequate remuneration’.

In a separate study by the Centre for Strategic and International Studies (CSIS), based in Washington, it was claimed that China’s central and local governments had spent £78billion subsidising domestic EV business.

But bosses at Chinese brands say subsidies aren’t exclusive to Far East car makers. 

‘The truth is that European brands get subsidies or bonuses, and US industry get government support too’, explained Victor Zhang, UK Manager of Chinese EV newcomers Omoda and JAECOO – both owned by car giant Chery.

While China’s subsidising and investment outstrips the UK’s, other governments are indeed investing heavily in the EV sector. 

In early 2023, minsters announced £2billion of investment into the UK’s auto industry to accelerate the transition to electric vehicles, providing support across EV manufacturing, supply chains and R&D for five years from 2025. 

A September 2023 Reuters column It’s a bit rich of the EU to ding China over EV subsidies, also pointed out: ‘The European Union itself offers an array of benefits for EV producers and consumers, including tax breaks for manufacturers, thousands of euros of subsidies per car for buyers and tax credits for households and businesses that install EV chargers.’

US Department of Energy similarly offers subsidies: ‘Until 2032, federal tax credits are available to consumers, fleets, businesses, and tax-exempt entities investing in new, used, and commercial clean vehicles—including all-electric vehicles (EVs), plug-in hybrid EVs, fuel cell EVs—and EV charging infrastructure through the Inflation Reduction Act of 2022 and implemented by the Internal Revenue Service (IRS).’

It also states that ‘your state, utility, or local government may provide additional incentives’.

In April 2023, the US limited which new EVs qualify for the $7,500 federal tax credits to models made domestically with minerals from the US or trade allies.

Before 18 April, some 21 vehicles qualified. However, once criteria was tightened, only 10 made the cut.

While this was in part to encourage the uptake of zero emission vehicles, it was also to reduce reliance on China’s supply chains.

When EU Commission chief Ursula von der Leyen announced the anti-subsidy probe into Chinese EVs, she declared Europe will do ‘whatever it takes to keep its competitive edge’.

So, in this dog-eat-dog world of increasing EV sales, it could be said that China’s subsidies are simply part of a ‘protect your own’ approach in a ruthless competition environment.

China pioneering ‘lean’ production methods that result in incredibly low overheads

China became the world’s largest producer of automobiles in 2009 – and it hasn’t looked back since.

Subsidies aside, China’s growth as a leading automotive player is otherwise largely due to its production dominance.

As Chinese auto manufacturers bring their brand subsidiaries and production bases to the Europe, America and the UK, the high-tech, lean manufacturing methods are transferred across too.

MG’s Guy Pigounakis told us: ‘We [MG UK] operate off incredibly low overheads. And I’m not talking about globally. I’m talking about here in the UK.

‘For instance, we sold 81,000 cars last year, and we probably have a third of the head count of any manufacturer, let alone a comparable manufacturer.

‘We operate a very, very lean business model.’

Omoda’s Victor Zhang also put a large amount of Omoda’s business model and market pricing down to ‘the supply chain’.

He said: ‘All cars are processed in China and exported directly to the UK. Chery [the fifth largest automotive manufacturer in China] has a good production basis, with a very high level of automation.

‘We have a highly diversified supply chain solution.’

Guy pointed out that the electric battery market especially ‘is very well-established market in China; you’ve got the volume there and the supply chain sorted’.

The US wanting to remove over-reliance on Chinese supply chains would attest to this argument.

The World Economic said: ‘Chinese automakers have a notable cost advantage due to lower labour rates, increased scale, healthy government subsidies, and more favourable battery costs (many of the world’s EV batteries or components are sourced from China).’

China aiming to leapfrog European manufacturers

Bosses at Chinese brands believe their early success in the EV segment is their commitment to develop battery-powered cars at a time when they knew they couldn’t compete with European rivals when it comes to internal combustion engines (ICE). 

‘What China said was; let’s look at the endgame’, MG UK’s Pigounakis explains. 

‘Where is this [car and EV manufacturing] going to end up in 15, 20, 25 year’s time?

‘China took the decision that there’s no point in trying to play catch up with well-established European, American and Japanese manufacturers who frankly were producing absolutely fantastic combustion engines. 

‘It decided not worry about spending billions of pounds developing engines that ultimately would be seen as obsolete.’

Instead, China decided to leapfrog Europe, America and Japan and jump straight to electric battery manufacturing.

‘Part of the problem that the global industry has is that the Chinese brands probably started their investment and manufacturing processes for electric cars, sourcing and procurement about 15 years earlier’, Guy adds.

More than just getting ahead on production, Chinese car brands has taken a different approach to Western makers.

The styling of EVs, technology, connectivity and user experience have been at the forefront of China’s push, rather than the ride and handling experience of the car. 

Many domestic brands are lagging behindup in this area, especially when it comes to delivery this user experience without hiking the price of the EV up. 

‘This [strength of interior and exterior styling] has propelled Chinese brands from their long-held position of being laggards in their home market (the world’s biggest) to now owning more than half of the market share in China’, the World Economic Forum wrote in June.

Chinese EVs aren’t even that cheap

While the adjective ‘cheap’ is often associated with Chinese EVs,  

Zhang told us: ‘We don’t see it as flooding the market [with cheap EVs]. The Omoda E5 costs £33,000 to £34,000.’

‘We don’t think we are that cheap,’ he added, referencing the Kia EV3 which is also around the same mid-£30k price point and the Dacia Spring that’s more than half the price.

He also pointed to MG and BYD as cheap if not cheaper, however, those are both Chinese owned (MG is owned by China’s conglomerate SAIC motors) and therefore seen as part of the cheap Chinese EV influx subsidy row.

Omoda is new to the UK market only launching this year, so its E5 EV comes out around the same time as a wave of new cheap EVs are presented to buyers; the Dacia Spring – the UK’s cheapest electric car costing just £14,995 – launched only a couple of months ago, while the Kia EV3 has only been available to order since August.

The first car to really kick start the truly ‘cheap’ Chinese EV trend was the best-selling MG4, which launched in September 2022, costing just £25,995.

But the MG4 isn’t just budget-friendly, it gives customers ‘outstanding value for money’ – fitted with all the safety, tech, practicality and comforts you’d expect to pay an extra £10k for normally. 

This is why it’s been awarded so many five-star reviews.

Before the MG4 even small electric city cars would set you back around £30k; the VW ID.3 cost £29,990 while first editions set you back £36,000, the Vauxhall Corsa-e was £5 more, and the Peugeot e-208 started at £30,190.

‘The UK is a very challenging market, there are so many brands here’, Victor Zhang explains as he talks about Omoda’s entry into Britain.

‘To get a certain market share in the UK you have to focus on customer experience. Good tech, good safety, security, easy insurance, warranty and trust in dealers’.

For private buyers, the market’s not been made any easier by the government’s scrapping the Plug-in Car Grant in June 2022.

The £1,500 it offered buyers towards a new EV had been gradually reduced over time from £5,000 to £1,500 – removing the financial buffer for buyers wanting to switch to an EV but finding prices too hard.

So, whatever side people fall on, the debate about keeping out competition and hitting Chinese EVs with import tariffs runs counter to the constant push for affordable EVs.

We NEED cheaper EVs to widen their appeal 

With Labour bringing the ban on new petrol and diesel cars forward to 2030, there are ever growing calls across the board for more affordable EVs to help drivers switch to electric.

In September 2023, Auto Trader found that 56 per cent of drivers consider EVs too expensive. 

In May, the Society for Manufacturers and Motor Traders wrote that ‘affordability and charge anxiety’ are ‘two of the main barriers to greater EV uptake’. 

And market data shows that people are already responding to cheap Chinese EVs.

BYD’s official partnering of the Euros 2024 saw a 69 per cent increase in views from prospective buyers on the motor buying platform Auto Trader, in just the first few weeks of the tournament. 

With the government giving no indication it will take up the ‘fair tax for a fair transition’ industry push (half VAT on new EVs, scrap the luxury car levy on EVs, and slash public charging VAT to 5 per cent), then it could be argued that one of the only ways for EVs to become more affordable is for cheaper imports and a competitive market to act as a stimulant to domestic manufacturers.

In September 2023, Autocar reported that Nissan CEO Makoto Uchida had said EVs were coming down ‘massively’ faster in price than predicted even two years before, and that China had given firms like Nissan (who made the first mass-market EV, the Leaf) a ‘wake-up call’ – not just to produce cheap EVs but to keep pace technologically and maintain good quality.

The affordable EVs incoming that aren’t Chinese 

The Dacia Spring is proof of that mainstream car makers are responding to the arrival of budget-friendly EVs – and are now ready to challenge them.

Also launching later this year is the new £21,990 Citroen e-C3 and next spring, customers will also be able to get their hands on the sub-£22,000 Hyundai Inster.

A year later, the Volkswagen ID.2 is due to arrive at a near-£20k price point.

MG, one of the brands responsible for this ‘wake-up call’ has seen the effect on bringing affordable EVs to market.

‘All of a sudden, in six, nine, 12, 15 months’ time they [European, Japanese and American] manufactures will be launching £25,000, £20,000 and even £17,000- and £16,000-pounds electric cars’, Guy Pigounakis says.

‘It’s because they’re catching up and they can do it’.

Despite the arrival of new – less expensive – models from mainstream brands and the prospect of additional EU tariffs being upheld, by the end of 2024, one in four electric vehicles sold in Europe will be Chinese made.

As such, the shift to an electric car parc still has quite a high reliance on Chinese-branded EVs.