Chinese automakers aiming to conquer the European electric vehicle (EV) market face a harsh reality: their ambitions are stuck in port. A surge in Chinese car exports has flooded European terminals, creating a supply chain nightmare and highlighting the challenges these companies face in establishing themselves overseas.
Originally published as “Supply Chain Gridlock Stalls Chinese Carmakers in Europe” on EPS News
Buoyed by China’s booming EV production (exports rose 58 percent in 2023) and Europe’s growing appetite for electric cars, Chinese giants like BYD, Great Wall, Chery, and SAIC aggressively ramped up exports. However, their enthusiasm lacks a deep understanding of European logistics.
A major hurdle for Chinese automakers is the need for established distribution networks in Europe. Unlike their European counterparts, they are mainly starting from scratch. This translates to needing more reliable haulage companies to prioritize their car shipments. Compounding this is a global shortage of car-carrying ships. Car shipping capacity has been flat for the past 10 years, but the number of vehicles moved last year increased by 17 percent, filling nearly all the available ships.
While new vessels are on order, 198 new ships are due to arrive by the end of 2027 (capacity expected to increase by 42 percent by 2027); the current infrastructure struggles to keep pace with the influx of vehicles.
“We think the next big bottleneck will be terminals and distribution,” Wallenius Wilhelmsen CEO Lasse Kristoffersen told the Financial Times.
Wallenius Wilhelmsen is a Sweden/Norway-based global RoRo shipping and vehicle logistics company managing the distribution of cars, trucks, and other rolling equipment.
In comparison, Chinese EVs have not made inroads in the U.S. for a number of reasons. First, there’s a 27.5 percent tariff on these imported vehicles. Cheap Chinese EVs could be devastating to a key sector of the U.S. economy: auto manufacturing, NPR reports. And the Biden administration’s climate strategy, which would benefit from cheaper EVs, also prioritizes U.S. jobs.
National security concerns have also kept these cars off U.S. roads, NPR reported. This year, the U.S. Commerce Department launched an investigation into whether Chinese vehicles’ navigation and communication features could spy on Americans.
European ports turned into parking lots
Shipping challenges are playing out at European ports, transforming them into congested “car parks.” Some Chinese EVs have been languishing there for up to 18 months, a testament to the logistical quagmire. Contributing factors include:
- Miscalculation of demand: Chinese carmakers might have overestimated the European market for their EVs, leading to a glut of unsold vehicles clogging ports.
- Transportation bottlenecks: The need for more truck drivers and equipment across Europe hinders onward transportation from ports to dealerships.
- Shifting distribution models: The rise of non-traditional carmakers like Polestar, who rely on shipping companies like Wallenius Wilhelmsen for car preparation and delivery, adds another layer of complexity to port operations.
“When we get a Polestar at our terminal in Belgium, we’re the ones checking that car, making it ready to be delivered to a customer,” said Kristoffersen.
Challenges for Western EV automakers
BYD, now the biggest electric vehicle manufacturer worldwide, aims to capture 5 percent and 15 percent of the European market by 2025 and 2030, respectively.
A new report by the independent research provider Rhodium Group argues that a 50 percent import tariff on Chinese electric vehicles is necessary to deter their flow into the European Union. The current 10 percent tariff and potential anti-subsidy duties expected to fall in the 15 percent- to 30-percent range are unlikely enough.
Substantial cost advantages enjoyed by Chinese manufacturers allow them to maintain healthy profit margins in Europe even with such tariffs. The report cites BYD’s Seal U model, which has an estimated profit margin 11 times higher in the EU compared to China despite a €21,500 price difference. The Rhodium Group concludes that a steeper tariff, possibly as high as 50 percent, would be needed to make the European market less attractive for Chinese EV exporters.
“We expect the European Commission to impose duties in the 15 percent- to 30-percent range. But even if the duties come in at the higher end of this range, some China-based producers will still be able to generate comfortable profit margins on the cars they export to Europe because of the substantial cost advantages they enjoy,” the report says.
If forced to compete solely on price, western manufacturers with higher production costs due to factors like labor and regulations might have to reduce their margins to stay competitive. This could impact their profitability and ability to invest in research and development.
The influx of Chinese EVs will likely lead to a more dynamic and competitive European EV market. While European manufacturers face challenges, they also have opportunities to adapt and thrive. The key is to leverage their existing strengths, innovate, and explore partnerships to maintain a strong position in the market.
Geopolitical tensions add fuel to the fire
Geopolitical tensions exacerbate the already precarious situation. Red Sea route disruptions due to Houthi militant activity and Iran’s seizure of the MSC Aries in the Strait of Hormuz have forced detours, further straining shipping capacity.
To overcome these hurdles, Chinese carmakers need a multi-pronged approach. First, establishing solid relationships with European haulage companies and distributors is crucial for efficient transportation and sales. Second, a better grasp of European consumer preferences and market dynamics is essential to avoid production miscalculations. Third, collaborating with European port operators to expand terminal capacity and streamline distribution processes could alleviate congestion. Finally, embracing new distribution models and remaining flexible in the face of geopolitical uncertainties will be crucial to success.
The current gridlock serves as a cautionary tale for the entire EV supply chain. While conquering the European EV market remains a viable ambition for China, it requires a deeper understanding of the logistical landscape and a willingness to adapt to a new playing field.
