The global automotive market has hit the gas on chaos over the past four years, navigating sharp turns and unexpected roadblocks. From the COVID-19 pandemic throwing the industry into a tailspin, to supply chain breakdowns leaving showrooms barren, and even the dramatic exits of high-profile CEOs—this is no ordinary race. Deals once thought impossible have become reality, while legacy automakers teeter on the edge of collapse. Even Volkswagen, once the gold standard of managerial and operational stability, now finds itself skidding into uncharted territory.
And then there’s the electric revolution—a seismic shift that has shaken the industry to its core. Some automakers (looking at you, Volkswagen) were caught with their "batteries uncharged", struggling to adapt and taking heavy losses. Others (hello, Jaguar) seemed to lose their sense of direction entirely. But for Chinese manufacturers, the EV boom was a turbo boost. Once fumbling to make an impact outside their home turf, they’ve now roared into the global spotlight, leaving rivals struggling to keep pace.
Much has been written about the Chinese domination of the global car market, fueled by the EV transition. From their meteoric rise to the European automakers' desperate attempts to fight back through regulatory maneuvers in Brussels, the story is well-trodden ground. But let’s be clear: no one—neither European, Chinese, nor American automakers—believes slapping higher import tariffs on Chinese EVs will solve the competitiveness conundrum. A few extra dollars on the sticker price won’t stop the world's biggest car manufacturer, exporting from the largest car market, backed by a triple-digit number of relevant automakers, a culture of excellence, cheap labor, and seemingly limitless resources. The Chinese are here to win—and they’re not playing by anyone else’s rules.
Need proof? Look no further than their strategy to build factories on European soil or even rebrand Chinese vehicles as “European.” European governments, like those in Italy, France, and Spain, could try piling on additional taxes, but that risks backlash. The Chinese can easily counter with threats of reciprocal tariffs on European cars sold in China or by scaling back collaborations between Chinese and European brands in joint ventures—moves that could cripple European automakers reliant on those partnerships.
And then there’s the Chinese ability to pivot to market trends with Formula 1-level agility. The fading or outright removal of tax incentives for EVs in Western markets has pumped the brakes on the clean-vehicle sales boom. Add to that the soaring cost of electricity at charging stations, and the financial appeal of EVs compared to internal combustion engines (ICE) has significantly narrowed. Meanwhile, gasoline-powered cars still boast real-world ranges 50–100% greater than their electric counterparts, which hover around 220-250 miles on a full charge.
Enter the plug-in hybrid—a clever middle ground that’s capturing the attention of consumers. Sure, it’s one of the industry’s most misleading creations, with manufacturers touting fuel economy numbers that crumble under real-world conditions. Yes, larger plug-in hybrid models can pollute just as much as traditional gasoline cars. And yes, they’re significantly more expensive. But despite all this, buyers are flocking to them.
The Chinese, true to form, have shifted gears to capitalize on this trend. They’re ramping up production and export of plug-in hybrids, which conveniently dodge European tax penalties. According to Reuters, between July and October of this year, Chinese exports of plug-in hybrids to Europe tripled, hitting nearly 70,000 units compared to the same period last year. By the third quarter of 2023, plug-in hybrids accounted for 18% of Chinese vehicle imports to Europe—double the share from a year earlier. Meanwhile, exports of fully electric vehicles from China to Europe dipped slightly, from 62% to 58%. Analysts predict this hybrid surge will only accelerate.
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Take BYD, the world’s largest EV manufacturer, as an example. They’ve set up production lines in Hungary and are bringing both fully electric and plug-in hybrid models to Europe—both free from excessive taxation and priced to undercut heavyweights like Volkswagen and Toyota. Similarly, MG, which already leads Chinese sales in Europe, plans to offer a mix of powertrains. Then there’s Geely, whose Lynk & Co brand recently launched a new plug-in hybrid, with more Chinese automakers sure to follow suit.
The Bottom Line for Europe:
This strategy spells trouble for European automakers. At best, they can delay the inevitable showdown, but they lack the horsepower—be it resources, labor union support, or capital—to win this race. They can innovate and offer alternatives, but unless they follow the American lead and slap a 100% tariff on all Chinese-made vehicles, the outcome is certain. The end of this race has already been written—and the European car market should brace for impact.