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BYD is building a plant in Hungary, which voted against the tariffs. Picture: ELIF OZTURK/ANADOLU VIA GETTY IMAGES
BYD is building a plant in Hungary, which voted against the tariffs. Picture: ELIF OZTURK/ANADOLU VIA GETTY IMAGES

China has told its carmakers to halt big investment in European countries that support extra tariffs on Chinese-built electric vehicles (EVs), two people briefed about the matter said, a move likely to further divide Europe.

The new EU tariffs of up to 45.3% came into effect on Wednesday after a year-long investigation that divided the bloc and prompted retaliation from Beijing.

Ten EU members, including France, Poland and Italy, supported tariffs in a vote this month, in which five members, including Germany, opposed them and 12 abstained.

Chinese carmakers, including BYD, SAIC and Geely, were told at a meeting held by the ministry of commerce on October 10 that they should pause their heavy asset investment plans such as factories in countries that backed the proposal, said the people.

They declined to be named, as the meeting was not public.

Several foreign carmakers also attended the meeting, where the participants were told to be prudent about their investments in countries that abstained from voting and were “encouraged” to invest in those that voted against the tariffs, the people said.

Geely declined to comment. SAIC, BYD and the commerce ministry did not immediately reply to requests for comment.

The move by Chinese authorities to suspend some investment in Europe would suggest the government is seeking leverage in talks with the EU over an alternative to tariffs, keen to avoid a sharp fall in EV exports to the key market.

Europe accounted for more than 40% of EVs shipped from China in 2023, according to Reuters’ calculations using data from the China Passenger Car Association.

Given 100% tariffs on Chinese-made EVs in the US and Canada, a drop in EV exports to Europe would risk deepening overcapacity Chinese carmakers face in their home market.

Investments in Europe

During a visit to China by Spanish Prime Minister Pedro Sanchez last month, a Chinese company agreed to build a $1bn (R17.68bn) plant in Spain to make machinery used for hydrogen production. Spain was one of the 12 EU states that abstained.

Italy and France are among EU countries that have been courting Chinese carmakers for investments, but they have also warned of the risks that a flood of cheap Chinese EVs pose to European manufacturers.

State-owned SAIC, China’s second-largest auto exporter, is choosing a site for an EV factory in Europe and has been separately planning to open its second European parts centre in France this year to meet growing demand for its MG-brand cars.

An aide to France’s junior trade minister Sophie Primas said they had no comment to make ahead of her trip to China next week.

The Italian government is in talks with Chery, China’s largest carmaker by exports, and other Chinese carmakers, including Dongfeng Motor, about potential investments.

Italy’s industry ministry declined to comment. Dongfeng did not immediately respond, while Chery declined to comment.

BYD is building a plant in Hungary, which voted against the tariffs. The Chinese EV giant had also been considering relocating its European headquarters from the Netherlands to Hungary due to cost concerns, two separate people with knowledge of the matter said.

Even before Beijing issued its guidance, Chinese companies were cautious about independently setting up production sites in Europe, as it requires large sums of investment and a deep understanding of local laws and culture.

The carmakers were also told at the October 10 meeting that they should avoid separate investment discussions with European governments and instead work together to hold collective talks, the people said.

The directive follows a similar warning in July when the commerce ministry advised China’s carmakers not to invest in countries such as India and Turkey, and to be cautious with investments in Europe.

Reuters

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