Why Chinese EV Makers Are Leaving Europe

China's Great Wall Motors (GWM) is set to shutter its European headquarters in Munich on 1 Aug and fire all of the 100 or so employees as declining electric vehicle (EV) purchases in the continent's largest auto market hamper their sales.

In a statement, the automaker announced, "GWM will cease operations of Great Wall Motor Deutschland GmbH (GWMD), its European headquarters in Germany, as of August 2024. Concurrently, we will relocate GWM’s European parts warehouse from Nuremberg, Germany, to Amsterdam, Netherlands, doubling the warehouse's size to provide the best service to our customers in the European region."

Despite the Munich headquarters' closure, GWM emphasised that it remains committed to Europe and will instead serve European markets, including Germany, the UK, and Ireland, from its headquarters in China.

Until recently, Great Wall harboured grand ambitions for Europe, including plans to construct a factory on the continent. The company aimed to sell 1 million cars internationally by 2025, a target now postponed to 2030.

However, recent sales figures underscore the challenges GWM faces. In April, the company sold only 247 cars in Germany, compared to Hyundai's 9,106 and Toyota's 7,504, according to data from the Federal Motor Transport Authority.

Great Wall is not alone in being disappointed by its German sales. In the increasingly competitive and uncertain European EV market, numerous Chinese manufacturers are re-evaluating their strategies.

SVOLT Energy Technology, headquartered in Jiangsu Province, China, and a spin-off from GWM, announced last week that it has halted plans to construct a battery cell plant in Lauchhammer in eastern Germany's Brandenburg state, after the cancellation of a large customer order.

Similarly, rival Chinese battery maker Contemporary Amperex Technology (CATL) scrapped plans to expand its first lithium-ion battery factory outside China in Thuringia, a state in east-central Germany, where production began in early 2023, also citing poor demand.

EV sales have recently plummeted in Germany.

The European Automobile Manufacturers' Association (ACEA) has reported a substantial 29 per cent decrease in year-on-year electric car sales for March in Germany. Across the entirety of the European Union, there has been an 11 per cent decline compared to the same period last year.

The decline in sales can be attributed to various well-known factors, including higher EV prices, which are typically 50 per cent more than petrol equivalents, an abundance of cheaper models, and consumer concerns regarding range anxiety and inadequate charging infrastructure.

However, a significant catalyst for the decline in sales can be traced back to Germany's sudden decision to cut buyers' subsidies for EV purchases in December 2023, as an emergency measure to address fiscal deficits.

Beyond the issues of pricing and subsidies, Chinese companies face a larger threat. Leading Chinese EV players, from BYD to Nio, are bracing for another blow in Europe following the European Commission's probe into Beijing’s subsidies for EV assemblers, initiated in September last year.

Adding to the complexity, the EU is contemplating imposing heightened tariffs on the import of cheap Chinese EVs, alleging that these imports unfairly undercut European car manufacturers.

The EU has until 4 July to potentially increase import duties on Chinese EVs from the current 10 per cent, with a decision expected in June.

Europe is the most important overseas market for Chinese EV makers. With intense competition squeezing margins in China, companies like BYD can sell cars in Europe for more than twice the price they fetch in their domestic market, affording them some latitude to absorb additional tariffs, according to analysts.

For Chinese companies, the strategic realignment is a calculated business decision. Having tasted success in European markets, they are determined to increase their market share and accommodate their burgeoning industrial capabilities, undeterred by the challenges.