Facing the challenges and numerous uncertainties in the European electric vehicle market, Great Wall Motors' timely withdrawal can be seen as a more rational choice.

On May 28 local time, Great Wall Motors Germany GmbH (GWMD) held a general meeting of all employees, announcing the closure of its European headquarters in Munich, Germany, and plans to lay off all local employees by the end of August this year. This move has triggered widespread concern both domestically and internationally about the situation of Chinese automakers in the European market.

Is Great Wall struggling to sell in Europe?

A reporter from Auto Review learned that Great Wall Motors Germany GmbH was established in November 2021, with the simultaneous establishment of Great Wall Motors' European headquarters and a battery factory in the German state of Saarland. This move was seen at the time as an important part of Great Wall's globalization strategy. At that time, Great Wall Motors planned to use Munich as a springboard to gradually expand its influence throughout Europe. However, the ideal situation did not materialize in reality. According to data disclosed by JATO, a global automotive industry information and consulting agency, Great Wall Motors sold 6,711 vehicles in 13 European countries in 2023, accounting for less than 3% of its total overseas sales (in 2023, Great Wall Motors sold a total of 316,000 vehicles overseas). This proportion has further declined to just 1% since the beginning of 2024.

The lack of sales naturally also means losses. From the reporter's observation, the continued downturn in the European electric vehicle market and the long-term deficit of Great Wall's European headquarters may be one of the reasons behind Great Wall Motors' decision to withdraw in a timely manner. According to data from the European Automobile Manufacturers Association, demand for battery-electric vehicles in the European market has been slowing down this year. In May, vehicle sales in the European market reached 1.09 million units, a year-on-year decrease of 2.6%; battery-electric vehicle sales reached 182,000 units, a year-on-year decrease of 11%, and market share has dropped to 14%. Why is the European electric vehicle market declining? In response, the European Automobile Manufacturers Association said that high product prices and inadequate charging infrastructure are deterring consumers. This has actually become a major obstacle to the growth of electric vehicles in Europe. The reporter learned that the average price of Chinese electric vehicles in the European market is about 30,000 to 50,000 euros (approximately RMB 233,000 to 389,000), while the average price of electric vehicles in the European market is about 56,000 euros (approximately RMB 435,000).

Although automakers such as Volkswagen, Stellantis Group, and Renault have announced plans to launch "low-cost electric vehicles" priced around 25,000 euros in the European market, according to foreign media, these models will not be available until next year at the earliest. According to the UK's Financial Times, from January to April 2024, even in the context of the EU's decision to launch an anti-subsidy investigation into Chinese electric vehicles, registrations of electric vehicles made in China in Europe still achieved a year-on-year growth of 32%, fully reflecting European consumers' preference for Chinese electric vehicles. In addition, factors such as high borrowing costs and sluggish economic growth across Europe are inhibiting consumer confidence. The EU's planned tariff policy, to be introduced in July this year, will be the "last straw that breaks the camel's back."

It is reported that starting from July 4 this year, the EU intends to impose additional provisional countervailing duties ranging from 17.4% to 38.1% on pure electric vehicles imported from China, on top of the current 10% tariff. This means that for every pure electric vehicle exported, Great Wall Motors will have to pay an import tariff of 31% of the original vehicle price. Regardless of costs, after the imposition of tariffs, the price advantage of Chinese electric vehicles in the European market will no longer be significant. In response, the European Automobile Manufacturers Association said that imposing additional tariffs on electric vehicles produced in China (according to the list published by the European Commission, electric vehicles produced by Tesla and BMW in China are also within the scope of the tariff increase) may further increase the prices of imported electric vehicles, leading to further hesitation among consumers. Hildegard Müller, President of the German Association of the Automotive Industry, also said: "The EU's announcement of provisional additional tariffs of up to 38.1% on electric vehicles from China from early July further deviates from global cooperation. This measure increases the risk of global trade conflicts. In fact, imposing countervailing duties on electric vehicles imported from China does not help enhance the competitiveness of the European automotive industry."

Seemingly a complete withdrawal, but in reality an asset contraction

The German research institution Kiel Institute for the World Economy stated that the EU's tariffs on Chinese electric vehicles could cause nearly $4 billion in trade losses for both sides. If a 20% tariff is imposed, the EU's imports of electric vehicles from China may decline by 25%, or about 125,000 vehicles. In fact, before the EU's high tariffs were even imposed, Great Wall Motors had already made a prudent adjustment to its global strategy. At the Beijing Auto Show held in April this year, Great Wall Motors postponed its overseas annual sales target of 1 million vehicles from the previously planned 2025 to 2030. Industry insiders commented that the closure of the European headquarters was a strategic contraction. Not long ago, the head of Great Wall Motors' public relations department emphasized in an interview with the outside world that the closure of the European headquarters does not mean that the company is withdrawing from the European market, but rather to "adapt to the current market environment and the needs of future development."

What is meant by "adapting to the current market environment and the needs of future development"? According to reports, Great Wall Motors will continue to focus on sales and after-sales service in the European market, which will be handled by local dealer networks. At the same time, the company will continue to sell vehicles in existing European markets, including Germany and the UK, with remote supervision and management by its Chinese business units. To better serve customers in Europe, Great Wall Motors plans to relocate its European parts warehouse from Nuremberg, Germany, to Amsterdam, the Netherlands, and double the warehouse space. This series of combined measures may seem overwhelming, but in essence, it means no longer building European marketing channels independently, but relying on existing dealer networks to maximize benefits with limited resources. In short, the closure of the European headquarters simply means that the European market has a lower priority in Great Wall Motors' global strategy. Great Wall Motors will focus on vehicle supply and leave market operations and sales to franchise dealers.

In reality, the European headquarters has never been the core of Great Wall Motors' European operations. Although the closure of the European headquarters was not entirely voluntary for Great Wall Motors, the company is still committed to achieving a more efficient and flexible market layout through this strategy.

The European market cannot be ignored

As global automotive market competition intensifies and trade protectionism rises, Chinese automakers are facing unprecedented challenges and opportunities. Great Wall Motors' strategic adjustment in the European market is actually a microcosm of Chinese automakers entering the international arena, especially the European market. Industry insiders believe that if tariff barriers become a reality, more Chinese automakers may have to adopt corresponding strategies to avoid potential market risks. Li Bin, founder, chairman, and CEO of NIO, has commented on this issue. He said, "Electric vehicles are essential for the healthy development of the environment and should not be used as a political target. Once the EU imposes substantial tariffs, NIO will make the most reasonable business decisions, which may include delaying or canceling the launch of its new mid-range and future entry-level models in Europe." This view not only reveals the plight of the electric vehicle industry but also reflects the helplessness and resilience of Chinese automakers in the globalization process. As the world's third-largest automotive market and the second-largest new energy vehicle market, the European market cannot be ignored by any Chinese automaker going overseas, whether it is Great Wall Motors' mode adjustment or some automakers choosing to expand their investments, both are adjustments made to adapt to the market environment.

After collation and analysis, the reporter found that the current investment layout of Chinese automakers in the EU market has gradually become clearer, forming at least three main paths: First, the heavy asset investment model, with Chery and BYD's strategic layouts in Spain and Hungary as typical representatives. Among them, Chery plans to start producing electric vehicles at its newly acquired Barcelona factory (Europe's first factory) by the end of this year to reduce the impact of high tariffs. BYD plans to build a new energy vehicle production base in Szeged, Hungary, which will be completed and put into operation within three years, mainly producing passenger vehicles for sale in Europe. Industry insiders generally believe that if Chery and BYD can successfully create model projects and achieve win-win results, it will greatly change the outside world's unfavorable perception of Chinese automakers in the European market. The former's results can be seen this year, while the latter will take longer. Second, the asset-light model. This model is favored by most Chinese automakers, with representative companies such as NIO and Geely Lynk & Co. These companies prefer to expand their market share by finding dealer partners. However, judging from Great Wall Motors' experience in the European market, this path does not seem to be smooth sailing.

Finally, there is the Zero Run model. This model focuses on technological cooperation, allowing European automotive giants such as Stellantis to sell Zero Run models under their own brands. Although essentially this is also an asset-light model, it focuses more on technology investment rather than direct investment in marketing networks. This model can reduce the investment risks of Chinese automakers in the European market while leveraging the brand influence and sales channel advantages of European automotive giants to quickly open up the market. Although the current performance of the Zero Run model in the European market is not prominent, industry insiders generally believe that with continuous technological advancements and the gradual maturity of the market, this model is expected to become an important breakthrough for Chinese automakers in the European market in the future.

Chinese automakers grow through setbacks

It is worth noting that Chinese automakers have already accumulated certain practical experience in resisting overseas market risks. According to information disclosed by Cui Dongshu, Secretary-General of the Passenger Car Market Information Joint Meeting, China has accumulated more than 2,000 cases of experience in dealing with foreign anti-dumping and countervailing investigations. From 1994 to 2023, out of the global trade remedy cases initiated against China, anti-dumping cases numbered 1,646, accounting for 70.7% of the total; countervailing cases numbered 212, accounting for 9%; safeguard measures numbered 392, accounting for 17%; and special safeguard measures numbered 89, accounting for 4%. Specifically, in 2023, anti-dumping cases accounted for 82.89% of global trade remedy cases against China, with a total of 189 cases; countervailing cases accounted for 11.40%, with 26 cases; and safeguard measures accounted for 5.70%, with 13 cases.

In the same year, China initiated only one anti-dumping case globally. In addition, out of the global trade remedy cases initiated against China in 2023, anti-dumping cases accounted for 72%, totaling 63 cases; countervailing cases accounted for 14%, with 12 cases; and safeguard measures also accounted for 14%, with 12 cases. Cui Dongshu said that Chinese automakers have a strong sense of risk prevention in foreign trade. Over the past decade, Chinese automakers have encountered numerous "disasters" in Russia, Iran, Algeria, Brazil, and other places. However, it is precisely in this environment that Chinese automakers have cultivated rich experience in foreign trade. It is worth mentioning that on June 22 this year, the Ministry of Commerce and the EU officially initiated consultations on the electric vehicle countervailing investigation case. This incident once again placed Chinese automakers at the forefront of global trade. Although there has been no latest news as of press time, we have reason to believe that with years of accumulated experience and strong strength, Chinese automakers can overcome this challenge and continue to demonstrate strong competitiveness in the global market. Auto Review will closely monitor subsequent developments. Note: This article was first published in the "Hot Topics" section of the July 2024 issue of Auto Review magazine. Please stay tuned.