In our latest ‘5 minutes with Corporate Finance’ article, Darren Hodson, our Corporate Finance partner, discusses how Britain can benefit from China’s electric vehicle boom.
China’s business plan
China, the world’s manufacturing hub and a possible leading worldwide car producer, is rapidly emerging as a significant player in the future of the automobile industry. The Chinese auto industry, which is 13 times larger than the new vehicle market in the UK, is currently selling 30 million new vehicles each year, and has managed to overstep traditional European and US manufacturers with the development of advanced electric vehicles.
China’s focus on the research and development of electric vehicles (EVs) is contributing to the country’s significant international automotive growth. With more than $230 billion of development funding put into the industry between 2009 and 2024, China’s electric vehicles could be considered world leading.
Selling these EV models at lower prices than competitors is China’s key USP. Chinese brands are already making major inroads into the European market, with Britain potentially being an entry point to Europe. The UK trades tariff-free on automobiles with Europe under the post-Brexit EU/UK free trade agreement.
A threat to the European auto industry
In the UK, the change in government has made mandates for the imposition of zero-emission vehicles more challenging still, with Labour committing to bring forward the outright ban on sales of new petrol and diesel cars scheduled for 2035 back to the original date of 2030.
As it stands the UK EV market is failing to perform, with electric vehicles still deemed as a luxury purchase combined with significant uncertainty of the residual value of EVs. These factors are causing sales to fall short of targets and have declined year on year.
In order to ensure the timing of the ban is enforced it could be in the Government’s interest to open up the UK market to China to provide lower cost vehicles. With tariff-free automotive trade between the UK and the EU this could pose a threat to the European car industry. Not only is there potential to damage to sales for the European car manufacturers, but those manufactures could also lose out on sales to the UK, which is one of their biggest export markets. Both the EU and UK auto manufacturers have publicly feigned a certain amount of indifference to the Chinese threat on business although it could be a good strategic option for the UK.
Increased tariffs threatening global growth
China’s global dominance in the exports of EVs is being challenged by the US and Europe. As of May 2024, the US raised the import tariff rate of Chinese-made vehicles from 27.5% to 100%. Europe have followed in a similar direction, increasing tariffs of up to 37.6% on EV exports from China, which includes brands such as Tesla and other European car makers operating factories in China. These duties are intended to cut the number of Chinese-made EVs coming into the region and ease pressure on local manufacturers. However, some Chinese EV firms are planning to build production capacity in the EU, which could help shield them from the new tariffs.
The UK however does not have such hefty tariffs in place, charging only 10% on Chinese exports, and Chinese manufacturers are confident that they will not follow in the footsteps of the EU. Auto manufacturer Chery is partnered with Jaguar in China and has opened up 60 dealership branches this year in the UK so far, showing the UK’s smaller tariffs are encouraging EV growth.
The UK is already benefitting from China’s EV industry
The Chinese government predicts that EVs will account for 50% of all new car sales worldwide by 2035, with a number of Chinese companies emerging with a sole focus on producing EVs. With a second-hand market currently booming, there is clear desire for EV adoption further down the price scale. By developing better procurement policies, investing in charging infrastructure and introducing stronger tax incentives for corporate buyers and investors, a more concrete certainty of future demand would encourage domestic producers to invest big.
For the UK, the answer to the future of EV’s could lie in Chinese investment. In a small way Chinese auto manufacturers are already investing- with BYD developing a line of 200 single-decker electric buses for Alan Dennis Limited and Geely having pledged £50 million for a new fleet of hybrid cabs the London Taxi Company. Britain’s motor sector can utilise the Chinese auto industry investment and both country’s economy can experience a boost in the near future.
We can help you invest in the future
Electric vehicles are rapidly transforming the automotive landscape, and China’s influence plays a pivotal role in the future of EVs in the UK. Our Corporate Finance team can offer specialist advice and expert insight into the automotive industry if you are looking to grow or invest in this sector.
Contact us to find out more about how we can help.
