China has been a hotbed for Western automakers such as Germany’s Volkswagen and BMW. But it is increasingly becoming a threat as Chinese conglomerates like electric vehicle leader BYD target overseas markets. Europe seems particularly vulnerable. Inovev, a consulting firm, predicts that in 2022, the share of electric vehicles of Chinese automakers in Europe will be 9%, almost twice as much as in the previous year. But the pace is picking up. In addition to BYD, those looking to expand include state giant SAIC MG, electric vehicle specialist Xpeng, and Volvo owner Geely, which recently detailed plans to develop Zeekr and London Electric Vehicle in Europe. Chinese car manufacturers have many advantages. Western companies in the industry have lost market share in China in recent years, offering domestic players greater economies of scale and efficiency in areas such as research spending. They benefit from a huge domestic supply chain, including the world’s largest battery manufacturer, CATL.

Some groups, such as Xpeng, aim to compete with leading Western companies on quality by promoting long-distance fuel autonomy or smart infotainment software. For many consumers, lower prices will be the lure. While Western automakers have raised the cost of batteries, Chinese competitors have halved the average price of an electric vehicle in China between 2015 and the first half of 2022, to just €32,000, according to consulting firm JATO Dynamics. Their higher efficiency and higher battery life cost in Europe mean that Chinese companies can export and compete aggressively. On average, Chinese automakers can build an electric car for 10,000 euros cheaper than their Western competitors.

The new competition will exacerbate the looming EV price war that has already begun in the United States, where Tesla and Ford Motor are leading the way. However, Europe seems especially vulnerable. American automakers are benefiting from drivers’ love of big cars and government subsidies for domestic production under President Joe Biden’s inflation-reducing law. With European production under threat, the Old Continent may try to prevent imports with additional tariffs or additional subsidies for local car groups.

If Europe is to phase out combustion-engine cars by 2035, it will need a large supply of cheaper electric vehicles. If the average price in Europe, according to JATO, is 56,000 euros, then it is still very high. Besides, a trade war would be unpredictable. Lower manufacturing costs in China could help Chinese automakers pay off potential tariffs, while Western groups could be hurt by retaliatory measures. For example, in 2022, the country accounted for almost 40% of Volkswagen’s sales, while groups like Renault or BMW manufacture products in China and export them abroad.