Chinese carmaker GAC began planning its European launch three years ago with no tariff worries and the idea of selling pure battery-powered cars, mostly supplied by its factories in China.
Now, as the state-owned company approaches the April launch of its Aion electric vehicle brand on the continent, it faces duties of more than 45 per cent, is planning a shift to selling tariff-free hybrid vehicles and is in talks with four EU member states to localise production in one of them.
“There was a gap between our planning and our actual . . . reality,” said Wei Haigang, president of GAC International, in an interview at one of its research centres on the outskirts of Guangzhou in southern China earlier this year. “But we are also making rapid adjustments to our actual plan.”
The challenges faced by the owner of the world’s fifth-largest battery EV brand by sales illustrate the new barriers for Chinese carmakers in a rapidly changing European market. Sales have slowed in their home country, while scrutiny is intensifying abroad.
In October, the EU increased tariffs on Chinese-made EVs to between 17 and 45.3 per cent following an anti-subsidy investigation. The European Commission concluded that the carmakers benefited unfairly from state subsidies. GAC was placed in one of the most heavily tariffed categories of manufacturers.
The company sold 2mn cars last year, including about 375,000 under its Aion brand. With sales declining in China, where it sells the vast majority of its vehicles, it is now hoping to increase overseas sales, focusing on the European market.
GAC was founded in 1997 but traces its roots to mid-20th-century state-owned car plants. In the late 1990s and early 2000s, it started lucrative joint ventures selling mostly internal combustion engine (ICE) cars with Honda and Toyota. It launched Aion in 2017, but the division has been largely lossmaking, according to analysts.
Its new strategy in Europe, which includes hybrids and commercial vehicles, mirrors that of other Chinese carmakers seeking a slice of the market despite the vastly increased tariff burden.
Analysts said the higher tariffs would make it more difficult to reach the scale required to justify the development of local European plants, while a decline in ICE vehicle sales at home would eat into funds available for expansion.
“[Chinese carmakers] are stuck between a rock and a hard place,” said Matthias Schmidt, founder of Germany-based consultancy Schmidt Automotive Research. “They don’t have enough potential to set up local production here and don’t have the product to soak up the new tariffs into their pricing strategy.”
Chinese shipments of pure EVs fell 67 per cent year on year in November, immediately after the tariffs came into effect, according to the China Passenger Car Association, while shipments of plug-in hybrids rose 83 per cent. The latest figures, from December, show pure EV shipments adding just 2 per cent and those of plug-in hybrids more than quadrupling.
“We are increasingly seeing Chinese [original equipment manufacturers] diversify their line-up [in Europe] to build scale and navigate tariffs,” said Schmidt, pointing to BYD, China’s largest carmaker, which has already started selling plug-in hybrid vehicles in Europe.
BYD and rival Chery have also announced plans to start production at sites in Hungary and Spain, respectively, while Xpeng and Leapmotor have said they are exploring options to localise production in Europe.
GAC, meanwhile, is in talks to produce cars in either Spain, Poland, Italy or Hungary, according to an executive familiar with the plan. It is also looking to launch a range of electric commercial vans in Europe next year, mirroring efforts by rivals BYD, Geely and state-owned SAIC to diversify their offerings on the continent.
“Without localisation . . . you cannot survive,” said GAC International’s operations chief Thomas Schemera, drawing parallels with efforts by South Korean groups Hyundai and Kia to produce their European cars in Slovakia.
The two models GAC plans to sell in Europe initially are the Aion V sport utility vehicle and the Aion UT, a smaller hatchback. It is looking at expanding its offering to include range-extender vehicles, which have small combustion engines used for charging batteries, and will consider plug-in hybrids as well, according to executives.
In another example of unfortunate timing, the European offensive comes just as sales at its lucrative joint ventures with Honda and Toyota in China have begun to peter out.
The company warned in January that 2024 profits were down between 73 and 82 per cent compared with the year before, blaming “drastic changes in the competition landscape” of the Chinese market.
“Profits at GAC-Toyota and GAC-Honda are dramatically shrinking,” said Li Yanwei of the China Automobile Dealers Association. “GAC’s two profitable brands cannot transfer blood to its lossmaking EV business any more.”
Back at GAC’s research centre, Wei said the company had lodged a request for the European Commission to review its decision to lump it in the “other non-co-operating companies” category of Chinese carmakers, making it subject to some of the strictest tariffs.
“On the Chinese government side, actually, they really encouraged us to expand into the global markets, that is for sure,” he said, while dismissing the EU case that Chinese carmakers benefited from unfair state support. “[But] in terms of how to better get into the European market . . . we need to . . . come up with a more solid solution.”
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