As one era ends and another starts, significant disruptions are inevitable. First movers already have an advantage and want to maintain it. Everyone else is striving to catch up by accelerating adoption of the latest technologies while protecting lagging domestic companies from more advanced foreign competitors.
The global auto industry faces such a difficult transition, shifting from internal combustion engine (ICE) vehicles, which have existed since the 1830s, to modern electric vehicles (EVs), commercialized in 1996.
Those difficulties arise from decisions made by China, the EU and the United States regarding EV manufacturing and cross-border trading. To increase supply and demand, China subsidizes EV manufacturing, while the EU said it will ban the sale of new ICE cars as of 2035. Meanwhile, the EU and United States are raising customs on EVs imported from China to protect domestic-made vehicles.
Egypt could benefit significantly from that volatile situation and become an auto manufacturing platform that meets the needs of all three major EV markets. It has a free trade agreement with the EU and entered a geopolitical coalition with China (BRICS) this year, while the Qualified Industrial Zone agreement allows Egypt-made products to be exported duty-free to the United States under certain conditions.
Raising trade barriers
In September, the European Commission opened an investigation into China’s state subsidies to EV manufacturers, focusing on exporters to the EU. “Global markets are now flooded with cheaper electric cars,” commission President Ursula von der Leyen told the bloc’s Parliament. “And their price is kept artificially low by huge state subsidies.”
She added the investigation includes Chinese, European and US EV brands that use China as a manufacturing base to export to Europe.
The Chinese government responded by announcing several anti-dumping investigations on general imports from the EU, United States, Taiwan, and Japan between February and May.
While that tit-for-tat was ongoing, US President Joe Biden announced in May a quadrupling of import duties to more than 100% on EV vehicles from China. Those new tariffs take effect Aug. 1.
Politics, as much as economics, dictated the US decision. “Coming off more than a decade of statistics-led industrial planning, coupled with huge subsidies, forced technology trains and a closed import market, China has emerged as the clear leader in [EV] production and sales,” Claude Barfield, a senior fellow at the American Enterprise Institute think tank, said in June. “The US views the EV challenge [as a] power contest for global political and strategic leadership.”
In June, the EU announced an elaborate tiered customs scheme ranging from 17.4% to 38.1%. Those are on top of the 10% importers of China-made EVs pay to bring those cars to the EU.
These customs tiers are based on the EV brand imported from China. Importers of BYD EVs pay the lowest, as those cars are the most expensive relative to others from China. SAIC Motor Corp. importers pay the highest because they are the least pricey. Importers of other Chinese EV-making brands and “made in China” European and US brands like BMW and Tesla will pay extra duties ranging from 17.4% to 38.1%.
China’s immediate response was to “open [another] anti-dumping investigation. [This time] into imported pork and its byproducts from the EU,” Reuters reported in June. The newswire said the investigation focused on Spain, the Netherlands and Denmark.
“China is almost certain to retaliate [further] to pressure European officials to negotiate,” said an AP report. The news agency expected the most likely scenario for the Chinese government is to “raise duties on cars with engines larger than 2.5 liters.” That would affect high-end luxury vehicles, such as BMW. Mercedes-Benz, Rolls-Royce, Porsche and Ferrari.
Relocation
China-based EV makers can’t afford to be shut out of the EU market or have their products sold at higher prices than the competition. That is because demand for EVs is expected to soar in just over a decade. In February 2023, the EU Parliament said it would ban the sale of new fossil-fuel-powered cars starting in 2035, forcing potential local new car buyers to purchase zero-emissions vehicles.
That potentially lucrative opportunity, plus the extra tariffs levied on their EVs, means China-based carmakers are rapidly expanding their manufacturing footprint beyond their homeland.
BYD has had an EV bus plant in Hungary since 2016. It also has facilities in Thailand, Brazil, and Uzbekistan. In December, the carmaker started construction of a passenger EV and hybrid vehicle factory in Hungary, which should begin production by late 2026.
In February, BYD said it was scouting a suitable location for a factory in Mexico. In May, Micheal Shu, BYD’s European managing director, said the company is looking to build another factory in Europe next year.
In March, Chery Auto, China’s largest automaker by volume, said it was in talks with the Italian government to build a car factory. In April, the manufacturer signed a joint venture with Ebro-EV Motors, a Spanish EV automaker, to produce a Chery EV model and two ICE-powered SUVs. Production should start later this year.
Chery Auto also is “eyeing [a] UK factory this decade,” reported the Financial Times in January. The facility would build “a range of petrol, hybrid and electric cars.” The EV maker also promised in 2023 to invest $400 million to build a factory in Argentina in 2030.
Brian Gu, co-president of XPeng, a Chinese carmaker backed by VW, entertained the idea of building EVs in Europe to bypass the extra duties. “We have to work around what is required to compete,” he told the media in April.
In June, Reuters reported that China’s SAIC is selecting a site in Europe for its new EV factory. The new factory will likely sell MG cars, which are currently only produced in China.
Geely, which owns Lotus and Volvo, has facilities in Belarus, the UK, and Indonesia. In 2022, the Chinese car brand signed a licensing agreement with Izera of Poland to produce the country’s first EV. No updates have been reported since.
No other way?
Egypt has yet to benefit from the global shift to EVs. Over the years, the government announced only plans and signed agreements with international car brands. Very little tangible progress has materialized despite a free trade agreement with the EU, which has almost no restrictions or quotas on products made in Egypt. Also, the country’s central geographic location is ideal for accessing the African market.
With the 2035 EU deadline for banning new ICE car sales looming, the government should quickly resolve domestic EV manufacturing problems to capitalize on that potentially lucrative opportunity. It would be vital not only to attract fresh auto FDI but also to prevent the current 15 local manufacturers from looking elsewhere to build EU-bound EVs.
In September, BMW CEO Oliver Zipse told CNN, “European mass-market carmakers might exit the production of mass-market cars after the ban comes into effect due to profitability concerns.”
This article first appeared in August’s print edition of Business Monthly.
