China's Strategic Considerations for Electric Vehicle Technology

The Chinese government is strongly urging its automakers to keep advanced electric vehicle (EV) technology within the country. This directive comes at a time when manufacturers are expanding internationally and establishing plants around the globe to circumvent tariffs on Chinese exports. As part of these measures, Beijing encourages automotive manufacturers to export so-called knock-down kits abroad. This means essential vehicle components are produced domestically and then shipped to target countries for final assembly. Several prominent Chinese automotive companies, including BYD and Chery Automobile, plan to build factories in European and Asian countries as their innovative and affordable electric vehicles gain traction in global markets. In July, the Chinese Ministry of Commerce (MOFCOM) held a meeting with over a dozen automakers, informing them that no automotive-related investments should be made in India. This is intended to protect the technological know-how of China’s EV industry and minimize regulatory risks. Additionally, automakers wishing to invest in Turkey must notify the Ministry of Industry and Information Technology and the local Chinese embassy in Turkey beforehand. China’s directives come at a time when many major Chinese automakers are seeking to localize production to avoid tariffs on China-made electric vehicles. However, this requirement could hamper their efforts to globalize as they need to find new customers to counteract tough competition and sluggish sales in the domestic market. The guidelines could also dampen the hopes of European countries, which are looking to Chinese automakers to create jobs and provide economic boosts. For instance, BYD is building a factory in Turkey with an annual capacity of 150,000 cars, expected to employ up to 5,000 people. MOFCOM pointed out that the countries inviting Chinese automakers to set up factories often impose or consider trade barriers against Chinese vehicles. Manufacturers were warned not to blindly follow these investment calls. In July, Turkish politicians announced that BYD had committed to building a $1 billion facility in the western part of the country. This facility is intended to improve BYD's access to the European Union. In June, Turkey imposed a 40% tariff on vehicle imports from China. Meanwhile, tensions between China and India remain high following a deadly border conflict in 2020. The state-owned Chinese manufacturer SAIC Motor, which controlled MG Motor India, was investigated for financial irregularities in 2022. SAIC reduced its stake in the Indian MG subsidiary last year, which is expected to drop to 38-40% in the future.