Chinese EVs are priced higher in Europe than at home, why?
European carmakers’ slow and cautious transition to new energy, and Chinese EV makers’ fast-paced foray creates a monumental opportunity for Chinese carmakers to reinvent themselves in the internation
Chinese EV makers are eyeing the overseas market, with Europe at the front and center of their expansion plans. Currently, despite the fact that many countries in Europe are pushing hard for EVs, the current state of the market resembles that of China a few years ago: the real marketization has not yet started, and current demand is largely policy-driven.
The effect of policy and subsidies is limited since countries have strict restrictions on the criteria for subsidized models. For example, the French government has increased the subsidy for EV consumers from 6,000 euros to 7,000 euros, yet the subsidy only applies to electric cars priced below 47,000 euros and produced in Europe. The Dutch EV subsidy is also only available for models priced under 45,000 Euros.
In addition, Europe has a strict ban on many assisted driving functions on the road, and infrastructure, such as charging facilities, also remains immature. Therefore, the relatively young market provides an opportunity for Chinese brands to explore.
The fact that European markets are home to many long-standing car manufacturers and exporters doesn’t appear to deter Chinese companies, evident by their pricing. For example, recently, BYD Auto released three new cars in Europe — the ATTO3, Han, and Tang's EV models, priced at 38,000 euros, 72,000 euros, and 72,000 euros, respectively.
Compared with BYD’s pricing in China, the Han EV sold in Europe is 200,000 yuan higher than the domestic version. Compared with other EVs in the European markets, the Han EV and Tang EV matches the pricing of BMW X5 or Audi Q7. In addition, the Han EV and Tang EV are also priced higher than Tesla’s Model 3, which costs 56,900 Euros for the long-range version and 61,900 Euros for the performance version.
GW Motors, another Chinese carmaker, also launched two PHEVs under the brand name WEY Coffee 01, priced at 55,900 Euros and 59,900 Euros, respectively, which are 100,000 yuan higher than the domestic pricing at current currency exchange rates. In China, WEY PHEVs are priced between 295,000 - 315,000 yuan.
The Voyah Free, which debuted in Oslo along with its Norwegian distributor Electric Way in June, has a starting price of NOK 719,000 (about RMB 490,000), while the model is priced at RMB 313,600-419,900 in China. The difference between the starting prices is about 180,000 yuan.
The high pricing of Chinese EV makers is surely a bold move, especially when these brands haven’t received large recognition in the markets. In addition, the European consumers are embracing car leasing instead of owning a vehicle. As the share economy rose, the car leasing (including short-term and long-term rental) market in Europe increased from 2.6 million in 2015 to 4.0 million in 2020, meaning that 1 out of 4 new car registrations in Europe is either a leasing or rental vehicle, according to Data Force.
So why are Chinese carmakers setting the prices so high? Let’s break the logic down. Firstly, when it comes to supplying vehicles to overseas markets, Chinese carmakers have two options: establish local factories for production and assembly, or directly import from their home country.
To decide between the two options, carmakers need to balance the local market demand and the scale of investment. Indeed, building local factories is a necessary step to increase presence in the global market, but there is also a prerequisite hurdling car manufacturers: to gain a certain share in the local market. For the fledgling Chinese car companies, the risk of investing in local factories when there is no guarantee of market demand is quite large.
When the first option is a no-go, Chinese carmakers have to accept the high logistics costs of the second option. Currently, due to the ongoing impact of the COVID epidemic, shipping costs remain high, accounting for 20%-30% of the overall export costs, as a person who is familiar with the industry told PingWest. In addition, there are also tariffs ranging from 10%-20%. These costs add up to tens of thousands of yuan.
Furthermore, as the EU actively promotes the "carbon tariff" rules, many believe it will eventually affect the automotive sector, which will further increase import costs.
Of course, Chinese carmakers can also make sacrifices in their pricing in order to increase demand and sales or introduce more cost-effective trims. So why not do so?
At the current stage, Chinese brands are exporting complete vehicles into the European markets. Their pricing strategy needs to take manufacturing cost, shipping cost, local operation, and marketing costs into concern, as well as how the pricing ultimately reflects the positioning of their products and brands in overseas markets.
In Europe, due to the longstanding dominance of the local auto industry and local brands, it is difficult to ensure a certain level of influence. The low awareness of Chinese brands in Europe is still a common phenomenon today, according to Li Bin, the founder of the Chinese EV company NIO.
Low awareness leads to a low amount of trust in the brands. According to PingWest’s observation on social media and forums, a popular concern for EV consumers who are on the fence about Chinese EVs is “if they are going to survive in the long term or not.”
Therefore, it is crucial to for Chinese EV makers to cater to and shape the taste of European EV consumers. Introducing products with higher pricing and higher added value can establish the brand's image and occupy the awareness of European users with more reliable and technical products.
Surprisingly, overseas consumers interested in Chinese EVs are not all bothered by the price difference. Under a BYD Yuan Plus review video on Youtube, users commented the package at current pricing would “easily beat the competitors”, and that they “blame the western taxation on chinese products, and maybe some greedy car import export companies who wants to make a lot of profits out of a "cheap" chinese EV. ”
European carmakers’ slow and cautious transition to new energy, and Chinese EV makers’ fast-paced foray creates a monumental opportunity for Chinese carmakers to reinvent themselves in the international market. Potentially, we are standing at a crossroad of history, waiting for a pivot in the global auto market to unravel.
This article was written on the basis of a PinJia article, authored by Dong Nan and Wang Fei. PinJia is part of PingWest's Chinese team, focusing on everthing auto-related.
Photo by CHUTTERSNAP on Unsplash