China is asking its automakers to keep key EV technology at home

(Bloomberg) — China has strongly advised its automakers to make sure advanced electric vehicle technology stays in the country, people familiar with the matter said, even as they build factories around the world to escape punitive export tariffs. Chinese.

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Beijing is encouraging Chinese automakers to export so-called knockdown kits to their foreign factories, the people said, meaning key parts of a vehicle will be produced domestically and then sent for final assembly in their destination market.

The instructions come as companies from BYD Co. to Chery Automobile Co. are drawing up plans to build factories in Spain to Thailand and Hungary as their innovative and affordable electric vehicles make inroads into foreign markets.

China’s Commerce Ministry held a meeting in July with more than a dozen automakers, which were also told they should not make auto-related investments in India, the people said, asking not to be identify discussing matters that are private in another attempt. to protect China’s EV industry know-how and mitigate regulatory risks.

In addition, automakers wishing to invest in Turkey should first notify the Ministry of Industry and Information Technology, which oversees China’s EV industry, and the local Chinese embassy in Turkey.

Representatives of the Ministry of Commerce, or MOFCOM, did not respond to a request for comment.

China’s directive comes at a time when most major Chinese automakers are looking to localize production to avoid tariffs on electric vehicles made in China. MOFCOM’s guidelines that key manufacturing demand should remain in China could hurt automakers’ efforts to go global as they seek new customers to offset fierce competition and sluggish sales at home, which are denting their profits.

It could also come as a blow to those European nations courting Chinese carmakers in the hope that their presence will bring jobs and a local economic boost. BYD plans to build a factory in Turkey, for example, which is expected to have an annual capacity of 150,000 cars and employ up to 5,000 people.

During the meeting, MOFCOM noted that countries that invite Chinese automakers to build factories are usually those that adopt or are considering trade barriers against Chinese vehicles. Officials told attendees that manufacturers should not blindly follow trends or believe such investment requests from foreign governments, according to the people.

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Several Chinese companies have already started opening factories in the European Union to avoid taxes. But Valdis Dombrovskis, an executive vice-president of the European Commission, recently warned that such moves would only work if firms meet the requirements of rules of origin that require a minimum level of value to be created in the EU.

“How much of the added value will be created in the EU, how much of the know-how will be in the EU? Is it just an assembly plant or a car manufacturing plant? It’s a pretty substantial difference,” Dombrovskis told the Financial Times last month.

Brazil, Spain

In Brazil, BYD and Great Wall Motor Co. have explicitly stated that they aim to increase the share of locally produced and locally sourced components in the coming years. It aims to meet local component requirements of approximately 50% of a product to export to other Latin American countries without tariffs, based on Brazil’s trade agreements with them.

Turkish politicians said in July that BYD had agreed to build a $1 billion factory in the west of the country. Any new factory is expected to improve BYD’s access to the European Union, as Turkey has a customs union agreement with the bloc. Turkey introduced a 40% tariff on vehicle imports from China in June.

BYD declined to comment.

In Spain, Chery Automobile is partnering with a local firm to reopen a former Nissan Motor Co. plant. from Barcelona. The Spanish plant will assemble cars from kits that have been partially “demolished,” according to Chery.

Meanwhile, tensions between China and India have remained high since a deadly clash erupted on a stretch of the Himalayan border between the two nuclear-armed neighbors in 2020.

Chinese state-owned automaker SAIC Motor Corp., which controlled MG Motor India, was investigated for financial irregularities in 2022, Bloomberg reported. Last year, SAIC diluted its stake in MG’s India operation, with the ownership expected to be reduced to 38-40% over time, according to a local media report.

Chinese electric vehicle stocks pared gains early Thursday, with SAIC Motor down more than 1 percent in Shanghai and Geely Automobile Holdings Ltd. and BYD down slightly in Hong Kong.

–With assistance from Danny Lee, Ocean Hou, James Mayger, Anthony Palazzo, Charlotte Yang and Yujing Liu.

(Updates with stock moves, context throughout.)

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