In October last year, the European Commission decided to impose tariffs on Chinese electric vehicles. By July 4, the process reached the step of “temporary tariffs.” Four months later, permanent tariffs became a certainty. This policy reshaped the relationship between the Chinese and European new energy industries. Since 2021, Chinese companies have aimed to connect both ends of the value chain with the EU market. They focus on upstream key components and downstream complete vehicle exports to the EU. This strategy keeps the entire production process in China, where production costs are significantly lower than in the EU and any potential competitors. The EU relies on China for 85% of precursor supplies, 60% for graphite, and about 50% for electrolytes. Last year, the European Parliament passed a resolution. It mandates that by 2030, the share of key minerals imported from a single country must not exceed 65%. No other country can match China’s dominance in supplying critical raw materials. However, addressing the issue of self-sufficiency requires more than just words. It demands continuous investment and, if necessary, the introduction of Chinese capital.
One detail disappoints regarding Northvolt, which received $13 billion in support from EU countries. Its production capacity lags far behind plans. Customers lost confidence in its product quality. Reports say BMW canceled a €2 billion order, choosing CATL, EVE Energy, and Farasis Energy for large cylindrical batteries instead. The EU has a massive new car market. For various reasons, it did not close the door on Chinese companies. The EU’s tax increase serves two purposes: to raise costs for Chinese producers and to attract investment. Turkey’s actions are clear. Although it is not an EU member, it imposed a 40% tax on Chinese electric vehicles under its customs union with the EU. The goal was to encourage Chinese companies to invest in Turkey. After BYD signed a $1 billion investment agreement, Turkey immediately lifted the additional taxes. Turkey aims to become a hub for exporting automotive capacity to the EU. However, investing in Turkey is not as easy as investing within the EU. If given the freedom to choose, Chinese companies would likely prefer Germany, where the supply chain is well-developed. Neighboring countries, like Hungary and Spain, show a positive willingness to support investment. Hungary scores high on investment appeal. The logic behind Chinese investment in Europe points to market access as a prerequisite. In a sense, the EU is “flat”—with no tariff barriers and no customs. Yet, the movement of people and goods incurs costs. Geographical units still hold significance. In simple terms, small countries struggle to attract major investments from complete vehicle manufacturers and battery plants, no matter how favorable their investment policies or low their production costs. The market size must meet a minimum standard. A small local market is acceptable. Neighboring countries within the same geographic area can count as part of the local market. Next, we consider decision independence, friendliness towards China, political stability, and the stability of investment and tax policies. Only then do we look at production costs and supply chain conditions. In the EU’s “four carriages,” the European Commission holds key administrative powers. Member states’ ability to implement independent business policies is crucial for investment assessments. Among these factors, Hungary scores high. As a “Belt and Road” country, it influences the Eastern European market. In four elections, the government easily defeated opponents, ensuring good policy continuity. In 2022, CATL built a battery factory in Debrecen, Hungary, with a planned capacity of 100 GWh and an investment of 7.34 billion euros. This became Hungary’s largest foreign investment in history. EVE Energy invested 1 billion euros in Hungary, planning a battery capacity of 30 GWh. BYD invested 5 billion euros in Szeged, planning a production capacity of 200,000 new energy vehicles, expected to start by the end of 2025. So far, NIO, EVE Energy, Enjie, Keda, Sunwoda, Guoxuan High-Tech, Huayou Cobalt, Hanke Technology, Huashu Technology, Volvo, Zhenyu Technology, Zhijian, Lotus, Smart, and SAIC MG have announced or made investments in Hungary. In 2023, 58% of the foreign capital introduced in Hungary came from China.
Spain’s Charm Offensive Spain promotes its status as the second-largest vehicle production base in Europe. It also highlights its relatively low infrastructure and production organization costs. However, car manufacturers focus on other factors. No production cost can match China’s. No supply chain can rival the completeness of the Pearl River Delta or the Yangtze River Economic Belt. For a long time, Spain has been a “moderate” voice within the EU regarding China. Twenty years ago, Spain faced competition with China in light industrial goods like shoes and bags. Times have changed. Now, both sides share a common foundation in the automotive industry. Unlike Germany, Spain lacks a must-have vehicle brand. Seat was long ago acquired by Volkswagen. Thus, Spain’s mindset is much more open. In 2021, the EU approved Spain’s economic recovery plan. This plan supports a €140 billion recovery fund in phases. With this funding, Spain developed a strategy for economic recovery and transformation. This plan includes 11 strategic sub-items, such as automotive, renewable energy, green hydrogen and storage, and chips. The total investment amounts to €30 billion. In the automotive sector, the PERTE VEC sub-item aims to promote local production of electric vehicles, batteries, and other key components for sustainable and electric transportation. In 2023, PERTE VEC II launched. It focuses on batteries for electric and connected vehicles. In February 2024, Spain’s Ministry of Industry, Trade, and Tourism approved 26 projects from 21 companies, including Envision’s Spanish base. On July 8, 2024, Envision held the groundbreaking ceremony for its battery super factory in Navalmoledramata. This factory will be Envision’s third battery manufacturing base in Europe. It will start production in 2026. The factory will develop the latest generation of lithium iron phosphate batteries. It aims to meet user demands for energy storage and passenger vehicles. It will also address the production gap for lithium batteries in Europe, especially lithium iron phosphate products. From 2024 to 2025, Envision will continue to expand its battery capacity in Europe and globally. It will lead the industry in global layout progress. When Envision Technology Group signed a strategic agreement with Spain to build Europe’s first zero-carbon industrial park, Spanish Prime Minister Sanchez stated, “We look forward to Envision, as a global leader in green technology, becoming a key partner in Spain’s carbon-neutral transition through comprehensive solutions and technological ecosystem development.”
Although it contains some pleasantries, Vision can provide Spain with zero-carbon technology, battery production capacity, and industrial capital. This forms a more complete ecosystem with downstream vehicle manufacturers. It enhances Spain’s influence in the EU automotive industry.
Not only is Far Vision Power considering the Spanish market, but BYD, Guoxuan High-Tech, and Hunan YN are also exploring investments there. This shows that automotive and battery companies drive supply chain firms to seek opportunities in Spain. Spain may become a key location for Chinese companies in the European automotive industry, creating an “East-West” dynamic with Hungary. These investment plans arise from companies’ independent choices based on their interests. In the long term, local investments will partly replace exports. Currently, both exports and investments are growing. Chinese automotive exports may reach a peak of 6 million units this year, but they are nearing their limit, showing signs of slowing growth. Meanwhile, overseas investments are just beginning. The rapid growth started in 2022 and may continue for the next 10 years.