China carmakers pivot to hybrids for Europe to counter EV tariffs

SHANGHAI - Carmakers in China are ramping up exports of hybrid vehicles to Europe and planning more models for the key market, exposing the limits of the European Union’s electric vehicle (EV) tariff scheme.

The bloc’s latest EV tariffs to protect its auto industry from a flood of cheap Chinese imports do not apply to hybrid cars. That could see major brands such as China’s top EV maker BYD continue expansion in the region, analysts say.

Some manufacturers are also shifting production and assembly to Europe to lower the cost around tariffs.

“The increase is driven by Chinese OEMs (original equipment manufacturers) shifting towards PHEVs (plug-in hybrids) as a way to sidestep the new EU tariffs on BEV (battery-powered EV) imports from China,” said Mr Murtuza Ali, an analyst at Counterpoint Research.

He expects China’s hybrid exports to Europe to grow 20 per cent in 2024, and at an even faster pace in 2025.

EU tariffs of up to 45.3 per cent on Chinese EV imports came into effect in late October to counter what the European Commission says are unfair subsidies that helped create spare production capacity of three million EVs per year in China, twice the size of the EU market.

The anti-subsidy investigations on Chinese EV imports, which began in October 2023, and slowing car sales in China from an economic slowdown, have led some carmakers to change their European strategy to focus more on hybrid exports, the data shows.

Hybrid cars, which run on a combination of petrol and electricity, are gaining in popularity, as buyers consider them an affordable compromise between all-combustion and all-electric.

From July to October, hybrid exports to Europe more than tripled to 65,800 units from the same period a year earlier, reversing a trend of sliding sales until earlier in 2024 and in 2023, according to China Passenger Car Association data.

That helped exports of plug-in hybrids and conventional hybrids account for 18 per cent of China’s total vehicle sales to Europe in the third quarter, doubling from 9 per cent in the first quarter. The proportion of EV shipments, however, fell to 58 per cent from 62 per cent during the same period.

The trend is likely to gain further momentum.

China, which overtook Japan as the world’s biggest car exporter in 2024, aided by its dominance in EVs, is stepping up its export drive to address overcapacity at home, analysts say.

Given 100 per cent tariffs on Chinese-made EVs in the US and Canada, Europe is also one of the most obvious outlets for Chinese carmakers. The European Commission did not immediately reply to a request for comment on rising hybrid imports from China.

More hybrid models

Major Chinese carmakers could upend the European plug-in hybrid market dominated by European and Japanese firms as they meet rising demand for affordable cars with better fuel economy amid growing inflation.

BYD is taking on Volkswagen and Toyota in Europe with its first plug-in hybrid model for the region, the Seal U DM-i. The model is priced from €35,900 (S$50,700), €700 lower than Volkswagen’s best-selling PHEV model Tiguan and 10 per cent cheaper than Toyota’s C-HR PHEV.

It is also considering production of both EVs and hybrids in its Hungarian plant, Chinese official media China Auto News reported.

“The segment could see bigger growth potentials with Chinese carmakers bringing more affordable options to Europe that are attractive to cost-sensitive consumers,” said Mr Yale Zhang, managing director at Automotive Foresight.

SAIC, whose EV exports to the EU face the highest additional rate of 35.3 per cent, has said it plans products with various powertrain systems for the European market.

Geely, China’s second-largest carmaker by sales, launched a new plug-in hybrid under its brand Lynk & Co for Europe in November.

“The recent increased introduction of electrified hybrid models to markets around the world by global carmakers is in line with consumer demands and purchasing trends,” Geely said. It did not comment on trade restrictions.

Japanese automakers too are taking advantage of the growth of conventional hybrids in Europe in 2024, and addressing their overcapacity problems in China.

Honda, which suffered a 29 per cent slump in China vehicle sales in the first nine months of 2024, exports two conventional hybrids, one plug-in hybrid and one pure EV model from China to Europe.

While increasing exports from China could trigger intense price competition in Europe’s hybrid vehicle market, some experts say Chinese firms are likely to tread more carefully for fear of sparking another round of EU tariffs.

“If BYD takes Qin Plus to Europe at a price of €20,000, I am sure it would trigger another earthquake,” Mr Zhang said, referring to its hybrid sedan. REUTERS