Will tariffs curtail Chinese EV dominance as Western automakers scale back?

Functions for the Market

Background

European Union and United States tariffs on battery electric vehicles (BEVs) may hamper the growth of Chinese automakers like BYD, but broader pressures are likely behind a global slowing in the space.

Battery concerns and waning government support are exacerbating concerns about consumer demand in the West. This may lead to layoffs at legacy automakers and open up EV production to brands in other developing countries.

The issue

China’s BYD Co. is priced to grow at 20 times earnings, but it may be an outlier in an otherwise bearish market for BEVs.

Consumer price sensitivity will play a key role in legacy automakers’ decisions to slow or delay BEV plans, while tariffs and trade concerns may disrupt BYD’s supply chains and presence in major markets, according to a new Bloomberg Intelligence report.

Chinese brands like BYD —forecast to surpass Tesla as the leading BEV sales brand in 2024 — were able to capture a record 11% of the European EV market in June, ahead of a 17% additional tariff that went into effect in July. 

In China, BEVs are still projected to capture 30% of all car sales by 2025 due to an abundance of infrastructure and chargers. BYD alone will sell 2.5 million BEVs and 3.1 million plug-in hybrid electric vehicles (PHEVs) by 2026 while exporting 1.2 million vehicles that year.

Europe’s lagging market is hampering growth for other automakers. Forvia SE and Continental AG earlier announced layoffs impacting thousands of workers over the coming years.  At the end of July, ZF Friedrichshafen AG detailed plans to cut up to 14,000 jobs by 2028.

The BloombergNEF Electric Vehicle Outlook 2024 has the BEV and PHEV sectors growing an average of 21% annually through 2027, down from 61% in 2020 through 2023. The Outlook says market contractions, consumer preferences, and tariff pressures make EVs “no longer only a wealthy country phenomenon” and could lead developing nations to focus on building their own factories.

Tracking

Run Bloomberg’s BNEF EVO function to see the BNEF Electric Vehicle Outlook and compare sales by market. Use 1211 HK Equity SPLC and MODL to see supply chain analysis or sales forecasts for companies like BYD.

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