Risk Category – Economic/ Technological Risk
Introduction
Volvo Cars, owned by China’s Geely, is shifting its production of electric vehicles (EVs) from China to Belgium in anticipation of potential tariffs imposed by the European Union (EU) on Chinese-made electric cars. This move comes amid growing trade tensions between the EU and China, with the EU seeking to reduce its reliance on China, especially in critical areas like electric vehicle components and technology.
Analyst Comment
Volvo’s Strategic Shift
According to a Times report, EX30 and EX90 electric vehicle models production will be shifted from China to its plant in Ghent, Belgium. Earlier, the EU launched an investigation in October 2023 into whether Chinese electric vehicle manufacturers receive unfair subsidies that distort competition. If adequate evidence is found, this could result in provisional tariffs being imposed as early as July 2024.
While Volvo has not confirmed any plans to halt sales of Chinese-made EVs, company insiders have hinted at this as a prospective option if tariffs were to be implemented. However, the strategic move of shifting production to Belgium allows Volvo to bypass potential tariffs and continue selling its electric vehicles in the European market without significant price increases. With this move, they can maintain their competitive edge and cater to the growing demand for EVs in the European market.
This decision might impact the production of other models as well. Reports suggest that Volvo is also considering moving the production of certain models destined for the United Kingdom, to Belgium. This would be a strategic move to avoid trade disruptions between the UK and the EU post-Brexit while also catering to the growing demand for EVs in the European market. Currently, 19.5% of electric vehicles sold in Europe last year were made in China, and it is expected to reach 25% by the end of 2024, according to a new analysis. Volvo alone has reported a 27% increase in sales during April 2024 compared to last year.
Impact on the Global EV Market
Volvo’s decision to shift production and the EU’s investigation into Chinese subsidies could have significant implications for the global electric vehicle market.
This move would significantly disrupt the global EV supply chains, making the shifting process complex and time-consuming. This would lead to temporary disruptions in the production capabilities of the company and delivery timelines, severely affecting the European EV market. If the EU imposes tariffs on Chinese-made electric vehicles, their prices in Europe are likely to increase, dampening consumer demand for Chinese EVs and making European-made electric vehicles a more attractive option.
Both factors could pressure other Chinese EV manufacturers to adjust their pricing strategies or consider setting up production facilities in Europe to avoid potential tariffs. In the long run, consumers would benefit from this as it would initiate more competition in the sector. Other European manufacturers could also benefit from the situation if they can maintain competitive pricing and production targets.
The EU’s investigation into Chinese EV subsidies is just one aspect of the broader trade tensions between the two economic giants. Other factors also contribute to it, including China’s growing economic and military capabilities. The EU is seeking ways to reduce its dependence on China for critical materials and technology. The trade tensions between the EU and China could significantly impact the global economy, particularly in sectors like automotive industry, technology, and clean energy.
