Foreign carmakers in China face ‘increasingly precarious’ situation

BEIJING — New tariffs on Chinese electric cars aren’t enough to help foreign automakers stay competitive, especially in the lucrative China market, according to consulting firm AlixPartners.

China is the world’s largest auto market. It’s taken the global lead in the development of new energy vehicles, which include battery-only and hybrid-powered cars.

The NEV category now accounts for more than 40% of new passenger cars sold in China — and domestic automakers are mostly leading sales, with foreign companies lagging behind.

A lot of foreign car companies still haven’t figured out how their products can stand out in China’s EV market, Stephen Dyer, co-leader and head of AlixPartners’ Asia automotive practice, said during an annual industry outlook event on Wednesday.

“Unless [foreign car brands] change their mindset of developing and manufacturing cars to one that is more willing to take risks, and consider how to design and manufacture a car from so-called first principles, their position will become increasingly precarious,” Dyer said in Mandarin, translated by CNBC. He was referring to a concept that refers to problem-solving based on fundamental aspects of the issue.

German luxury brand Porsche said last Tuesday that China sales plunged by one-third in the first-half of the year. The company blamed consumers’ “focus on value oriented sales.”

Chinese automakers from Nio to BYD have already started to export cars to Europe and other overseas markets, prompting the U.S. to raise tariffs on the vehicles from 25% to 100%.

The EU also announced in June it would impose tariffs of up to 38% on Chinese EV imports to combat the “threat of economic injury” to European EV makers. In response, China has said it’s in talks to “reach a mutually acceptable solution” with the European Commission ahead of the tariffs’ implementation in November.

Even with the EU tariffs to come, China cars will still make a profit of 20%, according to Dyer, who noted that the profit margin would be the same as if they were sold in China’s market. That’s because the wave of tariffs will likely accelerate China EV makers’ move to localize production strategies in Europe that will cut transportation costs, he added.

BYD is opening a factory in Hungary. Last week, the company announced a $1 billion deal with Turkey, and opened its factory in Thailand.

Currently, Chinese-made EVs cost 35% less to produce than comparable vehicles from foreign automakers, according to AlixPartners.

Some foreign firms are trying to enter China’s market by partnering with local brands. Dyer cited Volkswagen and Xpeng‘s inked partnership earlier this year to launch an SUV which saw the German…