China seeking EV opportunities in Middle East and North Africahttps://en.majalla.com/node/321752/business-economy/china-seeking-ev-opportunities-middle-east-and-north-africa
China seeking EV opportunities in Middle East and North Africa
The MENA region looks increasingly appealing to China as a tariff-free trade route into the European Union
AFP
BYD electric cars waiting to be loaded onto a ship are seen stacked at the international container terminal of Taicang Port in Suzhou, in China’s eastern Jiangsu province on February 8, 2024
China seeking EV opportunities in Middle East and North Africa
Chinese companies are expanding production of electric vehicles (EVs) in the Middle East and North Africa in part because markets there look ripe for sales, and in part because of mounting tariffs.
On top of existing 10% import duties, the European Union (EU) pushed forward with a plan in July to add extra tariffs on EVs made in China, from 17.4% to 37.6%, depending on the level of subsidies automakers receive from Beijing.
This latest protectionist measure is provisional and due to be implemented in November after a final vote. It is designed to ensure that European carmakers can still be competitive with those produced by the likes of SAIC of the US or China’s Geely and BYD.
China is the world’s largest producer of EVs and has a competitive advantage from lower costs of technology, resources and energy, making its EVs cheaper than those of European giants like Mercedes-Benz or Volkswagen.
But the EU’s tariffs also add to the expenses of Western carmakers that manufacture vehicles in China – including BMW and Tesla – meaning objections were raised in Europe as well as in China and the US.
Heading to emerging markets
Chinese car firms, facing saturated EV markets and a slowing economy at home, are keen on developing overseas business. One way to avoid the tariffs is to make the EVs away from the West.
The process was already underway after an earlier decision by the US in May to quadruple tariffs on China-made EVs, to 100%. The EU’s increased duties have encouraged the trend.
One way to avoid huge tariffs is to produce China's EVs away from the West.
"The tariffs will likely throttle back Chinese import sales but accelerate Chinese plants being established," said Andrew Bergbaum from consultancy AlixPartners.
"Europe is already a saturated market with production overcapacity. Emerging markets, where EVs are still something of a rarity, offer greater investment opportunities."
Currently, there are at least nine new manufacturing plants involving Chinese automakers in different parts of the world, including the Middle East and North Africa, Bergbaum said.
"I would suggest that MENA production as part of a global manufacturing portfolio is likely the right scenario. The region makes up a 4-5 million unit per year market so that will make it attractive in its own right."
Growing potential
Bergbaum said Saudi Arabia is both a big sales market (approaching a million vehicles per year by 2030) and is making efforts to establish its own supplier base and related infrastructure.
The Kingdom's articulated investment policy also makes it attractive, as it seeks to diversify its economy away from oil. It aims to produce 150,000 EVs by 2026 and 500,000 four years later, in line with its Vision 2030.
Lucid Group officially opened the first-ever car manufacturing facility in Saudi Arabia.
Saudi's sovereign wealth fund, the PIF, has entered a joint venture with Taiwanese company Foxconn to establish EV manufacturer Ceer. It is expected to start production next year and lead the automotive manufacturing sector in Saudi Arabia.
There is industrial potential in the luxury segment of Saudi markets, according to Gregor Sebastian, an analyst at Rhodium Group.
Europe is already a saturated market with production overcapacity
"Companies like BYD actually bring over a little bit less automation so far to markets like Thailand, potentially also to markets like Turkey, because they want to have good political relations," he told Al Majalla.
BYD and the Turkish government have agreed to establish a $1bn car factory providing 5,000 jobs, with production due to start in late 2026.
China's largest automaker, which produces 150,000 electric and hybrid vehicles per year in Turkey, has also announced a $5bn incentive package to increase its annual EV production to 1 million cars.
Chery, another Chinese EV maker, is also in advanced talks with Turkish authorities about building a factory there.
Leaner production
Bergbaum also pointed out that there are other MENA countries like Egypt and Morocco that already have thriving automotive industries and so the infrastructure, supply base and trained workforces already there make them attractive.
Employees work on a new energy vehicle (NEV) assembly line at a BYD Auto factory in Huaian in China's eastern Jiangsu province on July 6, 2020
Foreign companies could be attracted by currency factors. A 40% drop in Egypt's pound in March boosted the country's economic competitiveness, although it has been stable over the past few months. It was the fourth devaluation since 2022, amid a stubborn liquidity crunch in the Middle East's most populous nation.
Egypt also has plans to ramp up clean energy and boost the wider industrial sector, which appeals to the private sector. Nonetheless, the government's attempts over the past years to partner with a Chinese company to manufacture EVs locally had proved unsuccessful.
That changed in May. Egyptian company GV Investments signed a deal with China FAW Group to assemble and later manufacture EV models of the second-biggest Chinese automaker, from the first quarter of 2025.
According to Bloomberg, part of this production will go to Europe, and there are other export destinations.
Al-Mansour Automotive, a General Motors partner, is also planning to produce EVs in Egypt, where battery-powered cars are anything but common.
Morocco has a robust automotive sector already up and running. The industry already produces the majority of the country's exports, worth nearly $14bn last year. It has a Renault-Nissan plant with a production capacity of around 400,000 cars per annum. But it has yet to host Chinese auto firms.
For the time being, the North African nation is seeking to attract electric battery makers. Two plants will be set up by Chinese manufacturers Hailiang and Shinzoom, both worth over $900m, among similar other projects.
There are additional factors to unfulfilled local demand and low operational costs that make EV production conditions so suitable in the MENA region.
It is located near Europe and has trade agreements with the EU which make it a possible EV export hub to European markets and a possible backdoor to avoid tariffs.
EVs have spread across Europe over the past decade, with annual sales estimated in the hundreds of thousands
EVs have spread across Europe over the past decade, with annual sales estimated in the hundreds of thousands of cars in the likes of Germany and France in recent years.
Yet an EU plan to phase out fuel-powered cars by mid-2030 will likely encourage Chinese automakers, which dominate around a quarter of EV sales in Europe, to maintain their foothold on the continent's market for at least the coming decade.
The new 17.4% tariff the EU is set to impose on BYD – a fierce competitor with the American Tesla – has fueled speculation that the Chinese company could be tapping Turkey while eyeing Europe. It sold around 9% of EVs on European markets in the past two years.
The company has not confirmed whether there will be an upward revision to use the plant to cater to Europe, but what makes the move enticing is that Turkey is a key auto exporter to the continent through a customs deal with the EU.
Egypt also has a trade agreement with the bloc. As does Morocco, which ships the overwhelming majority of its auto exports to Europe.
Risky business
Along with the advantages of Chinese automakers increasingly manufacturing outside their home borders and exporting EVs into Europe, Rhodium Group's Sebastian pointed to risks.
They include the EU deciding such output was, in effect, seeking loopholes in the tariffs.
"That is really what … the [European] Commission is going to look at very closely," he said. "There have been previous cases where the commission had to place anti-circumvention duties on Chinese operations."
Duties could be imposed if overseas EV plants are used only for assembly, with main components such as batteries and chassis imported from China.
And there have been wider moves against cheap Chinese imports to the bloc.
"EVs are obviously the most visible industry but Europe has also used its new full subsidy regulations to go after [Chinese] solar and wind projects," among others, Sebastian added.
Then again, wider geopolitical currents may offset some of the risk. The chances look high that former president Donald Trump will be re-elected to the White House this year. That would cloud the outlook for China's access to US markets and make Beijing keener to avoid a trade war with Brussels, according to Sebastian.
He played down the likelihood of Chinese retaliation after the latest EU tariffs, which still leave room for a profit margin.
"Based on our assessment as well, companies like BYD could still profitably export to Europe even with these [new] tariffs," he concluded.
