European brands went to China to manufacture their electric cars; it didn’t work out. Now China wants its brands to only manufacture in China so as not to make the same mistake.

China has managed to take the lead with the electric car: it controls its entire value chain, and that gives it a strategic advantage, in addition to achieving more competitive prices. Faced with the threat to traditional brands, Europe has responded with protectionism: increasing import tariffs on electric cars from the People’s Republic.

China needs to overcome this barrier and the solution lies in manufacture in Europe. But not at any price. China does not want to make the same mistake as the brands from the Old Continent, the Japanese or the North American ones: Servile technology on a silver platter.

Chinese electric cars as LEGO kits: in Europe they would only be assembled

The Chinese market became more than just a lucrative source of income for traditional car brands. The problem was the tariffs on importing cars made in Europe and other countries: up to 25%. although six years ago it reduced them to 15%.

So, Many European brands chose to manufacture their cars there and China set the conditionsThe most important thing was that they had to form an alliance with a local company in order to be able to set up their factory on Chinese soil. A deal they accepted: it was the price to pay for being in the largest car market on the planet.

This meant that Chinese firms absorbed some of the knowledge, experience and technology of traditional manufacturers. Since then, they have made tremendous progress, approaching these firms or even surpassing them when it comes to electric cars. These models now represent such a threat to Europe or the US that a trade war is on the horizon: it first started in North America and now Europe has joined in.

No manufacturing in Europe, just assembling the cars. This means that China finds itself in the same situation as traditional firms a few years ago: to avoid tariffs, which are up to 47.6% (although still provisional), it is forced to manufacture in Europe. But the Chinese government is not going to stumble on the same stone that its European rivals fell on.

The Executive of the People’s Republic, more specifically the Ministry of Commerce (MOFCOM), has urged Chinese brands to keep the most advanced technology in the country. That is, it is not manufactured entirely in Europe, but Send assembly kits to plants in the Old Continentthus preserving their intellectual property. In the end, technology and components would continue to be conceived in China and merely assembled in Europe.

This is actually already being done. This is the case for DR Automobiles with the cars of its Chinese partners Chery, BAIC and JAC. Also the Spanish company EBRO in the Zona Franca (formerly Nissan Spain): the revived company is allied with Chery Automobile and at least in its first phase this is the agreed procedure.

Several Chinese giants are already looking for locations for their factories in Europe. For example, BYD will have two: one in Hungary and one in Turkey. And Chery Automobile will do the same in Spain, specifically in the Zona Franca and beyond its alliance with EBRO: for example, the Omoda 5 will be designed there for the European market.

How will Europe respond? Brussels is clear about the trick, and that they can return the coin to the People’s Republic by knowing its secrets of the electric car. They already warn that it will not be that simple.

Valdis Dombrovskis, executive vice-president of the European Commission, recently noted that Chinese brands will be able to avoid tariffs by manufacturing here, but only if they comply with the requirements of rules of origin, which dictate that a minimum level of value must be created in the European Union (EU).

“How much of the added value will be created in the EU, how much of the know-how will be in Europe? Is it just an assembly plant or a car manufacturing plant? It’s quite a substantial difference,” he said. to the Financial Times in August.

In fact, there are already firms that are looking at the United Kingdom, for example, precisely because it is no longer a member of the EU. In this way, they could avoid these requirements and it seems that the British do not see it in a bad light, as they have aligned themselves against these tariffs.

This invites Chinese firms to set up their plants there or use British factories to receive these pre-assembly kits, assemble the cars and then export them to the EU. Thus, Chinese firms would have to bear only 10% of tariffs, which is the same as those imposed on British cars exported to Europe. Much lower than the current total rates: BYD now sees them taxed at 27%, Geely at 29.3% and SAIC at 46.3%.