J.P. Morgan: Six things investors should know about the EU's antisubsidy probe into Chinese EV exports

According to Bloomberg and CNBC the EU is launching an anti-subsidy investigation into Chinese EV exports to Europe. While little detail is available, we address the top six things investors should know about Chinese OEMs’ overseas expansion strategies, including to the EU.

China’s car exports (ICE+NEV) started to surge significantly in 2021, with volume doubling from 1.0mn units in 2020 to 2mn units. Based on the 1H23 run rate, China is expected to export ~4.5mn cars in 2023, more than double the level in 2021.

The EU is clearly an important NEV export opportunity, accounting for 41% of China’s total NEV exports in 2022 (Table 4). Belgium is a key destination (18% of China’s total NEV exports), followed by England (9%). Most cars exported to Belgium are re-transported to other inland markets, such as Germany and France, through major ports in Belgium. The key player exporting NEVs to the EU is Tesla, followed by SAIC (own brand), while others don’t have significant exposure. We believe Tesla and SAIC together account for about half or more than half of China’s total NEV exports to the EU. For SAIC, given the size of its domestic China market, EU NEVs are ~3% of its total sales volume (ICE+NEV) and ~15% of its NEV sales volume in 2022. For BYD, we estimate that the EU accounts for 10-15% of its total exports in 2023, while total exports are ~6% of its total sales volume (including the domestic market), implying that the EU accounts for ~1% of BYD’s 2023E sales.

Given that the Chinese government no longer offers NEV subsidies to carmakers (which received them in the past as accounts receivable and eventually booked them as revenue on the P&L), EU’s antisubsidy probe may need to focus on favorable tax treatment or other government grants to Chinese OEMs and whether such measures indeed lead to unfair competition with European OEMs in the EU.

EM remains important in the export market overall (ICE+NEV), with ICE still comprising about 75% of total volume. Different OEMs have different overseas strategies and focuses. Tables 6-7 summarize select OEMs’ NEV volumes and key export markets. For BYD, Thailand and Australia together account for about half of total export delivery. On top of this, BYD is building plants in Thailand and Brazil, each around 150k units of annual designed capacity that should be completed in 2024.

Chinese OEMs will face pressure to gain market share along with production ramp when overseas capacities are completed in 2024- 25 (in select markets like Thailand and Brazil). By then, Chinese OEMs may try to be competitive not only on content, but also on price. At this point, no China OEMs have officially announced building plants in Europe, but this could happen in the next one to two years.

In terms of sentiment, the share prices of Chinese EV names will likely be weak near-term. A reference example can be found in CATL, a battery supplier that faced the U.S. government’s IRA (Inflation Reduction Act) in August 2022: CATL’s share price pulled back 20% in Sep-Oct’22. The weakness at CATL was likely a function of weak stock sentiment and a weak equity market.