The India-China economic face-off just took another turn with the Chinese government asking its automakers not to make electric vehicle investments in India. In what is seen as a protectionist attitude, the Chinese government has put out a strong advisory directing its automakers – primarily those betting big on electric vehicles – to not set up full fledged production units in countries outside China. The idea is to ensure that electric vehicle technology – an area where China is seen assuming global tech leadership – stays within the communist leadership-run country.
Instead, China wants its automakers such as BYD and SAIC (the company that owns MG Motor) to export completely knocked down (CKD) kits to countries around the world. The idea is to use these CKD kits and assemble electric cars in countries that are hitting Chinese electric vehicles with massive punitive tariffs.
By merely assembling cars in countries around the world, and setting up factories for such assembly, the Chinese government is hoping that critical parts of electric vehicle technology stays in China as these parts will be built domestically, and only exported to other countries.
On the other hand, if full scale localized production of Chinese electric cars is done in other countries, the localization would require most if not all parts to be manufactured locally. This will result in technology getting shared – something that China’s government is seeking to avoid.
China is going to the extent of asking its automakers to notify the ministry of industry and technology when its sets up new electric car operations in other countries. In fact, it’s even asking its automakers setting up factories in Turkey to notify the local Chinese embassy.
As a counter move, countries inviting Chinese electric vehicle production investments can always impose a local sourcing clause and force Chinese automakers to source many components locally. This will lead to technology sharing. In fact, Brazil has such a clause, requiring Chinese automakers to locally source at least 50 % of components. The Indian government has also mandated local sourcing norms for subsidies to automakers setting up electric vehicle factories here.
Valdis Dombrovskis, an executive vice president of the European Commission, has already issued a warning about invoking local sourcing and value addition clauses,
How much of the value added is going to be created in the EU, how much of the know-how is going to be in the EU? Is it just an assembly plant or a car manufacturing plant? It’s quite a substantial difference.
Why are Chinese automakers trying so hard to expand globally?
- The local Chinese automarket – although the largest in the world – is witnessing sluggish demand thanks to a slowing down Chinese economy.
- China’s population is aging, and the trend is only expected to intensify in the coming years. This means that Chinese automakers have to find newer markets to continue selling large volumes of cars.
- China has achieved the economies of scale in electric vehicles, and stands to profit massively by undercutting other car makers. As things stand today, non-Chinesee car makers simply can’t match the pricing power of Chinese EV giants.
On whether countries will impose more tariffs on CKD kit assembled Chinese electric cars after China’s latest move is something that we’ll have to wait and watch for. For now though, the battle between super affordable Chinese electric cars and the rest of the world is just hotting up.
Let’s swing by to India now
The Indian government has already imposed tough conditions on Chinese automakers operating here, even going to the extent of blocking big ticket investment. BYD – China’s leading electric car maker that also has an Indian operation – was blocked from making a big ticket investment in India. In fact, BYD wanted to invest over a billion dollars in India, to set up a greenfield manufacturing facility here to build electric cars.
Also, the Indian government forced MG Motor to stall its future investments until it tied up with an Indian company – JSW in this case. After MG Motor tied up with JSW, in which the latter owns 51 %, it was allowed to make fresh investments in India.
Great Wall Motors has been forced to abandon its India plans after the Government here stonewalled investments. Great Wall planned to invest a billion dollars in a greenfield manufacturing set up in India but was not given permission by the Indian government for Foreign Direct Investment (FDI). Great Wall Motor laid off employees in 2022, and shut shop.
These moves from the Indian government are meant to 1. Protect domestic car industry that’s now making significant strides in electric vehicle technology and 2. Curbing China’s dominance in the electric vehicle space.
Things seem to be changing though…
The economic survey of 2024, tabled ahead of the union budget, made a strong case for Foreign Direct Investment (FDI) from China, citing that Chinese automakers setting up manufacturing facilities here would boost exports out of India.
The economic survey had this,
India faces two choices to benefit from China plus one strategy: it can integrate into China’s supply chain or promote FDI from China. Among these choices, focusing on FDI from China seems more promising for boosting India’s exports to the US.
India’s chief economic advisor Anant Nageswaran said,
We need to strike the right balance between import of goods and import of capital (FDI). Brazil and Turkey, for example, raised barriers to imports of electric vehicles from China but incentivized FDI from China for electric vehicles in their countries. So this is a kind of balance we need to figure out as well.
Warning about Make-In-India, he said,
The drive for enhanced manufacturing capacity within India may also make us more dependent on capital goods from China because Chinese capital goods makers have eliminated competition in Europe elsewhere. So we have no alternative sources to depend on.
Clearly, different arms of the Indian government seem to be pulling in different directions so far as Chinese FDI and electric vehicle manufacturing factories are concerned. Let’s wait and watch for the Indian government’s response to China’s latest salvo to its electric car giants.
Via MoneyControl
