Ten years ago I had dinner with a Chinese businessman in Cape Town. After dinner he showed me his art collection and then offered me a glass of Maotai. He explained that this was a better and pricier alcohol than any whisky or cognac but was not known outside of China. With an alcohol content of 53% I quickly felt the buzz; but it wasn’t to my taste.

Last week, China launched an anti-dumping investigation into French Brandy in the wake of the EU’s anti-dumping investigation into Chinese EVs. The EU is understandably concerned about its €400 billion trade deficit with China (in 2022)— Since 2008, Europe’s economy has been left behind by the US, thanks largely to American Big Tech. Now Chinese EVs threaten its fragile automotive industry.  

For China, EVs are the ideal opportunity to build brand incumbency as opposed to simply manufacturing for the incumbents, like Foxconn does for Apple. 

Last month I was in Beijing for business. My contact gave me a lift in her BYD Atto 3 and spent the full 30 minutes of the journey telling me why Chinese EVs are the best in the world; “why would America and Europe restrict their imports?” she complained. I responded “it’s complicated”

Manufacturing EVs is all about scale: the bigger you are, the better and cheaper you get, therefore exports are an essential part of the business plan. In the last quarter of 2023, BYD out-sold Tesla for the first time: 586,000 versus 424,000 pure electric EV sales. Europe and the US are worried. The company started in the 1990s making cell phone batteries and is now a world leader in EV batteries, supplying Tesla and Toyota, and themselves of course. BYD is confident that if demand necessitates they could ramp up production 10X in ten years.

Will EU barriers stop this juggernaut from becoming the Coca Cola of EVs? Late last year France’s finance minister Bruno Le Maire ruled that the €7,000 subsidy for EVs would no longer apply to EVs “that emit too much CO2”, which includes all Chinese EVs. The EU’s  carbon tax, starting in 2026, will affect imports of cement, fertilisers, hydrogen, iron, aluminium, and steel – all of which China exports. 

For now Europe makes products with a lower carbon footprint than does China, but China is rapidly decarbonising. Half the world’s nuclear power reactors under construction are in China; China’s installed solar capacity will double to 1,000 gigawatts (GW) by 2026; and  Chinese companies are able to install wind without the fuss of protesting residents. As for the problem of carbon-heavy steel, the Chinese government is part of a consortium with Rio Tinto for a mining project in Guinea to extract high grade iron ore, which has a low carbon intensity. The $20 billion investment in mines and rail infrastructure will go a long way to decarbonise China’s steel industry.

The Bottom Line:

Europe can delay Chinese imports based on environmental concerns, but it can’t stop them. When it comes to new energy and EVs it’s probably a lot smarter to partner with Chinese companies than to try and block them indefinitely. While Bruno Le Maire was writing legislation to restrict Chinese EV imports, Stellantis’s Carlos Taveris was signing a €1.5 billion check to buy 20% of Leapmotor, a Chinese carmaker. While BYD is building its first European factory not in France, Germany or the UK, but in Hungary. 

Back to Brandy

Shares in Pernod Ricard (market cap $38 billion) have shed 5% since China announced the investigation on the expectation that exports into their second biggest market could slow down. Luckily for European and American liquor companies, westerners will probably never acquire a taste for Moutai (market cap $289 billion). But for most other things consumers can easily switch from “made in Europe” to “made in China” based on price and technology. 

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