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The sea breeze with a slightly salty scent blows across the port, dispelling the hustle and bustle and stuffiness of the city.

On July 24, a 200-meter-long, 13-story-high clean energy ro-ro ship docked at the Shanghai wharf. This ship is the second ocean-going car carrier (ro-ro ship) built by China State Shipbuilding Corporation commissioned by SAIC Group. It is named "SAIC Anji Jincheng" and has 7,600 parking spaces. In the future, it will be stationed on SAIC's self-operated European routes.

Ro-ro ships are constantly flowing on European routes, but the journey of Chinese independent brands across the ocean is not smooth sailing. It has been nine months since the European Commission ("EC") launched an anti-subsidy investigation against Chinese electric vehicles on October 4 last year. The EC finally announced a preliminary ruling to impose a temporary anti-subsidy tax of 17.4% to 37.6% on Chinese electric vehicles.

Faced with anti-subsidy investigations, Chinese automakers did not flinch, but rose to the challenge, buying ships to go overseas and building factories in Europe. At the same time, many companies have set their sights on the South American, African and Southeast Asian markets.

SAIC and China Chamber of Mechanical and Electrical Engineering have submitted their defense opinions

Yu Jun, senior director of cooperation and legal affairs at SAIC Motor, said, “SAIC Motor believes that the European Commission’s subsidy rate of 37.6% is extremely shocking and unacceptable, and is basically completely contrary to the facts.”

On July 19th local time, at the request of SAIC Group, the European Commission held a special hearing on anti-subsidy investigations at the EU headquarters in Brussels.

At the hearing, SAIC clearly stated that the European Commission's anti-subsidy investigation involves commercially sensitive information, such as the investigation requires cooperation in providing battery-related chemical formulas, which is beyond the normal scope of the investigation; the European Commission's identification of subsidies is wrong, such as confusing the auto finance company wholly owned by a foreign joint venture partner as an affiliated company of SAIC and including it in the calculation of the subsidy rate.

"SAIC has submitted thousands of written materials during the investigation, but the European Commission ignored some key information and defense opinions submitted by SAIC Group and inflated the subsidy rates of multiple projects," SAIC Group said.

Earlier on the afternoon of July 18, Shi Yonghong, vice president of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, also made a special trip to Brussels, Belgium, and led a delegation to attend the post-preliminary hearing of the EU's anti-subsidy investigation on Chinese electric vehicles held by the European Commission. At the meeting, Shi Yonghong explained China's views to the European Commission on behalf of the electric vehicle industry.

He said that the development and growth of the China-Europe electric vehicle industry lies in cooperation rather than conflict. Currently, negotiations between China's Ministry of Commerce and the European Commission are underway. He hopes that the European Commission will work with China to respond to the calls of the EU industry and reach a balanced solution.

After the hearing, the China Chamber of Commerce for Machinery and Electronics held a press conference on the EU's anti-subsidy investigation on Chinese electric vehicles in Brussels, Belgium, strongly calling on the European Commission to strictly abide by the relevant anti-subsidy rules of the WTO and the EU and correct the erroneous determination.

Although the post-preliminary hearing has ended, the case response work of Chinese automakers and the Chinese automotive industry is still ongoing. According to the EU anti-subsidy procedures, the European Commission is expected to make a final ruling in early November 2024.

SAIC Group stated that it would reserve the right to take further legal measures in response to the European Commission's preliminary ruling that it was unfair, unreasonable and illegal.

In an interview with a reporter from Beijing News Shell Finance, Zhang Junyi, a managing partner of Oliver Wyman, said that in the window period of less than four months before the final ruling, the main task of car companies is to coordinate defense. He explained that the opinions within the EU are not completely consistent, with some abstentions and some opposing votes, and the opinions of various countries on the imposition of tariffs are also different. It will be seen whether it can be resolved through international operations during this period.

He gave an example, saying that Germany advocates free trade, which is also related to the layout of German car companies in the Chinese market. China has become an important global production base and market for them.

People from all walks of life call for opposition to the European Commission's imposition of anti-subsidy duties

Since the European Commission launched the anti-subsidy investigation in October last year, in the past nine months, the Chinese sampled enterprises have done their best to cooperate with the European Commission's investigation. More than 200 affiliated enterprises of the three Chinese sampled enterprises have submitted questionnaires and responded to more than 100 supplementary questionnaires, cooperating with the European Commission in a months-long on-site inspection.

However, the European Commission still believes that the sampled companies provided incomplete information. Based on the so-called "best available information", it seeks external information as a substitute and punishes the sampled companies with abnormally high subsidy rates.

On June 12 this year, the European Commission released its preliminary ruling on the anti-subsidy investigation into Chinese electric vehicles, disclosing that it plans to impose temporary anti-subsidy duties on electric vehicles imported from China.

Subsequently, among the three automobile companies selected for the survey, SAIC Group was the first to respond, "We are deeply disappointed with the decision of the European Commission. The relevant measures not only violate the principles of market economy and international trade rules, but may even have a significant adverse impact on the stability of the global automobile industry chain and China-EU economic and trade cooperation." The company earnestly hopes that the EU can listen carefully to the voices of Chinese and German automobile companies, resolutely avoid artificially setting up trade barriers for new energy vehicles, and effectively maintain a fair and competitive market environment.

On the evening of June 13, Geely Holding Group issued a statement saying that the European Commission's imposition of tariffs on Chinese electric vehicles is a wrong decision. The imposition of tariffs will harm Europe's own interests and will also hinder the development of China-EU economic and trade relations. It called on the European Commission to carefully consider its decision and jointly find solutions to promote fair competition and create a healthy development environment.

On July 4, the European Commission issued a preliminary ruling on the anti-subsidy investigation of Chinese electric vehicles, deciding to impose temporary anti-subsidy duties on electric vehicles imported from China. According to the announcement, BYD, Geely Group and SAIC Group, the three Chinese automakers sampled for investigation, were imposed temporary anti-subsidy duties of 17.4%, 19.9% ​​and 37.6% respectively. Compared with the tax rates disclosed in the preliminary ruling on June 12, the tax rates of SAIC Group and Geely Group decreased by 0.5% and 0.1% respectively, while BYD remained unchanged.

Zhang Junyi believes that the EU is restricting Chinese new energy vehicle companies from selling in its market by means of tariff barriers, fearing that the market occupied by Chinese new energy vehicle companies is too large and will affect the local auto industry, and wants to give local auto companies a certain living space. On the other hand, the EU actually encourages Chinese auto companies to invest and build factories locally.

Jiang Jiaxi, partner of Jingtian & Gongcheng Law Firm, analyzed that the disclosure in June was called pre-preliminary ruling. From the perspective of EU investigation procedures, both preliminary and final rulings need to be disclosed one month in advance (including general disclosure and confidential specific disclosure information given to each sampled enterprise). This tax rate fine-tuning should be made by the European Commission based on feedback on the disclosed information.

European business circles have voiced their opposition to the European Commission's imposition of temporary anti-subsidy duties on Chinese electric vehicles, arguing that the focus now is to avoid further trade conflicts. European automakers such as BMW and Mercedes-Benz also called for support for free trade and fair competition based on WTO rules.

In Jiang Jiaxi's view, "there is still a time window before the final ruling, and overall there is still a chance." Jiang Jiaxi analyzed that, first, China has made a price commitment, that is, to increase the price of models exported to the EU to offset the subsidy space (the so-called damage to the EU industry); the promised price increase is generally not less than the additional tariffs. According to the EU anti-subsidy regulations, this commitment can also be a specific plan proposed by China to eliminate the relevant subsidies. Once the price commitment is accepted and implemented by the European Commission, the European Commission will not impose anti-subsidy duties. This practice is ultimately paid by EU consumers.

The second is through the damage defense. He explained that through the damage defense, according to the dozen specific damage assessment standards stipulated by the WTO (and the EU), it is detailed that China's electric vehicle exports have not caused damage or threat of damage to the relevant EU industries or hindered their development, that is, strive for a no-damage settlement. The damage assessment is relatively loose in the initial ruling; after the initial ruling, all stakeholders can submit written opinions and request a hearing. The damage assessment will be relatively strict in the final ruling. In the EU, there is also a 5% to 10% chance that the final ruling will make a no-damage ruling.

The third is to argue and lobby through the Union interest. This requires continued dialogue at the government level, and the relevant chambers of commerce, associations, and companies to continue to argue and lobby. According to the EU anti-subsidy regulations, whether to impose tariffs in the end also needs to determine whether the tariffs are in the interests of the EU, that is, a similar public interest assessment is required. The European Commission will ultimately need to vote on whether the assessment is in the interests of the EU through member state representatives. In other words, if the majority of EU member states do not agree to impose tariffs, then the European Commission will not be able to impose tariffs in the end.

Jiang Jiaxi further stated that if none of these three possibilities are realized, the European Commission may formally impose additional tariffs in accordance with the preliminary ruling. Of course, between the preliminary ruling and the final ruling, the relevant companies can hold hearings, submit further defense materials, and continue to communicate with the European Commission to strive for a better tax rate; the European Commission may further fine-tune the relevant tax rate in the final ruling.

The European Commission will also disclose the relevant tax rate calculation information in advance about a month before the final ruling; that will be the last opportunity for the relevant companies to defend themselves on the tax rate issue. In this case, because the European Commission claimed in the initial ruling that SAIC did not fully cooperate, it applied Article 28 of the EU Anti-Subsidy Regulation (FA/Available Facts Clause) and gave SAIC a "punitive tax rate", resulting in an increase in the weighted average tax rate applicable to other Chinese cooperative enterprises. If SAIC can change this situation in the final ruling, the anti-subsidy tax rate that the European Commission can finally levy on SAIC and the weighted average tax rate applicable to other Chinese cooperative enterprises may be further reduced.

Jiang Jiaxi suggested that Chinese and EU companies should take up legal weapons to fight for and defend. The EU's anti-dumping and anti-subsidy decisions are not made by one person or one member state, and the European Commission's decisions are also supervised and reviewed by the European Court of Justice. Anti-dumping and anti-subsidy are based on and constrained by WTO rules, which is different from the trade war launched by the United States based on its own 301 clauses and other non-WTO rules. All Chinese and European companies whose interests are adversely affected by the European Commission's anti-subsidy duties can make the greatest legal efforts through multi-party efforts, including filing a lawsuit with the European Court of Justice in the next step, to avoid or reduce the consequences of the European Commission's anti-subsidy duties.

Chinese car companies go against the tide: buy ships, go out to sea and set up factories in Europe

Faced with anti-subsidy investigations, Chinese automakers did not flinch but instead rose to the challenge.

As early as July last year, Yu De, assistant to the president of SAIC Group, general manager of the international business department and general manager of SAIC International, publicly stated that SAIC Group has put the work of building a factory in Europe on the agenda and is currently in the process of selecting a site.

Yu De said that SAIC had previously planned to start building a factory in Europe after achieving the annual sales target of 100,000 vehicles in Europe. In 2022, SAIC's sales in the European market successfully exceeded 100,000 vehicles. Based on the sales situation, the previously discussed European factory can be prepared.

A year later, some media reported that SAIC Group might choose one of Spain, Hungary, the Czech Republic and other countries to build an electric vehicle factory to produce its MG cars.

At the same time, in July this year, the second ocean-going car carrier (RoRo ship) commissioned by SAIC Group to be built by China Shipbuilding Industry Corporation was delivered and officially named "SAIC Anji Jincheng".

The "SAIC Anji Jincheng" delivered this time and the sister ship "SAIC Anji Shencheng" put into use at the beginning of the year are the world's largest active clean energy ro-ro ships with the largest loading capacity and the highest degree of localization. The "Twin Stars" will be stationed on SAIC's self-operated routes in Europe, actively breaking through the bottleneck of export capacity and helping Chinese independent brands accelerate their cross-ocean expansion.

The continuous breakthrough in overseas business is the main reason for SAIC's large-scale "ship purchase and overseas expansion". In the first six months of this year, SAIC's terminal delivery volume in overseas markets reached 554,000 vehicles, a year-on-year increase of 13.9%.

In the European car market, SAIC MG has surpassed Tesla and entered the top 20 brands in terms of sales. This year, despite the impact of the Red Sea crisis and EU anti-subsidy tariffs, SAIC MG's terminal deliveries in the European market in the first half of the year still exceeded 120,000 vehicles, "7 out of every 10 Chinese cars exported to Europe are MGs."

Faced with the "tough" European market, other Chinese automakers are not ready to give up.

Geely Group said that the company has always supported free trade, advocated fair competition, strictly abided by the laws and regulations of various countries, and provided excellent products and services to global users. In the past nearly 20 years, Geely Holding has made a lot of investments in Europe, improved the innovation capabilities of the entire industry chain, and created tens of thousands of jobs.

Mu Feng, president of Great Wall Motors, said that Great Wall Motors is preparing some legal documents on the one hand, and strengthening the layout of the entire industrial chain and intelligent platform in Europe on the other.

Nezha Auto said that it is already planning a design center in Europe and will proceed based on market developments.

The same is true for Lantu. In June 2022, Lantu officially launched its brand in Norway, and in December, Lantu FREE was successfully delivered in Norway. From October to November 2023, Lantu will successively land in European countries such as Finland, Denmark, and the Netherlands. In June 2024, Lantu landed in Spain, and Lantu FREE and Lantu Dreamer were officially launched. In the second half of this year, Lantu will also enter European countries such as Portugal, Belgium, and Germany, and gradually deepen its presence in Europe.

In Zhang Junyi's opinion, if Chinese auto companies still want to develop in the European market in the future, they will still build factories in the local market in the long run, and adopt local production, CKD (complete knock-down)/SKD (semi-knock-down), or even local procurement. He explained that Chinese auto brands are still new brands in Europe, and it is difficult to simply increase prices without building a complete brand premium capability, and there is no possibility of passing on price pressure to consumers. Therefore, after weighing various aspects, investing in local factories is still the best solution, and Chinese auto companies still need to consider global development layout.

In addition, Zhang Junyi said that in response to the current EU anti-subsidy investigation, all automakers must actively respond and adjust their overseas layout strategies. "This is both an opportunity and a challenge for the Chinese auto industry." He explained, "Chinese auto companies lack overseas experience. Although China has become the largest exporter of automobiles, it has not become the largest global manufacturing country. Automakers should realize overseas localized production layout and continue to export according to local consumer needs."

In addition, Zhang Junyi added that, taking the European market as an example, Chinese automobile companies still face certain challenges in the European market. On the one hand, the growth rate of new energy in Europe has slowed down, and on the other hand, whether domestic brands of fuel vehicles can compete with Europe's old fuel vehicles.

Looking globally to seize the markets in South America, the Middle East and Africa

Outside of the European market, Chinese car companies still have a broad space and great potential.

Yu De revealed in July last year that SAIC Motor was considering entering the US market. In addition, SAIC Motor's Anji Logistics has now opened seven international self-operated routes to Southeast Asia, Mexico, West South America, and Europe.

Not only that, the relevant person in charge of Nezha Auto also stated that currently there are three overseas factories in Thailand, Indonesia and Malaysia, adhering to the overseas strategy of "deepening ASEAN, seizing the beachhead in South America, and developing the Middle East and Africa".

Relevant person in charge of Nezha Auto believes that China's automobile industry chain is relatively resilient and its relative competitiveness in the world is growing rapidly, which is the core driving force for China's automobile globalization. Chinese products in industries such as home appliances account for nearly 60% of the world's share. Chinese auto companies still need to work harder to improve both internally and externally. Going overseas will become the next explosion point for the automobile industry in the next 10 years.

Regarding the trend of Chinese new energy vehicles going overseas, the relevant person in charge of Nezha Automobile told reporters that under the general trend of the global automotive industry's transformation to electrification and intelligence, China's leading advantage in the field of new energy vehicles has begun to transform into competitiveness in the global automotive market. The passenger car market in Southeast Asia has a large room for growth; Chinese new energy vehicle companies have adopted innovative channel layout strategies in the Southeast Asian market, including the establishment of brand experience centers and online sales platforms. The layout of these channels not only improves the availability of products, but also enhances consumers' willingness to buy by providing value-added services such as test drive experience and customized services.

In addition, a relevant person in charge of Nezha Auto said that Chinese new energy vehicle companies are expected to promote the success of the Southeast Asian market to other potential markets. By entering the Southeast Asian market, Chinese new energy vehicle companies have accumulated in-depth insights into overseas market consumers and localized supply chain and sales channel experience. They are expected to replicate their successful experience in the Southeast Asian market in the Latin American market, the Middle East market and the African market, further expand their global market share, and achieve sustained business growth and enhance brand influence.

A relevant person in charge of Lantu Auto told the reporter from Shell Finance that deepening overseas presence, layout of global channels and development of localized business models are the long-term vision of Lantu's overseas business.

In the process of going overseas, Lantu will gradually expand outward with Europe as the center, bringing its products and services to more countries. By 2026, Lantu will basically achieve full coverage of European countries, complete the strategic layout in Central Asia, the Middle East, Central and South America and other markets, and open up the right-hand drive market.

In July this year, Aion’s first overseas factory was officially completed and put into production in Thailand. At the same time, Aion’s second factory in Southeast Asia, the Indonesian factory, is also planned to be completed and put into production by the end of this year to further meet local market demand.

The relevant person in charge explained that Aion made this choice based on regional advantages, policy orientation, market potential, strategic effects, and the international environment.

The relevant person in charge explained by example that from the perspective of market potential, the Southeast Asian market is still dominated by fuel vehicles, but new energy vehicles are growing rapidly and have great development potential. Taking Thailand as an example, Thailand's new energy vehicle sales in 2023 will increase by 603.66% compared with 2022, and the penetration rate will exceed 10%, just like China 5-7 years ago, and it is about to usher in an explosion.

Beijing News Shell Financial Reporter Lin Zi Wang Linlin Zhang Bing Bai Haotian

Edited by Zhang Bing, Proofread by Jia Ning