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In early September 1985, the first batch of Santanas were ready to be assembled in the workshop in Anting, Shanghai. Almost at the same time, the Shanghai office received an urgent notice from the Bank of China.

Hainan's import smuggling consumed too much foreign exchange, and there was not enough foreign exchange available for Shanghai Volkswagen.

At that time, Shanghai Volkswagen was only one year old. Except for tires and speakers, all parts for assembling Santana had to be imported. And the parts sent from Germany were stuck in customs for many days.

A Santana needs to import 6,500 USD worth of parts. At the worst time, all the foreign exchange was only enough to assemble the Santana:

30 vehicles.

Both shareholders of Shanghai Volkswagen were very anxious. The directors of Volkswagen Germany were eager to increase production capacity and open up the Chinese market; while Chinese officials also needed Santana to be localized, otherwise foreign exchange would flow out.

There is only one method left that can immediately resolve the anxiety of both parties:

tariff.

At that time, in order to protect the survival space of domestically produced cars, China's tariffs on imported complete vehicles had reached 80%-120%.

But this was not enough. In 1985, in order to support Shanghai Volkswagen, the import tariffs on complete vehicles continued to rise, first to 120% to 150%, then to 180% to 220%. On this basis, an 80% import adjustment tax was added.

The tariffs on parts and components have been reduced from 60% to a minimum of 35%.

With the protection of tariffs, Shanghai Volkswagen's sales in China immediately improved. In the second year, Shanghai Volkswagen offset all the losses of the previous year.

Their suppliers gradually increased from 1 to 127.

In the past three years, Volkswagen Group's joint venture revenue in China has reached nearly 9 billion euros, making it one of the most profitable companies in the world. At the beginning, their investment in Shanghai Volkswagen was only 100 million Marks.

After the domestic Santana became a hit, the Shanghai Planning Commission set up a community fund. For every Santana sold, a proportion of the fund would be withdrawn.

This may be the earliest industrial venture capital fund in China. As long as the parts companies pass the technical evaluation, they will receive a sum of support funds.

The automobile industry has always been a core industry that all countries strive to protect.

1

In 1951, the automobile group of Japan's Ministry of International Trade and Industry conducted an industry survey and asked Toyota, Nissan and other automakers what support policies they most wanted to receive.

The questionnaire results were revealed, and the top three answers were:

Tariff barriers, financial subsidies, and credit support.

For a long time afterwards, Japan became the country with the highest barriers to automobile trade and implemented a strict domestic production plan. At that time, police driving Japanese domestic cars often could not catch up with criminals driving imported cars. The police complained to the Ministry of International Trade and Industry and asked to switch to imported cars, but the answer they received was:

Please bear with it for a while.

China’s support for its own car companies is not weak at all.

As we all know, the EU recently investigated Chinese electric car companies for 9 months in the name of anti-subsidy. It selected 21 Chinese car companies including Great Wall, Weilai, Xiaopeng, and Ai Chi as the investigation samples.

BYD, Geely and SAIC are the key sampling targets. The so-called key targets must provide the required information; even more than 200 upstream and downstream companies have to submit hundreds of questionnaires and undergo field inspections.

The EU investigated nearly 20 subsidy programs, including financing and targeted credit from state-owned banks, cash subsidies to manufacturers, government equity investment, land use rights at a lower price than reasonable, consumption tax exemptions, export tax rebates, and exemption of license plate fees.

Based on the information submitted by the automakers, the EU made a conclusion. They believe that SAIC received the most preferential financing involving loans, nearly 10 times that of BYD; SAIC also received the most subsidies:

Much more than BYD and Geely.

Geely and SAIC both received more than 10% in subsidies for battery production, while BYD, which produces its own batteries, calculated the subsidies based on battery raw materials, and the final calculation came out to be about 7%.

BYD, Geely and SAIC were selected for spot checks because they are the most representative.

During the survey period (October 1, 2022 - September 30, 2023), they accounted for 43% of China's total exports to the EU, 39% of total exports, and 51% of sales in China.

Interestingly, both Tesla and Great Wall were dissatisfied with not being included in the survey.

Tesla was not even on the list, but requested to be included in the survey sample. Great Wall said it could better represent Chinese electric vehicle exporters and requested to replace one of the three original companies:

Do you look down on me?

2

In July, the EU imposed temporary tariffs on imported cars. On top of the original tariffs on imported cars, BYD added a 17.4% tax rate, Geely added a 20% tax rate, and SAIC added a 38.1% tax rate.

For the other 18 automakers, those who cooperate will have an additional tax rate of 21%, while those who do not cooperate will be charged 38.1%.

Tesla, which actively cooperated, was also classified into the 21% category; SAIC was listed as a non-cooperative company.

Later, SAIC said that many of the questions in the investigation went beyond reasonable scope, for example, they were asked to provide:

Chemical formulas related to batteries.

The temporary increase in tariffs will be collected for at least four months, until the final vote in November. These extra temporary taxes and fees will be collected as a deposit. How to release them is decided by the customs of each EU member state.

The latest news is that after Tesla's efforts, they enjoyed a separate tax rate of 9%, which is more than half lower than the initial 21%.

The EU's vigilance towards China's new energy vehicles comes more from the extremely unbalanced supply and demand relationship in the local area.

The European Commission has calculated that the market share of locally produced electric vehicles will drop from 68.9% in 2020 to 59.9% in 2023. Meanwhile, the market share of electric vehicles imported from China has soared from 3.8% to 25%.

Europe as a whole is already the world's second largest electric vehicle market after China. The automotive industry can be said to be the economic pillar of the European Union, providing nearly 13 million jobs in 27 countries.

Germany is an active opponent of the tariff increase. Hungary and Sweden are in the same camp as Germany. Hungary is the location of BYD's European factory. Sweden is the headquarters of Geely Volvo.

Italy, Spain, and especially France, are at the forefront of the push for tariffs.

In 2023, Europe's imports of electric vehicles from China reached $11.5 billion, almost seven times the level three years ago.

But in fact, domestic export car companies such as BYD and SAIC MG still have a very low market share in the EU, about only 8%.

The models that occupy Europe are mostly imported from China by foreign car companies, such as BMW, Mercedes-Benz Smart and Renault Dacia Spring. If Tesla Model 3 is included, it will have a market share of 37%.

The US research institute Rhodium Group has made a research report. BYD Seal U model (Song PLUS) is sold for 20,500 euros in China, with a profit of 1,300 euros. In Europe, it is sold for 42,000 euros, with an estimated profit of 14,300 euros. This means that BYD's EU premium has reached 13,000 euros. Even if a 30% tariff is imposed:

The profit is still more than enough.

BMW's iX 3 SUV, which is made in China, has an EU premium of just 9%.

In the decades since entering China, German automakers have almost become the main market, with Volkswagen's sales in China accounting for nearly 30%.

This means that the EU's tariff knife will be aimed at itself first. Even so, the EU still gritted its teeth and chopped it down.

3

June 14th was the first day of the European Cup. Fans found that the stadium was flooded with an unknown advertisement:

NO.1 NEV maker

The sponsor of the advertisement is BYD. No one knows what NEV (new energy vehicle) is. When locals talk about electric vehicles, they use BEV (electric vehicle).

This aroused fear among Europeans, who recalled the days when Korean cars dominated European football stadiums in 2000. For the first time, Hyundai Motor Co., Ltd. of South Korea overtook local car companies to become the main sponsor.

At that time, South Korea had just emerged from the shadow of the 1997 foreign exchange crisis, and the leading automakers were either bankrupt or merged. Hyundai had just acquired Kia. It took a lot of courage and determination to come up with a huge advertising investment.

Korean cars first entered the European market in the 1980s, a whole generation later than Japanese cars. After nearly a decade of government support, Korean cars finally gained the hope of the whole village:

Modern pony, pony.

This is destined to be a model that carries the destiny of the country. Even though the engine uses Mitsubishi technology, the body structure is copied from Ford, and the design is outsourced to an Italian design company. Looking at it today, it is a patchwork monster that will be complained by car reviewers.

But it was the Pony that made the whole of Europe know Korean cars, starting with its export to Greece. The toughest bone to chew was France. It took a full 15 years for Korean cars to be sold in France.

In order to gain a foothold in Europe, Hyundai has kept a low profile and even placed its design center directly in Germany; they also spent nearly 2 billion euros to build factories in Slovakia and the Czech Republic to specialize in the production of European strategic models CEED and i30.

The i30, in particular, was a model tailor-made for European customers. Since then, half of Hyundai's cars sold in Europe have been the i30, its signature model.

In 2006, Hyundai hired the designer of Audi's first-generation TT sports car. Thanks to the ingenious tiger nose grille, sales in Europe increased by 10% that year.

Driven by the flagship models, Korean cars exported to the EU have exceeded 740,000 units, accounting for almost 4% of the local market share.

Just like it strangled China today, Europe is also preparing to strangle Korean cars. Italy and France are still at the forefront.

In May 2007, South Korea and the EU began negotiations. Outside the negotiation table, South Korean automakers were also lobbying hard. Their biggest argument was that South Korean cars were basically produced in Europe, and imports would not pose any threat to European automakers.

The negotiations lasted for seven rounds, and the trial was not started until July 2011.

But France, which has always disliked Korean cars, has not given up its resistance and accused Hyundai of "dumping" cars on the European market.

French car companies were already struggling to survive, with Peugeot alone losing nearly $1 billion in half a year.

The South Korea-EU Free Trade Agreement finally put an end to the tariff war, but Hyundai's offensive into Europe did not stop.

In 2014, Hyundai poached the chief engineer of BMW M series, which made the performance and control of its cars produced in Europe improve by leaps and bounds:

Both the face and the substance are there.

Since 2000, Kia's sales in Europe have grown from less than 500,000 to nearly 2 million. Hyundai has opened more than 2,200 sales outlets in 47 countries in Europe. Its two factories in Turkey and the Czech Republic have production capacity second only to Volkswagen in Germany in Central Europe.

4

Nine months after being sampled by the European Union, BYD resumed operations at its factory in Szeged, Hungary.

The steel hall components were transported by rail, and in the future, more construction materials will be transported at a rate of 200 to 300 containers per day.

Originally, Hungary mainly produced Audi and Mercedes-Benz, with an annual output of 400,000 vehicles. Next, BMW and BYD will build factories here, which will increase production capacity by 200,000.

Soon, SAIC will join in. One of Spain, the Czech Republic and Hungary is likely to be the destination.

You should know that SAIC's MG sold 230,000 vehicles in Europe last year, far exceeding local car companies such as Volkswagen and Renault.

Among all the voices opposing tariffs, the Germans are the most vocal, second only to the Chinese. This is completely different from the opposition of German car companies to Korean cars entering the country.

The Germans clearly know the trends that can maximize their profits. They also know that without Chinese car companies, they really can't handle electrification and intelligence.

For example, Volkswagen has set up its software department Cariad since 2020, and has invested tens of digits in funding. However, there has been no improvement so far, and Audi and Porsche's new models have been delayed for many years.

The software division's multibillion-dollar investment in Rivian has almost gone down the drain. Its investment in autonomous driving specialist Argo AI has also ended in a similar way. Its collaborations with Apple and Google have yielded little. It had to shut down its Brussels factory because it failed to make Audi's electric car, the Q8 E-tron.

For a multinational automaker with nearly 700,000 employees, the inability to develop the most advanced software is a painful fact. It is important to note that Volkswagen had indeed taken many detours before choosing Xiaopeng:

There is not much time left for myself.

Volkswagen was forced to start reducing costs and increasing efficiency, and to save money. They cancelled the privilege of using Porsche official cars for 200 executives, and planned to reduce costs by 4 billion euros through similar measures.

More German supply chain companies have not been spared. Bosch will lay off 7,000 employees this year, half of whom are from the automotive sector. Continental's development department and German automotive department will also lay off more than 7,000 employees through early retirement. ZF plans to lay off a quarter of its employees in the next five years.

In recent years, ZF has received orders for electrical components worth 30 billion euros, but has never been able to deliver them. The production cost of an electric car inverter is nearly 600 euros for ZF, and the profit is less than 1 euro. Chinese manufacturers can deliver the same parts for 250 euros.

There are nearly 800,000 employees in the German automotive industry, one-third of whom are employed by suppliers.

By July, more than 43% of German auto companies had insufficient orders, and the capacity utilization rate was only 77%.

France, on the other hand, has simply signed a military order for the automotive industry, requiring it to triple the annual sales of electric vehicles within three years and to increase production to 2 million vehicles within six years.

The French Ministry of Finance has allocated 1.5 billion euros to achieve this goal. But now, the penetration rate of electric vehicles in France is only one-fifth; and only 12% are manufactured in France.

European media said that the current situation of Chinese electric vehicles in France is a bit like Caesar crossing the Rubicon River more than 2,000 years ago. Once he crossed the Rubicon River, the historical process of French automobiles would be completely rewritten.

As for Chinese enterprises, Mr. Pan Changjiang, who has the most experience in crossing the river, has already sung:

Brother, you must cross the river and wait until the sun sets in the west;

The spring breeze rocked the boat, and it had already unlocked my heart;

My sister is willing to be the oars and the boat so that you can jump over my river.

The person who once blocked you from crossing the river may be your oars and boat.