Chinese electric vehicles (EV) and parts makers have been racing into Europe via opportunistic M&A and joint venture set-ups, in a bid to seize the opportunity window, which is expected to close within the next three years, several sector experts told Mergermarket.

“Chinese EV makers with supply chains must enter Europe now, it would probably be now or never,” the first source said.

The sense of urgency stemmed from European subsidy probes into Chinese EV production launched last October, the second and the third sources said. Chinese EV and parts makers are pushing ahead to secure an early-bird pass into EV industry chains, ahead of any potential EU bans spreading over to the whole EV supply chains, they said.

Earlier this month, the EU said it would start customs registration of China-made EV imports to impose possible retroactive tariffs, if it concludes by the end of the ongoing probe that EV makers receive unfair subsidies. Tariffs can be imposed from the time of registration, as reported by Reuters.

With the dominance of a China-based supply chain and low R&D cost, Chinese EV makers believe they can still compete with European peers within the next two to three years, the first source said. With European automakers catching up over the next three years, the advantage gap will be narrowed. The European market, with many local seasoned automakers in the bloc, is likely to see fierce competition like what is happening in China now, he said.

Within one or two years, should the EU put punitive tariffs on Chinese EV makers, they could still offer lower pricing thanks to the low cost of the supply chain, per the first source. However, this is not sustainable, as such advantage will gradually decrease with European automakers catching up and their increasing investment in EV supply chain and infrastructure, he added.

Germany, Austria, Hungary, Poland, and Czech Republic are all among the top destinations for Chinese EV makers and EV components makers with heavy sales in Europe, the second and third sources said.

Upper hand

Chinese EV makers’ confidence to expand in Europe has very much to do with the magic of integrated supply chain from raw materials, batteries, motors, and control systems to experienced talents in the EV R&D field, the first source said. For example, Chinese EV maker BYD [SHE:002594], which is outselling US peer Tesla [NASDAQ:TSLA] where now, has around 60%-75% of its EV parts self-produced owing to its vertically integrated supply chain, he explained.

In addition to the cost advantage, the well-developed supply chains and industry clusters mean that Chinese EV makers can respond to market demands much more quickly, the first said. For instance, it only takes about 18-24 months for a Chinese EV model to go from the concept to launch, he said, noting that the R&D cycle is getting even shorter.

European OEMs are heavily reliant on Chinese EV supply chains with low-cost R&D and production, especially in the key components, like batteries, and control systems, the second source said.

Chinese companies are undoubtedly in a leading position in the core elements of the EV industry battery, including electric motors, and control systems, per the first source.

Although China’s EV imports into Europe have been surging over the past year, Chinese EV brands remain a small portion (around 1%) of new EV sales in Europe, the second source said. US and European brands remain on the rank top, such as US-based Tesla, Germany-based BMW [ETR:BMW], and Mercedes-Benz [ETR:MBG], he noted.

The real concern by the Europe regulators is not over Chinese EV brands, but Chinese EV supply chains, the second source said. Such high dependence might likely encourage the EU regulators to roll out protectionist measures on the EV supply chains, not just EVs alone, he added.

Here is a list of Mergermarket selective proprietary opportunities, within the last six months, on Chinese automotive companies to invest in Europe.