China Warns EV Manufacturers: Protect Tech, Slow Overseas Expansion

China's efforts to take the electric vehicle (EV) industry global is now being challenged by Beijing as they are being advised to not to invest in Turkey and India.

Executives from over a dozen EV manufacturers were recently gathered by China’s Ministry of Commerce in July under "window guidance" to talk on the dangers of setting up manufacturing facilities overseas, Bloomberg reports.

“Window guidance” is commonly used by Chinese authorities to give verbal or written instructions to companies about government policy. While companies are not directly punished for non-compliance, they are advised to focus on safeguarding their assets and advanced technology as they accelerate their international expansion.

Automakers were urged to put more emphasis on knock-down assembly lines (CKD) during the meeting than on building extensive facilities and complete supply chains overseas. Knock-down assembly lines are where essential components are made in China and then shipped elsewhere for final assembly.

With this strategy, Chinese companies may meet production demands from overseas markets in terms of localisation while maintaining control over vital technologies.

A clear warning was also given to the automakers not to invest in markets like Turkey and India due to potential future trade restrictions and worries about technology theft. The directive is said to have been prompted by escalating geopolitical tensions.

This instruction is issued at a time when trade obstacles are becoming more and more of a problem for Chinese EV manufacturers like Great Wall Motors and BYD. Recently, an anti-subsidy probe into EVs from China led to the European Union levying additional levies ranging from 9% to 36.3%, while the White House raised tariffs on Chinese-made EVs to 100%.

In order to avoid paying high tariffs, several businesses are now looking at other options, such as establishing assembly plants in nations like Thailand, Spain, and Hungary.

Nevertheless, the domestic Chinese EV market is going through a difficult period due to competition that has ignited a pricing war. According to a Goldman Sachs research, if BYD, the world's largest EV manufacturer, were to further reduce prices by 7% (10,300 yuan, or RM6,000), the profitability of the entire Chinese EV business may go into red.

Despite these obstacles, Chinese EV manufacturers are still growing internationally, though they will probably proceed with more caution going forward given the Ministry of Commerce's most recent advice.

Furthermore, this cautious strategy might have repercussions for nations that want to gain from Chinese investments in electric vehicles. By limiting the scale of foreign production, fewer jobs and reduced economic impacts may result, particularly in European markets that have been eager to attract Chinese automakers.