China became the world’s factory by selling cheap goods. This strategy won’t work for EVs.

China, the world’s factory, is known for producing affordable goods quickly.
But China EV makers shouldn’t leverage on their price advantage in the long run as it’s not sustainable, said a Bain consultant.
The EU will impose up to 48.1% tariffs on Chinese EV imports next month to protect European economies.

China has been the world’s factory floor for the last 40 years, propelling it into the position of the world’s second-largest economy.

This ability to make affordable products quickly is one of China’s key advantages in many product categories.

However, this isn’t what Chinese electric makers should be leveraging in the long run, a management consultant said on Wednesday.

“The pricing advantage will eventually run out of steam. It is product quality, technology, and brand awareness that holds the key to Chinese carmakers’ success,” Helen Liu, a partner at consultancy firm Bain told reporters, per the South China Morning Post.

Liu’s assessment came as the European Commission announced it will impose tariffs of up to 38.1% on Chinese EV imports from next month — on top of the existing 10%.

The move follows a monthslong probe into Chinese subsidies for Chinese EV makers.

The European Commission said in its announcement that the EV value chain in China benefits from unfair subsidization that causes a “threat of economic injury” to the EU’s EV makers.

The latest blow to Chinese EV makers came after President Joe Biden announced a sweeping set of tariffs in May on $18 billion worth of Chinese imports — including a 100% tax on Chinese vehicles.

Chinese EVs have nearly no presence in the US, but account for 8% of the EV market share in auto powerhouse Europe, making the industry a geopolitical hot potato.

The West hits out over China’s overcapacity

In recent months, Western countries have been lining up to criticize China for its barrage of cheap exports flooding the world’s markets. They say China’s dumping and unfair trade practices has hurt their economies.

However, Beijing has consistently pushed back on the West’s criticism that it is dumping cheap goods on the world market. Chinese authorities say the West’s accusations are protectionist and aimed at containing China’s economic growth.

One contentious sector of dispute between the two sides is the hot new energy sector.

China is producing a lot of new energy products as the country navigates a painful economic transition, from one reliant on real estate and low-cost manufacturing to the hot “new three” sectors of electric vehicles, lithium batteries, and solar panels.

However, the West is also eyeing these fast-rising industries.

Philip Nothard, insight and strategy director at automotive services company Cox Automotive told Business Insider’s Tom Carter on Wednesday that the EU’s tariff hike will not be enough to keep Chinese EV companies away from Europe.

This is because big Chinese EV players like BYD have “highly efficient” manufacturing supply chains and are very quick to adjust their strategies.

“Chinese companies have the potential to redefine electric cars so that they can convince global customers of their products’ competitiveness in performance and technology,” said Bain’s Liu, per SCMP.