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The Background of BYD’s Investment in Türkiye:  The Trade War Between China and the EU
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The Background of BYD’s Investment in Türkiye:  The Trade War Between China and the EU

*This article has been presented to the Shanghai University of Finance Economics as a final paper for the Business Environmental Course in the first semester of 2024-2025.

Abstract    


The European Union (EU) introduced a new policy change to impose new tariffs on electric vehicles (EVs) only imported from China. This move has prompted Chinese companies to consider direct investments or selling products through other markets to access the EU. Türkiye provides a crucial option for Chinese companies because Türkiye has special agreements with the EU, which allow industrial goods exported from Türkiye to enter the EU without additional tariffs [Association Council Decision No. 1/95 (Customs Union Decision)]. However, earlier this year, Türkiye also imposed an extra 40% tariff on electric vehicles imported from China. Due to these circumstances, BYD established a factory in Türkiye.

Keywords: BYD, EU Tariff, Türkiye’s Custom Union, Chinese EVs      

Introduction


        
The electric vehicle (EV) sector is increasingly central in global trade dynamics. In particular, China’s rise to become the world leader in electric vehicle production through state-supported policies has had economic and political repercussions in the European Union (EU) countries. While China has rapidly increased its electric vehicle exports to global markets since the 2020s, the EU claims that this competition threatens its local manufacturers (Bencivelli et al., 2024). The most striking measure the EU has taken in response to this situation has been the imposition of temporary customs duties on electric vehicles imported from China. These duties were introduced to correct what the EU defines as “unfair competition” (Van Wieringen, 2024). However, an analysis by Bruegel (The European Commission’s Duties on Chinese Electric Vehicles Are a Mistake, 2024) indicates that such measures may only have short-term effects and may increase costs for European consumers in the long term. China’s state support is seen as an economic problem for the EU and a source of strategic concern. The European Commission argues that China’s subsidies in the electric vehicle sector are putting pressure on the EU’s local automotive industry and could negatively affect Europe’s technological competitiveness (Reinsch & Whitney, 2024). In response, China has reacted strongly, claiming that these taxes violate World Trade Organization rules (Sino-EU Battery Electric Vehicle Dispute, 2024). The effects of the trade war were not limited to the two parties. Chinese manufacturers have begun shifting their production facilities to different regions to bypass restrictions in the European market. BYD’s $1 billion investment in Türkiye is one of the most concrete examples of this strategy (Bastian, n.d.). Türkiye, with its geographical location and strategic advantages, is positioned as a gateway to the European market for Chinese manufacturers (Çinli Elektrik araç devi BYD file Türkiye yatırım anlaşması imzaladı, 21:39:49 +02:00). The effects of this trade war in the electric vehicle sector on the global automotive market are also remarkable.

1. The Trade War Between China and the EU

1.1. Causes and Key Events


            Since the early 2020s, China has become the world leader in electric vehicle production and export. Thanks to the intense subsidies provided by the state, Chinese companies have produced high-quality electric vehicles at competitive prices and offered these vehicles to global markets, including the EU. Large Chinese manufacturers, especially BYD, have increased their exports to the European market, posing a serious threat to regional local manufacturers (Bencivelli et al., 2024). China’s state support for electric vehicle production causes unfair competition in the EU internal market. In 2024, Europe will impose additional taxes on imported electric vehicles from China. The EU Commission aims to protect the domestic EVs. Manufacturers intend to follow this policy (Reinsch & Whitney, 2024). However, this policy is expected to increase car prices for consumers in Europe. The trade war between China and the EU has not only been limited to taxes but has also led to tensions in political and economic dialogues. For example, the European Commission has investigated Chinese manufacturers’ unfair competitive advantage (Van Wieringen, 2024).

1.2. Impact on the Automotive Sector       


           
The European automotive sector argues that this situation weakens its competitiveness and threatens its market share (Van Wieringen, 2024). China’s cost advantages in EV production have put domestic manufacturers in the EU in a difficult position. The protectionist measures taken by the EU include increasing customs duties on EVs imported from China. While these duties aim to protect domestic EU manufacturers, they also lead to higher consumer prices (The European Commission’s Duties on Chinese Electric Vehicles Are a Mistake, 2024). The restriction of imports from China has caused the re-routing of approximately $4 billion worth of trade, indicating a serious transformation in global supply chains (EU Tariffs against China Redirect Trade of EVs Worth Almost USD 4 Billion, n.d.). Chinese manufacturers are improving new tactics to break through the restrictions. China’s leading electric vehicle manufacturer is noteworthy in Türkiye: the $1 billion investment made by BYD. This investment positions Türkiye as a gateway to the European market for Chinese manufacturers. It is also anticipated that it could increase Türkiye’s domestic production capacity (Bastian, n.d.). The European EV sector must adapt to changing market dynamics. However, the EU’s short-term protectionist policies, such as customs duties, may harm the industry in the long term. For example, local automotive manufacturers in Europe need to invest in technological innovations to become more competitive (Reinsch & Whitney, 2024). Consumers may experience a decrease in EV purchases due to increasing prices (Bencivelli et al., 2024).

2. The EU’s Recent Tariff Policy on Foreign Evs

2.1. Additional Tariffs on Chinese Electric Vehicles  

      
            China’s electric vehicle industry has gained a large share of the international market thanks to extensive government subsidies and low-cost production capacity, which has led to economic and political concerns in EU member states (Van Wieringen, 2024).  One of the main reasons for the additional tariffs is the risk of Chinese manufacturers taking over the market by “dumping” on the EU market at low prices. The European Commission argues that EVs imported from China cause serious damage to local manufacturers. For example, it is stated that the temporary tariffs introduced in 2024 will increase the prices of electric vehicles from China by about 20% (Reinsch & Whitney, 2024). Although such protectionist policies benefit domestic producers in the short term, they may negatively affect innovation and competitiveness in the sector in the long term. (The European Commission’s Duties on Chinese Electric Vehicles Are a Mistake, 2024).  Another effect of additional tariffs is observed in supply chains and trade flows. The trade restriction from China to the EU has shifted $ 4 billion worth of electric vehicle trade to other regions(EU Tariffs against China Redirect Trade of EVs Worth Almost USD 4 Billion, n.d.). This situation brings alternative production and investment regions, especially Türkiye, to the forefront. For example, BYD, one of China’s leading electric vehicle manufacturers, has strengthened its Sunday market entry strategy by investing $1 billion in Türkiye (Bastian, n.d.). The EU’s additional tariffs policy also shows its effects on the consumer side. Oct. Rising electric vehicle prices in Europe due to rising costs may reduce consumer demand. The market share of EVs may grow more slowly due to these policies in the EU (Bencivelli et al., 2024). At the same time, it is stated that high prices may slow the speed of consumers’ transition to environmentally friendly vehicles, which is the EU’s environmental sustainability goal.

 2.2. Implications for the Global Automotive Market    

  
            Chinese manufacturers are causing unfair competition by dumping in the EU (Van Wieringen, 2024). In return, the applied tariffs affect Chinese manufacturers’ investment decisions in Europe and the global market. China is one of the world leaders in electric vehicle production, and companies such as BYD and Nio, in particular, have adopted a rapid expansion strategy globally. It is observed that this EU policy has led China to shift its focus from Europe to other regions, such as the Middle East, Africa, and Southeast Asia (EU Tariffs against China Redirect Trade of EVs Worth Almost USD 4 Billion, n.d.). Chinese manufacturers aim to reach the European market indirectly by investing in locations close to the EU, such as Türkiye. For example, BYD’s investment of $1 billion in Türkiye to establish a facility for producing electric vehicles is considered part of this strategy (Bastian, n.d.). The EU’s additional tariffs also affect the market strategies of other global players. Major manufacturers such as Tesla, based in the US, are reassessing the competitive environment in the European market. It is curious how these tariffs will affect Tesla’s exports from its production facilities in China to Europe  (The European Commission’s Duties on Chinese Electric Vehicles Are a Mistake, 2024). These tariffs have far-reaching consequences for the global automotive sector regarding supply chains. Given China’s leadership in battery technology and raw materials, this tension between the EU and China could lead to supply chain disruptions (Bencivelli et al., 2024). In particular, a large portion of electric vehicles produced in Europe use lithium-ion batteries imported from China. Therefore, this EU policy may increase imports from China and the EU’s reduction costs. On the consumer side, the EU’s tariffs may increase electric vehicle prices and slow their adoption rate, jeopardizing the EU’s carbon neutrality target by 2030 (Reinsch & Whitney, 2024).

3. Türkiye’s Position in BYD’s Global Strategy  

 
3.1. Economic and Geopolitical Advantages    

     
            BYD plans to establish a factory with 20,000 electric vehicles in Türkiye (BYD Auto, 2024). This investment offers logistical advantages, enabling BYD to enter the European market more effectively. The new tariff increases implemented by the European Union (for electric vehicles of Chinese origin) have caused Chinese companies such as BYD to rearrange their production locations. The European Commission has brought new tariffs, drawing attention to the fact that the state support provided by China to electric vehicle manufacturers distorts fair competition (Reinsch & Whitney, 2024). Türkiye’s Ministry of Industry and Technology has determined electric vehicle production as a strategic target and has offered significant incentives for investments in this area (Çinli Elektrik araç devi BYD ile Türkiye yatırım anlaşması imzaladı, 21:39:49 +02:00). Thanks to Türkiye’s tax and other advantages, BYD’s production in Türkiye will provide fast and cost-effective access to European and Middle Eastern markets (Bastian, n.d.). BYD’s plan to establish an R&D center in Türkiye will strengthen the technological infrastructure in the region and contribute positively to the local economy (BYD Auto, 2024).


3.2. Strategic Importance of the Turkish Market


            Türkiye plays a strategic role in BYD’s global strategy, and this situation stands out in terms of both economic and geopolitical advantages. Especially with the increasing demand in the EV market, Türkiye acts as a bridge between Europe and Asia for BYD. Türkiye’s electric vehicle market has witnessed rapid growth in recent years. In 2024, the share of electric vehicle sales in the total automotive market in Türkiye reached 8% (Çinli elektrikli araç devi BYD ile Türkiye yatırım anlaşması imzaladı, 21:39:49 +02:00). This increase makes investments in the local market attractive for companies such as BYD. In addition, Türkiye’s strong automotive infrastructure allows BYD to adapt its local production capacity easily. For example, BYD’s $1 billion investment in Türkiye aims to establish a facility with an annual production capacity of 150,000 electric vehicles (BYD’den Türkiye’de 1 Milyar Dolarlık Dev Yatırım, 2024). Türkiye’s geopolitical location is important for BYD’s export strategy towards Europe. The additional tariffs the European Union imposes on Chinese electric vehicles (Reinsch & Whitney, 2024) allow companies like BYD to use their production facilities in Türkiye as an advantage in European exports. This situation offers both cost advantages and logistical conveniences. Türkiye has become a strategic connection point between these two regions thanks to its proximity to Europe and the Middle East. The Turkish market’s young and technologically open consumer profile offers an important opportunity for BYD to increase its brand awareness. In 2023, more than 500,000 electric vehicles were registered in Türkiye, expected to exceed 2 million by 2030 (BYD Auto, 2024).  



Conclusion 


            BYD’s plan to establish a factory is considered an important milestone in the EV sector in Eurasia and the Middle East, with a production capacity of 1 million units in Türkiye (Çinli Elektrik araç devi BYD file Türkiye yatırım anlaşması imzaladı, 21:39:49 +02:00). Türkiye’s proximity to the European Union attracts Chinese companies’ attention (Lee, 2024), helping the company gain a more competitive position in the European market. The Turkish market is a production center for electric vehicle manufacturers such as BYD and appeals to a growing consumer base. The 40 percent increase in electric vehicle sales in Türkiye in 2023 shows that the region’s demand for environmentally friendly and technological solutions is increasing (BYD Auto, 2024). Türkiye provides BYD with advantages such as developing R&D centers and technically trained human resources. In this context, BYD’s plan to establish an R&D center in the region as part of its investment in Türkiye reveals that the company aims to increase its innovation capacity and strengthen its local supply chain (BYD’den Türkiye’de 1 Milyar Dolarlık Dev Yatırım, 2024). Türkiye emerged as a strategic hub for BYD when tariffs imposed by the European Union on electric Chinese vehicles directed Chinese companies to alternative locations. According to a report by IFW Kiel, these new tariffs in Europe have shifted approximately $4 billion worth of electric vehicle trade from China to various countries, paving the way for companies like BYD to turn to Türkiye (EU Tariffs against China Redirect Trade of EVs Worth Almost USD 4 Billion, n.d.).

Bibliography      

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