China EV backlash is a replay of Japan fears 40 years ago

The backlash in the more right-wing media over the past week aimed at the increasing numbers of Chinese electric cars echoes the disquiet at the rise of Japanese imports more than 40 years ago. Recognising the threat back then, the UK came up with a smart solution: lure key Japanese car makers to make their vehicles here. The Chinese are also looking to locate production in Europe as they seek to build closer relationships and reduce delivery times, but the UK at the moment is looking far less attractive as a manufacturing location. As it stands, our ability to land China’s equivalent of Toyota, Nissan and Honda to build here right now is weak – but it doesn’t need to be. The recent outpouring of anger in papers such as The Telegraph, The Daily Mail and The Daily Express at Chinese EVs is a response to the growing market share of MG in particular, which is Britain’s second best-selling EV maker after Tesla in the first seven months thanks to the success of the good-value MG 4 EV hatchback. MG also came within 17 cars of beating Nissan to the number 10 brand position outright in the first seven months – an impressive achievement. The success of MG, owned by China’s SAIC, has given the right wing an angle of attack. Former home secretary Priti Patel stoked fears of Chinese firms using their cars to stage cyber attacks and industrial espionage, while Shankar Singham, head of the International Trade and Competition Unit for the Insititute of Economic Affairs (IEA), a Conservative-allied think tank, called for a rise in selective tariffs. The language may have changed, but the fears over a foreign entity using a powerful advantage to gobble up market share with attractively priced imports is very similar to the situation between Japan and the rest of the world in the late 1970s and early 1980s. Like China now, Japan had grown its car industry to the point that its home market couldn’t absorb any more and was looking abroad for further expansion. A tight focus on build quality and manufacturing automation gave the Japanese a lower cost base and more reliable product to entice those customers more interested in value than brand. It also had a supply-chain efficiency that European makers couldn’t compete with, another echo of China’s advantage now. By 1980, Japan had overtaken the US to become the world’s largest producer of vehicles, of which around half were exported. As we’re seeing now with China’s advantages in electric production, European automotive executives admired what Japan had achieved but greatly feared losing their customers to products made more cheaply. They saw some of the advantages as unfair and weren’t shy about voicing it. Then Renault chairman Bernard Vernier-Palliez told Autocar that it was “politically and economically intolerable” that Japan should export so many vehicles while throwing up barriers to its own market. Meanwhile Volkswagen chairman Toni Schmücker was similarly vocal in an interview Autocar, also in 1980. “The Japanese must become reasonable; they must stop exporting their unemployment to Europe,” he said, artfully reframing the Japanese desire for growth. Their boardroom equivalents today aren’t quite as vocal, especially those with a sizeable market share to protect in China. But Stellantis CEO Carlos Tavares has repeatedly asked for tariffs on Chinese cars to match those Europeans face into China. “The European market is wide open to the Chinese, and we don’t know if their strategy is to grab market share at a loss and increase their price later,” he said last year. So how did Europe and the UK look to contain the Japanese threat to their business? And can the same tactics work now? The UK’s approach was for the automotive lobby group the SMMT to sit down with its Japanese equivalent, JAMA, in 1975 and hammer out a ‘gentleman’s agreement” to limit Japanese imports to a maximum 11% of the UK market. Across Europe, individual countries came to similar agreements until the EEC (forerunner to the EU) spelled an end to these informal arrangements. It's hard to imagine today the SMMT being able to hold similar talks with its Chinese equivalent, given the disparity in economic size between China and the UK. Meanwhile, the IEA’s dream of selective tariffs looks to be a non-starter, given the government’s stated aim post-Brexit to open the UK's markets globally. Right now, Chinese EVs imported into the UK are subject to the same 10% tariff as imposed by the EU. But we can skip to the next phase: bringing the competition into tent by forging partnerships and attracting local manufacturing. China’s Geely is already a big investor in the UK, with its ownership of LEVC, its majority stake in Lotus and its sizeable shareholding in Aston Martin. But the prize would be a volume manufacturer like SAIC, which has said it's considering the UK for its planned European plant. Another is BYD, China’s equivalent of Toyota, which has also expressed interest in local European production. Japan broke down barriers in Europe by forging partnerships and becoming more European. In the UK, Honda make an early move by partnering with British Leyland on the Triumph Acclaim and later Rover models. In Italy, a country implacably opposed to Japanese imports, Nissan solved Alfa Romeo’s bodyshell shortage by partnering to produce the Alfa-engined Arna. This local bridge-building is as important today as back then. “Building local means you work together with local people. It’s more commitment,” SAIC’s head of Europe, William Wang, told Autocar in July. Japan’s initial efforts were viewed suspiciously. Italy refused to allow local sales of the Acclaim because they didn’t see it as British. Autocar complained in an editorial in 1984 that Japan was using these more informal agreements like “the cuckoo in the nest” to get around import quotas. But that same year, Nissan announced that it would build cars in Sunderland, first from kits and then from scratch. The agreement was that eventually local content would reach 80%, an incredible amount when you think in today’s far more globally connected world that local-sourced UK content could be a low as 25% on average for cars built here (although it’s debateable whether that 80% was ever reached). The UK government even nixed an agreement in 1983 between Suzuki and Lotus in to build the diminutive SC100 at Lotus’s Hethel factory because the local content was too low, at 60%. Local content agreements are just as relevant today, with the post-Brexit agreement requiring new cars crossing the Channel either to have minimum levels of UK or EU content. In the 1980s, the Conservative government under Margaret Thatcher sold the Japanese on this country as a manufacturing location for its easy access to the new EEC (as well offering generous incentives). We no longer have that unfettered access to the EU after Brexit, meaning we will have to work harder (or pay more) to attract Chinese car makers here. Some elements of the current Tory government clearly don’t want to do business with the Chinese on any level and they think their voters feel the same. But we can’t lock out Chinese EVs on tariffs, given that we export 80% of the cars we build, with many Range Rovers, Aston Martins, Rolls-Royces and Bentleys finding a ready market in China itself. We will lose a trade war. We can, however, borrow from the EU playbook and enforce a more positive form of protectionism by requiring a maximum carbon footprint on the production of EV imports. One attack point from the right is that China will be a beneficiary from our staggered move to ban ICE cars from 2035, given their cheaper pricing. But denying British customers cheap EVs is the wrong move. Much better to woo Chinese EV makers to make their cars here and rebuild bridges with Europe to once again become a staging post into the continent. It smacks of defeatism to say that we need to restrict Chinese cars because they’re a threat to European car makers. China is currently on the front foot because it recognised its weakness in ICEs and decided to create a coherent state-funded investment strategy focused on batteries. We can do the same, whether that’s with hydrogen fuel cells, more advanced batteries or whatever else we think the next big thing in propulsion will be. The positive experience that our industry has taken from making partners of Japanese manufacturers rather than enemies proves that embracing the competition is the only way forward.