European firms seek protection from Morocco’s vehicles

From the newsletter

European automakers have called on the European Union to protect them against cheap vehicles and batteries from Morocco. They argue that the North African country is being used by China to evade European tariffs. Chinese firms are building factories in Morocco to make both fuel & electric vehicles as well as EV batteries for export to Europe. 

• There is concern in Europe that domestic firms will shed millions of jobs due to an influx of cars and components from Morocco. The country has a free trade agreement with the EU. This has allowed it to become the largest exporter of vehicles to Europe. 

• The protections that European firms are demanding are in the form of higher import duty on vehicles from the North African country. They are furthermore asking for EU subsidies and other incentives to improve the continent’s competitiveness.

More details

• This controversy comes at a time when the EU has decided to impose new customs duties on Chinese electric cars. It agreed last October to raise customs duties from 10% to 45%.The move is aimed at limiting China's economic influence in European markets, pushing Chinese companies to seek alternatives elsewhere, such as in Morocco.

• The country's strategic location, favorable business environment, and investments in its automotive industry have made it a formidable force. It exported an estimated 700,000 finished vehicles to Europe in 2024, more than automotive powerhouses such as the US and China.

• Leading Chinese firms in Morocco include Gotion High-Tech, BTR New Material Group, Shinzoom, CNGR Advanced Material and Zhejiang Hailiang. They are establishing major EV battery and battery component factories in Morocco. These factories are primarily targeting Europe, where EVs account for about 14% of new car sales. 

• Morocco wants to build capacity to produce 100,000 EVs per year, more than Africa’s total annual demand. Should the EU erect barriers to make Morocco’s vehicles more expensive, it could leave the North African country with excess capacity. This would likely force it to explore alternative markets including in Africa, North America, South America, the Middle East and Asia. 

• Should Morocco find itself in Europe’s crosshairs, it might open an opportunity for South Africa, which has long been a leading exporter of vehicles to Europe. South Africa has not attracted as much scrutiny in Europe as the North African country because it has not attracted similarly high levels of investment from Chinese firms. 

• But Morocco is not sitting on its laurels. The country is moving to reduce reliance on Chinese investment and seeks to attract investment from the US and major European automotive powers such as France and Germany. This is part of a plan to have its vehicles attract less scrutiny from European automakers and policymakers. 

Our take

• The threat of EU tariffs is unlikely to deter investment by China in Morocco. Chinese companies such as BYD, JAC Motors, Dongfeng and Zeekr are already betting big on Africa, which has high potential for EV sales. This means their investments in Morocco and Africa at large still make financial sense in the long term even when you exclude Europe.

• China still beats Europe in EV battery technology, scale and price. This means that Europe will likely continue to depend on Chinese batteries for a long time, regardless of where these batteries are made. Europe can’t impose restrictions on Chinese batteries without crippling its own EV industry. 

• Africa is increasingly finding itself in the crosshairs of trade wars between the US, Europe and China. It makes investment in EV and battery factories on the continent unpredictable. This will continue until Africa develops its own robust supply chains and a ready market for its EVs.