TheChek News Flow

Chinese carmakers reset European ambitions as EU tariffs bite

Extra costs have hit the price competitiveness of many groups while some have struggled to expand distribution networks

Chinese carmakers expanding into Europe are being forced to readjust their short-term ambitions as tariff roadblocks have slowed product launches and made their electric vehicles less affordable.

The rapid rise of Chinese-made electric vehicles — with their low pricing and advanced software features — has sparked protectionist measures in both the US and EU, with Brussels last year imposing tariffs of up to 45 per cent on EVs from the country, while the US market remains essentially closed to Chinese carmakers. 

The additional costs have weakened the price competitiveness of many companies, while others face problems expanding their distribution networks.

The “difficulties were certainly underestimated in our initial planning”, Nio chief executive William Li said at last week’s Shanghai Auto Show, although he said that the EV company remained “firmly committed” to growing gradually its footprint in Europe. 

Despite their declared ambitions, the market share of Chinese brands in Europe and the UK is still small at 4.3 per cent in the first two months of this year, according to automotive analyst Matthias Schmidt.

Last month, Leapmotor chief executive Zhu Jiangming warned that “the 30.7 per cent tariff and 10 per cent shipping cost combined have significantly impacted our competitiveness [in Europe]“. 

Stellantis last year bought a 20 per cent stake in Leapmotor in a landmark deal, where the Hangzhou-based start-up’s EVs were to be sold at the Fiat and Peugeot owner’s dealerships in Europe. 

But the partnership has already suffered a major setback after Stellantis abruptly halted production of Leapmotor’s T03 small electric model in Poland in late March, without giving a reason publicly.

Poland was among EU nations that voted in favour of the bloc’s tariffs after Brussels concluded that Chinese-made EVs were unfairly subsidised by Beijing.

The company’s priority now is to start production in Europe by the second or third quarter of 2026.

“The anti-subsidy tariffs appear to have slammed the brakes on the penetration progress [of Chinese EVs],” Schmidt said, despite brands such as Xpeng and BYD entering the continent with new models. 

The Chinese groups’ share of new EVs in Europe has also fallen from 50 per cent prior to tariffs imposed by Brussels — to 30 per cent — as they shift to more profitable petrol vehicles to avoid the levies.

Nio aims to launch a new small EV under its sub-brand Firefly in more than five European countries by the end of the year, after failing to synchronise the model’s debut with its China launch this month. The company has been struggling to expand its local dealer network in Europe and recently ditched a direct-to-consumer sales model following weak European sales.

Li said it was possible to open 100 showrooms in a single month in China, but “achieving that same pace in Europe is much more challenging, with costs far exceeding our expectations”.

Nevertheless, some Chinese groups are pressing on with expansion plans.

BYD management told Citi analysts in Shanghai the group expected the EU to account for 20 per cent of its vehicle exports this year, up from 15 per cent in 2024, with production set to start in Hungary this year.

Hybrids are driving the projected growth as the vehicles are not subject to EU tariffs and are expected to make up about half of BYD’s exports. 

Geely-backed Zeekr also downplayed the impact of EU tariffs on its price competitiveness. “In some countries, the tariffs are high, which is fair to everyone. It’s not a problem,” said Mars Chen, Zeekr’s vice-president.

The group, which has a presence in Sweden, the Netherlands and Norway, aims to expand into nine European markets, including Germany, Switzerland and Denmark by the end of the year.

China is also seeking to reset ties with the EU and step up high-level negotiations to resolve the tariff issue amid a bruising global trade war launched by Donald Trump. 

Mercedes-Benz chief executive Ola Källenius told reporters in Shanghai that he hoped the two sides would reach “an equitable and intelligent solution”.

“We are open for competition in any direction, through any country, on a level playing field,” he said.

Debt-laden utility was a ‘better business after our stewardship’, says executive from Australian group

Macquarie has told investors it is “very proud” of its record as the owner of Thames Water, the debt-laden utility that has fallen into deep financial difficulty since the Australian infrastructure investor sold its stake seven years ago.

Macquarie, now the majority owner of Southern Water, has drawn the ire of politicians and campaigners for its decade-long ownership of Thames Water in which debt increased dramatically and dividends were regularly paid out to shareholders.

“We’re actually proud, very proud of our ownership of Thames Water,” said Ben Way, group head of Macquarie Asset Management, an investor day last month.

He added that over the past decade “no regulator in the UK” has looked at the Australian financial group as anything other than “a very positive owner of assets”.

Thames Water’s debt increased from £3.4bn in 2006, when Macquarie first bought into the business, to £10.8bn when it sold its final stake in 2017. Now teetering on the brink of insolvency, the utility ’s debt pile has since ballooned to nearly £20bn and it is set to borrow up to £3bn more in high-interest emergency loans from its senior lenders.

“Imagine being blamed for a house that you own seven years ago when the roof leaked,” Way said.

During Macquarie’s ownership, about £2.7bn was taken out in dividends and a further £2.2bn in loans.

However, Macquarie has previously defended its record, pointing to £11bn in customer bills that was spent on infrastructure during its ownership — a figure it claimed was “the highest per customer investment level of all water companies in England and Wales”.

It has also said Thames Water’s water leakage fell 22 per cent over the period and it reduced “pollution incidents” by 75 per cent compared to 2006.

“It was a much better business, imperfect, but much better business after our stewardship,” Way said. “Thames Water is a very good example of the ability to have the courage of your convictions and look beyond the media drama or noise.”

Macquarie said: “Under our ownership we supported Thames Water as it delivered record levels of investment, which enabled significant improvements in water quality, reduced leakage and pollution incidents . . . When we sold our final stake in 2017 the company was meeting all conditions set by the regulator, and had an investment grade credit rating.”

Several of Thames Water’s largest shareholders, including pension fund Ontario Municipal Employees Retirement System and Abu Dhabi’s sovereign wealth fund, wrote off the value of their investments in the utility last year.

Thames Water has selected KKR — a shareholder in Northumbrian Water — as its preferred bidder in a process aimed at recapitalising the group, after the US private equity group submitted a preliminary £4bn bid to take a majority stake in Thames Water.

Sarah Olney, Liberal Democrat MP for Richmond Park, last year said: “Under Macquarie’s ownership, Thames Water pumped millions of litres of disgusting sewage into British rivers while racking up billions of pounds worth of debt that was then paid out to shareholders.”

Macquarie acquired the majority of Southern Water, the UK’s next most distressed water company, in 2021. The company is struggling under its own £6bn debt pile and is in talks with lenders to its holding company over potential writedowns to their loans.

Alongside the proposed haircut, Macquarie Asset Management is injecting £900mn of fresh equity into Southern Water.

Mediobanca’s ‘mini-UBS’ defence gives it a fighting chance

Italian investment bank’s bid for Banca Generali offers something to please most of the parties involved

Mediobanca is known for being wily, creative and ruthless on behalf of clients. It is now putting those qualities to good use in its own defence. Having found itself on the receiving end of a hostile bid from Monte dei Paschi di Siena, the Italian investment bank has decided to fight back.

Its tactic: a €6.3bn offer for wealth manager Banca Generali, launched on Monday. Financially, the deal passes muster. Mediobanca forecasts €215mn of cost and funding synergies, the present value of which should cover the modest premium and yield an uptick of between 5 and 10 per cent on Mediobanca’s market value.

That, as it happens, is about the same amount of value creation that Mediobanca might achieve from acceding to Monte dei Paschi’s €14bn offer. The investment bank would emerge with 60 per cent of a combined entity worth perhaps €25bn, including synergies, or about 10 per cent more than the Milanese bank’s market value.

Where Italian financial institutions are concerned, nothing is ever simple. In this case, Mediobanca is proposing to pay for Banca Generali with its own 13 per cent stake in Assicurazioni Generali, the parent group that owns 50 per cent of the wealth manager. Warring shareholders of that company have driven its shares up 40 per cent this year.

Technicalities aside, Mediobanca chief executive Alberto Nagel is laying out a standalone strategy that his shareholders can get behind. Banca Generali would turn Mediobanca into Italy’s very own mini-UBS, getting almost half its revenue from wealth management. That’s not a bad idea given the higher multiples these steady, growing and capital-light businesses command. UBS, for instance, trades at 14 times this year’s earnings, a 30 per cent premium to Mediobanca itself.

The prospect of a livelier valuation may be enough to entice institutional investors and Italian industrialists, who together make up almost 50 per cent of Mediobanca’s shareholder base, to support the deal.

It may even be enough to convince rebel shareholders — Francesco Gaetano Caltagirone and the Luxottica family’s holding company Delfin, which together own about 27 per cent of Mediobanca. What they really seem to want is control of Generali, in which they also own shares. They have tried and failed to add directors to the bank’s board. With Mediobanca out of the picture, Generali becomes a more accessible target next time.

This deal, then, does something to please most of the parties involved. But that doesn’t mean it is guaranteed to succeed. There is still the chance that Banca Generali, now in play, attracts an offer from other interested buyers. Mediobanca, if it really wants to create an Italian counterpart to Swiss wealth giant UBS, may then find it has to dig a little deeper.

Market suffers one of ‘greatest tightening shocks’ in its history as traders race to get ahead of potential levies

China’s copper stockpiles are on track to dwindle to nothing in just a few months, as the market suffers “one of the greatest tightening shocks” in its history on fears of US tariffs, according to senior executives at commodities trading house Mercuria.

Huge US demand, as buyers rush to get their hands on copper ahead of the potential imposition of levies by the Trump administration, was sucking imports of the metal into the country from the rest of the world and setting it up in direct competition with China for supplies, said the Geneva-based group.

Chinese stocks of copper have rapidly declined over the past few weeks, and “at the current pace of draws, those Chinese inventories could deplete [to zero] by the middle of June”, Nicholas Snowdon, Mercuria’s head of metals and mining research, told the Financial Times.

The country’s inventories fell by almost 55,000 tonnes to 116,800 tonnes last week, the biggest weekly drop on record, according to Shanghai Futures Exchange data.

This “is potentially going to be one of the greatest tightening shocks this market’s ever seen”, Snowdon said. Beijing had a “razor thin inventory buffer” to meet domestic demand, he added.

Kostas Bintas, the company’s head of metals and mining, said the US was for the “first time” competing with China for supplies of copper, which was likely to supercharge prices.

The impact of US protectionism on the copper market adds to pressure from Chinese domestic demand and retaliatory levies that could hit vital flows of copper scrap.

Metals buyers have been importing large amounts of copper into the US ahead of possible tariffs, which could result from an investigation initiated by US President Donald Trump into alleged “dumping and state sponsored overproduction” of the metal. He has already imposed a 25 per cent levy on aluminium and steel imports.

Copper stocks in Comex warehouses in the US have climbed sharply this month to their highest level on Friday since 2018.

Helping drive supplies to the US is a trading arbitrage created by investors’ fear of tariffs. This has pushed up the price of the metal on New York’s Comex exchange in comparison with prices on London’s London Metal Exchange.

This so-called spread has created a lucrative arbitrage opportunity for traders willing to buy copper futures contracts in London and sell contracts in New York. The spread stood at nearly $1,200 per tonne on Monday, having risen above $1,600 in March, well above its long-term average.

Some traders who had large commitments to sell copper on Comex have been urgently trying to get their hands on additional tonnes into the US to cover those short positions before any new tariffs were introduced, said Bintas.

Retaliatory levies imposed by China on US imports could also hit the crucial copper scrap market, analysts said, adding to the tightness in the Chinese market.

That could worsen if the US imposes a ban on the export of copper scrap, of which it is a big exporter. It shipped 960,000 tonnes in 2024, with almost half going to China, according to commodity pricing agency Fastmarkets.

In January and February, the latest data available, the US exported 142,000 tonnes in total, compared with 149,000 during the same period last year.

Andrew Cole, a metals analyst at Fastmarkets, said he expected “a significant plunge in scrap shipments from the US to China in March to May at the very least.

“That’s what will lead to the escalation of supply squeeze in China we have been expecting to develop as the year progresses,” he said.

However, while Chinese stocks were being depleted, in reality markets would react before stocks reached zero, with higher prices attracting more imports of copper and scrap, said Snowdon.

“That comes at the point of record pull of copper units into the US. As those two forces meet that creates an unprecedented competition for copper,” he said.

Europe’s battery makers seek a different growth path after Northvolt’s collapse

Companies scaling down ambitions even as Europe is locked in race to reduce dependence on China

European battery companies are scaling back their ambitions and striking deals with Asian competitors after Northvolt’s collapse cast doubt on the region’s attempts to build an independent industry.

The Swedish group was one of Europe’s best funded start-ups over the past decade and raised $15bn from governments and investors before going bankrupt in March.

Northvolt is now a cautionary tale for other start-ups who are key to achieving the EU’s strategic goal of breaking its reliance on China for batteries as customers shift to electric vehicles, but remain years behind Chinese and Korean competitors.

Groups such as the French Automotive Cells Company and Verkor, and Germany’s PowerCo, are trying to scale up the production of high-power batteries and challenge Asian counterparts such as CATL and BYD.

But they face an even more challenging economic environment, while also needing to reassuring potential financial backers that they will not overextend themselves.

“Investors are asking companies to prove they are not the next Northvolt,” an industry adviser told the Financial Times at Batteries Event, a recent industry conference in Dunkirk.

Europe wants to make 90 per cent of batteries within the continent by 2030. But production capacity will still lag behind China. McKinsey Battery Insights analysts expect Europe’s announced battery production capacity to reach 720 gigawatt hours in 2030, up from 150GWh last year, compared with the 4,370GWh estimate for mainland China.

While some Asian companies have operations in Europe, executives and politicians say European companies must also contribute to the effort.

“We need this industry in Europe, not to provide 100 per cent, but to provide a significant portion,” said Yann Vincent, chief executive of ACC. “It’s a critical element of European sovereignty.”

Meanwhile, European carmakers, including Stellantis and Renault, are already equipping vehicles with batteries made by Asian companies and Chinese companies are extending their dominance of the technology.

CATL and BYD recently unveiled batteries that can be fully charged within five minutes, tackling a barrier to growth of EVs and putting pressure on European challengers to show they can efficiently scale up production.

ACC, a joint venture between Stellantis, Mercedes-Benz and TotalEnergies, is building towards 16GW capacity for the first industrial bloc at its site in Douvrin, northern France, by 2026. It faces similar challenges to those that confronted Northvolt — how to keep production yield high and limit the costly generation of scrap products in the production of battery cells.

“We’re in a period until mid 2026 where we’ll receive all the blows but not yet reach full turnover,” Vincent said, adding that the company needed to cross this “valley of death”.

To preserve capital amid a slowing EV market, ACC abandoned plans to open new factories in Germany and Italy. It is also in discussion with an unnamed “Chinese partner” to learn from its production processes and accelerate efforts to catch up, Vincent said.

Northvolt stretched itself thin by trying to create a value chain of battery-related services, including recycling and cathode manufacturing — a mistake the remaining groups want to avoid.

“Northvolt had the great luxury of being able to raise lots of money quickly. That may also have caused their fall,” said a banker working in the sector.

PowerCo, the Volkswagen-owned producer of battery cells for EVs, has also scaled back original plans. It expects to start producing batteries at its converted plant in Salzgitter this year, but will build one, rather than two production lines as originally envisioned.

Renault-backed Verkor, which has raised more than €2bn to build a gigafactory in Dunkirk, would adopt a “humble” approach by taking on fewer projects and focusing on a single client, said chief executive Benoit Lemaignan.

“We need to be modest in setting up the first part of the project, even if it sounds good on paper to have multiple different workstreams,” he said. Verkor will provide batteries for some of Renault’s sports cars and vans.

Kevin Brundish, head of LionVolt, is among executives who have cautioned against the capital-intensive route taken by Northvolt, and instead favour smaller-scale projects. The Dutch start-up uses technology pioneered in the semiconductor industry to make cells that produce up to twice the range of current battery models and charge twice as quickly.

Companies should not be “trying to compete with entities that have a 10- year head start”, said Brundish. LionVolt has raised €30mn for the commercial manufacturing of its patented anodes in Eindhoven and for a factory in Scotland.

Nard Sintenie, co-founder of Innovation Industries, a Dutch venture capital firm that has invested in LionVolt, said while Northvolt was “me, too” technology, his fund preferred technology that was “disruptive”.

But experts warned that Europe’s goal to become self-sufficient in battery manufacturing would not be achieved without greater public funding similar to that enjoyed by Chinese companies.

ACC, Verkor and Taiwanese solid-state battery developer ProLogium have received more than €3bn in French public funds in recent years to set up operations in the “battery valley” of Dunkirk, which also benefits from access to nuclear energy.

But Dunkirk mayor Patrice Vergriete warned that it would be hard to maintain such support do to France’s high budget deficit.

“France has accompanied these industries but we have less means today and we’re turning towards the European Commission, saying . . . isn’t this re-industrialisation project a European project?”

A commission spokesperson said “the competitiveness of our industry is the number-one priority”, and pointed out that its clean industrial deal had “unlocked” €100bn to promote clean manufacturing.

ACC’s Vincent and Verkor’s Lemaignan called for funding to coalesce around businesses that could realistically produce batteries at scale, while one banker said they expected “consolidation” in the sector.

“Even with strong shareholders, they are under a very strong pressure,” Vincent said. “We’re turning towards the European Commission saying that we need help to cross this valley of death.”

Anything that relies solely on capital wizardry to make sense is probably not worth doing in the first place

M&A bankers can’t catch a break at the moment. Higher interest rates and market volatility were already making it harder to get large deals done, and now some are concerned that the European Central Bank has thrown a spanner into one of the few remaining opportunities to generate fees.

The so-called Danish Compromise is a once-niche bit of EU regulation designed to reduce the capital burden on banks that own insurance businesses. But it came with a loophole — christened the “Danish Compromise squared” — that encouraged banks to acquire other types of business, such as fund managers, through insurance subsidiaries.

BNP Paribas was the most high-profile bank to take advantage, announcing a €5.1bn deal for Axa Investment Management last August, while Italy’s Banco BPM launched a full takeover of Anima, a local asset manager in which it already held a minority stake. 

Normally, buying a fund manager involves a hefty hit to capital ratios. Whatever premium the buyer pays over the fair value of the target’s net assets must be deducted from its regulatory capital, in effect reducing its capacity to lend and invest. If the fund manager sits inside an insurer, however, it is treated as a risk-weighted asset that consumes only a fraction of the capital.

The ECB doesn’t think this behaviour is within the spirit of the rules. The central bank may not have the last word — the European Banking Authority does — but it is nonetheless hard to ignore. Shares in BNP Paribas briefly tumbled when news broke that it may not receive the expected capital benefits, though they quickly rebounded.

Investors should hold their nerve. The shift in approach certainly raises the bar for potential combinations but good deals can still work, and anything that relied solely on capital wizardry to make sense was probably not worth doing in the first place.

BNP now estimates that the Axa acquisition will generate a return on invested capital of above 14 per cent in the third year, rising above 20 per cent by year four. Clearly, that is less positive than before, when it thought returns would hit 18 per cent by year three. But the more important question is, is it still better than the alternatives? 

The bank could invest more in organic growth, but it is already doing that and has previously warned that after a certain point, diminishing returns are a concern.

The other obvious option would be to give the excess cash to investors through a share buyback. Taking its average share price and price-to-earnings ratio over the past 12 months, a €5.1bn share buyback would give a theoretical return on investment of about 14 per cent. Against that, an acquisition still seems like decent business over the long-term.

The only group that really suffers from higher standards is those poor M&A bankers, who might have to work a bit harder to make sure the sums add up in their pitch decks for further deals. But it’s not like they’ve got much else to do at the moment.

• INMD -3.2%, DPZ -2.5%

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• YMAB -2.4% (Presents Translational Pharmacokinetics of CD38-SADA from Pretargeted RIT Platform at 2025 American Association for Cancer Research (AACR) Annual Meeting)
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