SMM Analysis on How New Energy Firms Go Global to Tackle Domestic Rivalry?

Chinese new energy firms, amidst fierce domestic competition, see the need for global expansion to sustain growth. Yet, firms face challenges for going global and are struggling to adapt abroad. Facing challenges abroad, success comes to those who grasp market needs, industry workings, and self-awareness.

1. Why are local new energy firms targeting Europe?

In recent years, domestic overcapacity and fierce competition drive new energy companies to eye international expansion.

Given market size, U.S. and Europe attract China's new energy firms. However, with the enactment of the U.S. Inflation Reduction Act (IRA), and given Europe's robust market demand yet weak battery cell production capacity. Europe has emerged as the primary expansion target of Chinese new energy firms.

2. Chinese New Energy Firms' European Expansion Status

Against this backdrop, Chinese new energy firms have accelerated their strategic deployments in Europe. Chinese energy firms like CATL, BYD, and CALB have fast-tracked expansion in Europe since 2021, capturing market share and integrating with Europe's industry for growth.

3. Essentials for New Energy Firms Entering Europe

However, setting up factories in the EU to capture the market is ambitious but challenging. Battery makers face tough issues during expansion. If these issues are not properly resolved, their path to successful internationalization will undoubtedly face obstacles. They also confront environmental regulations, equipment, and personnel recruitment challenges when setting up operations in the EU.

(I) Environmental Regulations

Chinese battery firms setting up in the EU must meet high environmental standards, tougher than China's, and face complex application processes. Should there be any subsequent adjustments to the factory's production processes, a second round of environmental assessment is needed, and penalties for non-compliance are severe. Moreover, EU residents generally have a strong awareness of environmental protection, and the construction of battery factories, which can cause substantial environmental pollution, may face opposition and protests from the local community.

Companies going abroad must adhere to EU environmental laws, using experienced third-party experts for assessments. Concurrently, it is essential to establish a dedicated department or assign personnel to manage environmental protection affairs related to factory construction. This will ensure readiness for various environmental inspections during factory operations and will strengthen communication and interaction with the local residents, securing the smooth functioning of factory construction and production activities.

(II) Equipment

Europe lacks advanced equipment and skilled workers for new energy production. Exporting equipment from home faces tough certification, with total costs more than doubling those in China. The certification expenses alone can surpass the cost of the equipment itself.

With no better options, domestic companies still opt to export costly equipment from China to Europe and provide accompanying operational and maintenance staff. They are also enhancing the training of local employees in equipment operation to ensure stable and efficient functioning of the machinery.

(III) Personnel Issues

European countries generally have requirements regarding the proportion of local workers in factories, typically mandating that domestic employees constitute over eighty percent of the workforce. However, employees in European countries’ efficiency and attitude may lag behind Chinese standards, and strict labor laws plus cultural gaps can hinder project progress.

Companies expanding abroad can take cues from CATL by initiating early communication with local governments to obtain additional visa quotas, which can alleviate localization issues to some extent. Simultaneously, they should enhance the operational management of their factories, employ managers who are familiar with both Chinese and European cultures, and integrate various resources to achieve optimal production and construction standards.

As the new energy sector's competition intensifies globally, rashly expanding foreign production is unwise. Firms must grasp local traits, assess their capabilities, and build strategically to blend with local cultures, overcoming growing pains to capture markets and drive growth.