The automotive industry is one of the most important industrial pillars in the global economy, particularly in Europe.
However, the radical shift towards electric vehicles (EVs) has caused a structural change in the competitive advantages of countries.
In these lines, we examine the case of the German company BMW as a miniature applied model reflecting the macroeconomic crisis resulting from China's superiority in supply chains, and its impact on global trade policies and the price war.

Theoretical Framework: Competitive Advantage and Global Value Chains

According to Michael Porter's theory of competitive advantage, Germany has dominated the automotive industry for decades through high-precision internal combustion engine engineering.
With the technological shift, added value has moved from the "mechanical engine" to "batteries and software."

China has managed to dominate the entire value chain through extensive government support and securing rare minerals, enabling it to produce electric vehicles at a cost that is 20% to 40% lower than its Western counterparts.
This has created a state of "overcapacity" in China, directed towards exporting to global markets.

Microeconomic Analysis: A Case Study of the BMW Group

Recent data shows the repercussions of these transformations on leading German companies, with BMW being a clear embodiment of this crisis:

  • Demand Shock in the Chinese Market:
    BMW's car sales in China recorded a sharp decline of 30% during the second quarter, representing a loss of one of the company's most profitable markets in history.
  • Impact on Employment and Restructuring:
    In response to shrinking profit margins and declining operating profits, the company's executive leadership (led by Milan Nedeljkovic) announced a voluntary layoff program targeting 8,000 white-collar jobs in Germany.
  • Sector Crisis Phenomenon:
    The crisis is not limited to BMW; it has extended to the industry giant "Volkswagen," which is considering laying off tens of thousands and closing factories for the first time in its history, signaling a local industrial recession in Germany.

Economic Significance:
Layoffs in advanced economies due to the rise of emerging economies are known in economic literature as the "Distributional Effects of Free Trade," where consumers gain cheaper technology while local labor loses jobs.

Macroeconomic Trade Policies: Government Intervention and New Protectionism

In the face of this Chinese "invasion" of markets, Western governments have intervened to protect their local industries, leading to a direct clash with the principles of the World Trade Organization (WTO).

EU and US Policies:

The European Union has imposed countervailing duties ranging from 7.8% to 35% on Chinese electric cars, based on investigations that proved Chinese companies received unfair government support violating competition rules. Meanwhile, the United States has imposed tariffs of up to 100% to create a complete protective barrier.

Impact on Consumer Welfare and Global Car Pricing

These dynamics have led to a division in the global consumer market, with the emergence of two contradictory economic phenomena: "price wars" and "protectionist premiums."

  • Protected Markets (Europe and America):
    • Price Dynamics: Rising prices; consumers bear the brunt of tariffs.
    • Consumer Choices: Limited and confined to traditional high-cost brands.
    • Technological Adoption: Notable slowdown in the shift towards electric vehicles, with a partial return to hybrid and traditional engines.
    • Dealer Margins: Fixed margins coinciding with a stagnation in sales volume.
  • Open Markets (Middle East, Asia, Latin America):
    • Price Dynamics: Falling prices due to "price wars" and abundant supply.
    • Consumer Choices: Wide options, advanced technology, and multiple economic categories.
    • Technological Adoption: Significant acceleration in the shift towards smart transportation and electric vehicles.
    • Dealer Margins: High competition pressures dealer profit margins in favor of the end consumer.

Strategic Responses: Evasion through Foreign Direct Investment (FDI)

To evade these tariffs, Chinese companies (such as BYD and Chery) have begun to implement a classic strategy in international economics known as "tariff-jumping FDI." These companies are establishing assembly plants within the EU (such as Hungary or Spain) or acquiring closed European factories.

This shift transforms trade flows from "exporting finished goods" to "exporting capital and semi-finished components," complicating European governments' ability to protect their industries without harming opportunities to attract foreign investments that provide local jobs.