The challenges that Chinese NEVs face are daunting. In mid-May, the US government decided to impose additional tariffs on its imports of Chinese products like electric vehicles and lithium-ion batteries on top of existing tariffs under Section 301 of the US Trade Act of 1974. Starting this year, the US government will increase tariffs on imported Chinese EVs from 25 percent to 100 percent.

Despite Chinese NEVs having a relatively small market share in the US, analysts explained that the rationale behind the US move is a concern about the rapid growth of the Chinese NEV industry, which it sees as a potential threat to US competitiveness.

The pressure on Chinese companies to invest and build factories in other parts of the world will increase, accelerating their decision-making processes, said Sun Lei, a senior partner at Beijing Dacheng Law Offices.

Chinese companies have started such attempts in recent years, with Central Europe and Mexico becoming key investment destinations.

Chen Shihua, deputy secretary-general of the China Association of Automobile Manufacturers, said: "Amid the current trend of deglobalization and geopolitical complexities, foreign clients, either being dealers or automakers, are shifting their focus from cost to supply chain security. As a result, they favor suppliers of NEVs or auto parts capable of production near their sites."

Chen said: "Tapping the trend, Chinese automakers and parts suppliers have started venturing overseas and gained significant market share and recognition due to their years of large-scale production, technological advancements, and comprehensive supply chain systems and services."

In Central Europe, both leading automotive industry players and specialized niche companies are setting up operations in Serbia and Hungary due to their strategic location, favorable policies and proactive efforts to attract Chinese auto parts manufacturers.

Serbia is set to implement a free trade agreement with China, which will result in over 90 percent of trade between the two countries being tariff-free, effective from July. Sectors such as automotive, lithium batteries and photovoltaics will benefit first.

While in Hungary, low corporate tax rates, the establishment of German vehicle production bases, as well as stable and favorable policies to welcome foreign investment also make it a hot spot for Chinese automotive and parts manufacturers.

Chervon-Auto, a Chinese automotive components manufacturer listed in Shanghai, established operations in Hungary with an investment of approximately 120 million euros ($129.8 million) in 2021. It completed factory construction in Hungary in 2023.

Shi Jiaqi, director of its overseas projects, said: "Our overseas orders generally account for 40-50 percent of our total, with around 80 percent coming from Europe. Establishing an overseas production base was essential to better understand and promptly meet customer needs."

"Our foreign clients prefer suppliers who can produce auto parts nearby to avoid instability from deglobalization and geopolitical conflicts. This factor significantly influenced our decision to set up overseas branches," Shi said, adding the company plans to establish a strong R&D center in Hungary within three to five years to better serve its European clients.

Hungary was chosen after evaluating factors such as policy stability, workforce strength and technical expertise, after conducting surveys of several countries like Serbia.

"While venturing abroad, we faced a few challenges such as finding a robust supply chain, and transferring technology and skills from China to our new factory, because the two countries vary in many areas such as production standards," Shi said.

Talking about current trade conflicts, Shi said globalization is a necessary choice for not only Chinese auto and parts makers, but also global manufacturers, just like how US, German and Japanese automakers took their supply chains abroad decades ago. He said the company's overseas production also boosts local supply chain development and increases employment opportunities.

"Whether expanding production capacities, innovating technologies or upgrading services, all are to meet the demand of our global clients. That's the primary reason for us setting up new facilities in Anhui province in China and Hungary," he said.

Zhejiang Shuanghuan Driveline Co Ltd is another auto parts maker with operations overseas. The Shenzhen-listed auto transmission producer invested 122 million euros as a first phase project in Hungary. It is also expected to sign a long-term investment cooperation memorandum with the local government in the coming months.

Wang Binlian, director of overseas projects at Shuanghuan, said that in today's climate of deglobalization and geopolitical conflicts, their clients are increasingly prioritizing supply chain security over simply minimizing costs. This shift favors suppliers capable of auto parts production near their sites, which is why the company is establishing an overseas plant to meet client needs.

"Several Central European countries, including Poland, Slovakia and Hungary, have been the main destinations for Chinese companies' site visits," he said.

"Our foremost priority is a stable investment environment, even if it results in marginally higher logistics costs. In addition, Hungary's cultural similarities to China enable us to adopt Chinese management systems effectively. Moreover, Hungary serves as a central hub for the eastward relocation of European manufacturing, with major firms like Audi and BMW setting up factories. The Hungarian government is also actively encouraging the development of the automotive manufacturing sector," he added.

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