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Sino-Turkish Competition and Cooperation in the EV Sector

Türkiye's President Recep Tayyip Erdogan (R) and his wife Emine Erdogan (L) sit in their Togg T10X, Turkey's first domestically-produced electric car, after receiving it from the company at the Presidential Complex in Ankara, on April 3, 2023. Adem ALTAN / AFP

By Ahmet Faruk Işık and Leonardo Bruni

Türkiye’s foray into the electric vehicle (EV) industry, especially with the establishment of national electric car manufacturer Togg, has given rise to both collaboration and contrast with China.

In this analysis, we will delve into the economic ties between China and Türkiye before exploring the birth of the Turkish EV sector. We will also examine the partnerships formed between Chinese and Turkish EV companies alongside the measures being taken by Ankara to regulate the import of Chinese EVs.

We will then conclude by analyzing the motivations behind the Turkish government’s recent restrictions on Chinese EV imports, positing that these actions are rooted in national interest rather than a mere response to Western calls for “de-risking.”

An Overview of Sino-Turkish Economic Relations

In the aftermath of the 2008 financial crisis, economic ties between Türkiye and China developed rapidly. Chinese investments poured in, funding infrastructure, energy, and transportation projects across Türkiye. Notably, the stock of Chinese foreign direct investment skyrocketed from a modest $386 million in 2009 to a substantial $3 billion in 2022.

Türkiye’s decision to join the Belt and Road Initiative (BRI) in 2015 demonstrated its commitment to continue to align with China’s global infrastructure financing strategy. While this partnership yielded positive results, recent years have seen mounting concerns in Türkiye regarding the growing bilateral trade imbalance between the two countries.

According to ChinaMed Data, Türkiye exported goods worth $4.5 billion to China in 2022, while its imports from the People’s Republic amounted to a staggering $34 billion.

Furthermore, Turkish analysts and commentators have begun to voice growing disillusionment over the perceived decline in Chinese infrastructure/BRI investments, despite Türkiye’s central and strategic position between Europe, the Middle East and the rest of Asia. Moreover, Turkish media began to publish articles on how Chinese enterprises might outcompete their Turkish rivals in the Middle East and North Africa, potentially jeopardizing Ankara’s ambitions to transform the country into a regional supply chain hub.

Despite these apprehensions, the Turkish government, led by President Recep Tayyip Erdoğan, has taken proactive steps these past two years to revitalize ties with China, such as by attempting to expand Türkiye’s involvement in the Shanghai Cooperation Organization. These efforts may not only serve to balance out relations amid escalating tensions between East and West but also an endeavor by Ankara to promote its proposed “Middle Corridor” as the main BRI overland route connecting China to the EU market over the now politically complicated northern route through the Russian Federation.

Ankara may also be seeking Chinese support for its “Development Road” infrastructure project as an alternative to the recently announced US-backed “India-Middle East-Europe Economic Corridor,” which excludes Türkiye.

Another significant driver behind Turkish overtures towards Beijing lies in its aspirations to establish itself in emerging economic sectors where China plays a leading role. These include industries related to the green transition, such as renewable energy, nuclear power, batteries, and notably, electric vehicles—the focus of our analysis.

Introducing Togg, the First Turkish Electric Car

Türkiye’s automotive industry currently ranks as the world’s 14th largest, churning out 1.3 million vehicles annually. Nevertheless, despite several previous attempts, the industry has yet to successfully establish a domestically designed and produced car brand.

President Erdoğan’s government has tried to breathe new life into Türkiye’s 60-year-old dream of a national car line by launching a domestic automobile initiative project. With the support of the Union of Chambers and Commodity Exchanges of Türkiye, five Turkish companies came together with the goal of designing and manufacturing 100% electric vehicles. The result was Togg, short for Türkiye’nin Otomobili Girişim Grubu (literally “Türkiye’s Automobile Enterprise Group”), which was founded on June 25, 2018.

Then, on the auspicious date of October 29, 2022 (the 99th anniversary of the founding of the Turkish Republic), Togg’s first mass-production vehicle, the Togg T10X, rolled off the line.

Türkiye’s President Recep Tayyip Erdogan (R) and his wife Emine Erdogan (L) receive their Togg T10X cars, Turkey’s first domestically-produced electric car, at the Presidential Complex in Ankara, on April 3, 2023. Adem ALTAN / AFP

The Turkish government has very actively promoted Togg. In particular, President Erdoğan during his state trips abroad has gifted Togg cars to fellow heads of state and of government including Hungarian Prime Minister Victor Orbán, President of the UAE Sheikh Mohammed bin Zayed Al Nahyan, President of Kazakhstan Kassym-Jomart Tokayev, Emir of Qatar Sheikh Tamim bin Hamed Al Thani, Crown Prince of Saudi Arabia Mohammed bin Salman, and President of Uzbekistan Şevket Mirziyoyev.

These exchanges, accompanied by elaborate ceremonies featuring foreign leaders sitting in or driving Togg vehicles, have the clear aim of generating local interest in the Turkish EV.

However, while Togg has been presented and promoted as Türkiye’s flagship electric car brand, China, as a global leader in the EV sector and battery production, plays a role in its supply chain. In April 2023, to produce its automobiles’ battery systems, Togg established the Siro Battery Development and Production Campus, a joint venture with China-based lithium-ion battery developer and manufacturer Farasis Energy. The $2.5 billion dollar investment in the municipality of Gemlik, Bursa Province, is planned to manufacture 24 gigawatt-hour capacity battery cells and 19.8 gigawatt-hour capacity battery modules, employing 2,200 people.

Opportunities and Challenges in Türkiye for Chinese EV Brands

Despite these collaborative efforts, China’s dominance in the EV sector has raised concerns in Türkiye. Turkish media increasingly portray the growing availability of Chinese automotive brands, such as Hongqi, MG, Chery, and BYD, as either fostering “rising competition” against local car manufacturers or, in more dramatic terms, as an outright “invasion.”

Additionally, many commentators have noted that a continued surge in Chinese EV imports would continue to exacerbate Türkiye’s ever-growing trade imbalance with China.

It is within this context that in March 2023, Türkiye raised import duties on Chinese EV brands by 40%, culminating in a total tariff of 50%. This coincidentally occurred right after BYD signed a memorandum of understanding with Turkish distributor ALJ Türkiye to enter the Turkish market. The motivations behind this tariff escalation appear twofold: firstly, Ankara’s aim to shield Togg from Chinese competition, and secondly, to encourage Chinese EV manufacturers to establish local production facilities in Türkiye.

Irrespective of the intentions, this tariff hike has not been met with enthusiasm from Chinese officials and the business community.

On May 18, 2023, Chinese Ambassador to Türkiye Liu Shaobin contended that Türkiye’s imposition of a 40% additional customs duty on Chinese EVs, while applying 10-20% custom duty and no tariffs on imports from other World Trade Organization (WTO) member states, constitutes a discriminatory trade protection measure that does “not comply with the spirit of common trade between the two countries”.

Nevertheless, it is worth noting that in the same interview, Ambassador Liu lauded the Siro Battery Campus as an example of Sino-Turkish cooperation, welcomed Türkiye’s progress in the EV sector, and expressed his “hope that the Turkish side can cooperate with the Chinese side with a common spirit”.

Criticism of this tariff also arises from within Türkiye. According to Gazette Pencere journalist Emre Özpeynirci, “Türkiye is missing out on a historic investment opportunity due to its decision,” as it has driven Chinese manufacturers, especially SAIC, interested in producing electric vehicles for the EU market in Türkiye in exploring other options.

What Does 2024 Have in Store for Chinese EVs in Türkiye?

In December 2023, the Turkish government introduced new criteria for the import of EVs with the purported goal of ensuring customer safety, increasing after-sales service quality, and streamlining battery recycling processes. Under these new regulations, companies seeking to import EVs must apply for permission and fulfill the subsequent criteria:

  • Certification from the Turkish authorities that at least 20 authorized service stations in 7 Turkish regions have been established for after-sales assembly, maintenance, and repair of imported EVs.
  • Persons responsible for the purchase, sale, maintenance, and repair of EVs must have a qualification certificate from the Turkish authorities for the purchase, sale, maintenance, and repair of electric EVs.
  • Able to provide service through a Turkish call center located in Türkiye with at least 40 personnel for each brand.
  • Have an authorized representative resident in the country.
  • Present a written statement accepting the procedures that need to be carried out regarding the monitoring, control, and inspection of battery systems.

Local media speculated that the implementation of these “impossible” regulations aim to safeguard Togg, President Erdoğan’s “favorite project”. On the other hand, these rather burdensome new rules have been interpreted by international analysts as Türkiye following in the footsteps of the European Commission, which started a probe last October on Chinese EV firms, accusing them of “dumping” subsidized vehicles. These new rules also follow reports of a record $184 million in Chinese EV imports during the first ten months of 2023, double the value for the entire 2022 despite the tariff hike.

In a comment to Bloomberg, the general manager of BYD, Türkiye Ismail Ergun, warned that “if the rule is implemented as planned, imports may have to wait at the border for months,” potentially delaying the Turkish release of BYD’s SEAL and HAN models.

However, these regulations may not necessarily indicate hostility toward Chinese products or Chinese commercial influence; they could be a strategic move to encourage Chinese automotive companies to establish EV production plants in Türkiye. Minister of Industry and Technology Mehmet Fatih Kacır expressed this wish during his recent visit to China.

During this multi-day visit, which began on December 20, 2023 (three weeks after the introduction of the EV import regulations), Minister Kacır visited eight Chinese cities, met with China’s Minister of Science and Technology Yin Hejun and Minister of Industry and Information Technology Jin Zhuanglong, and, notably for our analysis, toured the Chinese EV firms GAC, BYD, and Chery.

On December 22, Minister Kacır took to X, the platform formerly known as Twitter, to share his discussions with Chinese industry leaders during which he extolled Türkiye as the

“right location for global investments”. He also discussed “investment opportunities in our country for Chinese automotive and battery companies”, how “Turkish and Chinese companies can cooperate more comprehensively in the field of technology and innovation”, and how “the centuries-old friendship between Türkiye and China creates a solid foundation for the success stories we will create together in the field of industry and technology”.

Despite Kacır’s expressed aspiration to turn Türkiye into a Chinese EV production hub, his trip did little to prevent BYD from confirming its plans to establish its inaugural European EV production facility in Szeged, Hungary. It is worth noting that the 40% tariff hike and new regulations do not apply to EVs imported from the EU, thus allowing BYD vehicles manufactured in Hungary to sidestep Ankara’s restrictions.

While BYD’s choice to construct its first European factory in Hungary may be due to the Chinese EV giant already having a bus facility in the country, the lobbying effort by many Türkiye and other states leading up to this decision underscores the heightened competition not only among manufacturers but also among nations vying for these strategic investments.

A final consideration regards how the Turkish automotive industry primarily targets the European market and Togg aims to establish itself as a major EV brand in the EU. With BYD now located in Hungary, the future of Sino-Turkish relations in the EV sector could become even more competitive rather than collaborative in the future.

Conclusion

While the EV sector is one marked by growing cooperation between Türkiye and China, exemplified by the Siro Battery Campus, it is also an industry that is characterized by increasing competition. National governments are scrambling to corner this strategic market, especially in the context of the global shift towards EVs due to regulatory changes, such as the EU’s new law obliging zero CO2 emissions from cars starting in 2035.

While Chinese EV firms hold a significant advantage, international commentators foresee potential challenges for states with existing trade imbalances with China. Türkiye’s decision to restrict Chinese EV imports should not be viewed merely as aligning with Western “de-risking” against China but rather as a strategic move to carve out a role in the developing EV supply chain and establish more balanced Sino-Turkish trade relations. This also aligns with Ankara’s ambition to develop its own domestic EV industry.

The imposition of tariffs and regulations by Türkiye also reflects a broader trend of countries safeguarding their geoeconomic positions, revealing a growing weakness in the free trade regime upheld by the WTO. Indeed, Türkiye’s actions are not isolated; the EU’s recent probe into Chinese EV dumping is linked to France’s explicit desire for Chinese battery and electric car firms to invest in the country.

While Hungary, with its alignment with Beijing on political issues within the EU, successfully secured a major Chinese EV investment, it is yet to be seen if Türkiye’s more direct approach of pushing Chinese firms to localize production in Türkiye will bring in similar results.

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