China’s ability to manufacture cheap electric vehicles (EVs) has resulted in the country growing to dominate the industry. It’s also caused a tidal wave of Chinese EV exports to wash over Europe.
The mega-country has fervently worked to attain its status as EV giant over the last decade, especially with the Chinese government pouring effort and money into leading the green energy revolution. In fact, the world’s first battery supplier was founded in 2011 in China and provides lithium iron phosphate (LFP) batteries to Tesla, Peugeot, Hyundai, Honda, BMW, Toyota, Volkswagen, and Volvo. Furthermore, only three companies lead the EV manufacturing market: CATL 32.5% (China), LG Energy Solution 21.5% (South Korea), and Panasonic 14.7% (Japan).
In total, China now has around 30 EV makers and is home to four of the world’s 10 largest battery manufacturers. Chinese automakers can manufacture an EV for EU$10,000 less than European automakers, an overwhelming cost advantage that will put pressure on European manufacturers in their home market, the head of auto supplier Forvia, said for Reuters.
The average price of EVs has climbed in Europe since 2015 from EU$48,942 to EU$55,821 and US$53,038-to-US$63,864 in the US. It has reportedly dropped in China to EU$31,829 from EU$66,819, taking it below the price of gasoline cars, according to a study by JATO Dynamics.
Transport & Environment, a European NGO, released a report entitled From Boom-to-Break: is the E-Mobility Transition Stalling? Stating that stagnation of European EV sales contrasts with trends in China where incentives, such as car purchase subsidies, continue to fuel an EV boom.
In Europe, carmakers are now unable to meet the growing consumer demand with higher waiting times than elsewhere in the globe, with many EV brands selling out. This sluggishness is supplemented by the influx of Chinese carmakers entering the EU market – reaching 5% of the EV market already in H1 2022 – and a mounting share of EVs produced in China (two EVs out of 10).
If Chinese carmakers persist at the same production rate, their market influence in Europe would reach between 9-18% of the EV market in 2025. The inability of EU carmakers to increase EV supply is already resulting in foreign automakers offering affordable EV alternatives and netting a substantial share of the mass market in Europe. If the EU is unable to efficiently regulate its own market, it risks losing its economic sovereignty in the automotive industry, states the transport report.
This gradual shift in the market has occurred due to the Chinese government transitioning from largely regional EV sales to a significant rise in EV exports over a five-year period, rapidly becoming the second largest global EV exporter by 2021, accounting for 15.5% of global EV exports compared to a mere 1.3% in 2017.
All signs are now pointing to China who are dominating the world’s largest EV market, with EV vehicles becoming a pillar of the Chinese economic plan for the coming years. Previously, Chinese EVs used to differ to European EVs because they were projected, designed, and developed for regional demand, meaning typically many of them did not meet the more complex safety standards of Europe or the USA.
Recently, however, with attaining more European consumers in sight, Chinese companies have started producing EVs which come with strong safety ratings and numerous high-tech features.
Several Chinese EV brands recently received a five-star European New Car Assessment Programme (NCAP) rating in 2022 – an achievement that involves loading vehicles with active and passive safety features that go well beyond legal requirements.
Further, in April of this year, China’s largest EV maker, BYD, staggered analysts and opposing EV makers with the launch of its subcompact Seagull EV at Auto Shanghai 2023. The car’s specs include a battery range of more than 300km and a starting price of just over USD$11,000 – a fraction of the price of most EVs available in the European market.
The hatchback is reportedly keyed to become one of China’s most popular EVs, with the automaker already stating it has received 10,000 pre-orders in the first 24 hours after it made its debut.
A silver lining for Europe, however, comes in the premium EV market, which Fitch Ratings reports will favour the European market. For instance, Mercedes-Benz has maintained its pursuit of becoming CO2 neutral by 2039 with a new goal to at least halve emissions by 2030, including going all-electric wherever market conditions allow. The company continues to invest in green charging networks in Europe and North America. The credit rating agency believes this will help to position the company to become a leader in the premium segment of the EV market.
Similarly, cost increases and supply shortages have also inspired automotive giant Volkswagen to shift its attention to premium models to compensate for higher overheads and lower capacities due to the cost of manufacturing EVs. The company also plans to reduce the number of its petrol and diesel models by 60% in Europe over the next eight years.
Similarly, Volkswagen’s premium range ramped up a level last month, with the company unveiling its premium VW ID.7, representing the company’s first global EV.
Overall, China has become one of the fastest growing EV markets in the world, with vigorous support from its government in the form of car purchase subsidies, a monopoly of battery supply chains, and lower labour costs. The fresh competition will certainly exacerbate a looming price war in European EVs, and China’s infiltration of the EU market doesn’t look set to end any time soon.
