In 2022, Chinese EVs took over 5 percent of the European market. That share will rise.
One of the many problems about the “transition” to electric vehicles (EVs) is the extraordinary business (and by extension geopolitical) opportunity it has given China. EVs are far easier to manufacture than conventional cars. To oversimplify, they are four-wheeled boxes containing a computer and a battery. To oversimplify a little less, it’s estimated (CNBC reports) that they require around 30 percent less manufacturing labor than a conventional car, something largely explained by the fact that they have far fewer moving parts. As a result, much of the advantages of incumbency enjoyed by Western manufacturers will be swept away, creating an opening that Chinese EV manufacturers, benefiting from their domestic experience (EVs accounted for around 19 percent of new car sales in China in 2022, with the overwhelming majority coming from domestic manufacturers) are well placed to exploit. Not only that, but Chinese companies have also established a leading position the whole way down the EV supply chain.
A Chinese car may never have the pizzaz of a Porsche or the trendiness of a Tesla, but there are a few billion buyers down there in the budget segments, which Western EV-makers are still mostly ignoring. Lunch is on the table, and who will eat it?
One of those sounding the alarm is Stellantis CEO Carlos Tavares, who spoke with Automobilwoche at CES 2023 in Las Vegas. “The price difference between European and Chinese vehicles is significant,” he said. “If nothing is changed in the current situation, European customers from the middle class will increasingly turn to Chinese models.”
Tavares apparently sees the EU’s emissions regulations as part of the problem. “Regulation in Europe ensures that electric cars built in Europe are about 40 percent more expensive than comparable vehicles made in China,” he said, adding that the region’s auto industry could suffer the same bleak fate as the European solar panel industry.
Tavares sees two ways forward: protectionism, which wouldn’t be popular with German automakers, who do a lot of business in China; or a pitched battle. “If you keep the European market open, then we have no choice: we have to fight the Chinese directly. And that applies to the entire automotive value chain.”
To say that German auto manufacturers are in a tough position is an understatement. They have made a massive bet on China, both as an export market (China is the biggest importer of German cars) and in local production. And it’s not only German carmakers that are heavily exposed to China. German industry, already under pressure from increased energy costs in the wake of Russia’s natural-gas supplies drying up, would be highly vulnerable in the event that China retaliated in response to any European protectionism.
Tavares has, in the past, as Clean Technica’s writer notes, been something of an EV skeptic. And so he has. I wrote about him here and here. His argument that EVs have been imposed on the auto industry by governments is irrefutable. He has also questioned the reckless pace of the transition to EVs (sale of new traditional cars will be banned in the U.K. from 2030, and in the EU, California, and New York from 2035), something he has claimed, also correctly, is counterproductive. Certainly, it does not appear to leave enough time for European manufacturers to work out how to make EVs cheap enough for the lower end of the market while generating an adequate margin.
“We don’t know how to make small cars with affordable batteries, and China knows it,” said Patrick Koller, CEO of French supplier Forvia, at a CES press conference. High battery costs are part of the problem — small urban EVs can cost about 10,000 euros ($10,600) more in Europe than in China, Koller pointed out, adding that rapid innovation “is a must.”
Central planners — and the EV project is a giant exercise in central planning — have a way of forgetting that innovation is not something that can be conjured up at will. In the meantime, I would not be surprised if Chinese manufacturers will be prepared to accept very low margins indeed in order to build up a market position in Europe.
In 2022, Chinese EVs took over 5 percent of the European market. That share will rise.