The rise of electric car brands in China
Back in 2012, the Beijing government decided to prioritise the development of electric cars, with one of its goals being to grow China's car industry globally. Through regulations, investment and subsidies, there was, and still is, plenty of room for new innovative players in the market. It also included key sectors related to electric cars, such as rare metal mining and battery recycling. As a result, China now has a significant competitive advantage across the entire electric vehicle value chain. 75% of global battery production capacity, 85% of materials refining and 50% of rare metals mining are owned by China. The strategy has been successful and currently an EV from China has a 20% price advantage compared to European brands.
Entering the European market
As China's home market has grown a lot, and that growth is now levelling off, car manufacturers are starting to look across the border. Chinese carmakers have expanded their exports to Europe by 124%, and by 2025, 1 million cars driving around the EU will be made in China. That is why it is not out of the blue that BYD, one of the new brands, has grown by 56% and is now competing with Tesla to become the world's largest EV manufacturer. The lightning-fast growth in Europe also brings problems. In England, it is already difficult to insure a Chinese car because of a shortage of aftermarket parts and technical documentation. England's AutoExpress magazine puts the blame on Chinese car manufacturers' failure to understand how the European aftermarket works. As a result, English insurers are reluctant to insure Chinese cars, and with an expected increase in of them, these insurers are already taking measures.
What is going on at the European level?
The automobile industry represents 8% of European GDP with a trade surplus of 102 billion euros between Europe and the rest of the world. This industry also innovates a lot and is seen as important. Value chains have remained unchanged for a long time, but with the rise of EVs and digitalization, this is changing significantly. The European export/import delta with China has dropped from positive to clearly negative due to the grown import of Chinese cars. This trend is starting to be noticed by European policy makers and there is currently already a 10% import tariff on Chinese cars. However, this is not stopping Chinese car brands from growing hard. Compared to America, which has a tariff of 25%, the EU tariff is still relatively low. In America, the rise of Chinese cars is lower than in the EU, however, Chinese brands are already looking at producing cars in Mexico to circumvent this tariff. On top of that, America is promoting investment in local production of electric cars with the IRA program (€387 billion), building its own industry. In Europe, there are plans to increase the import tariff by 10-20% and there are voices to define a clearer strategy for the changing auto industry, in addition to regulations.
Luca de Meo, CEO at Renault, stated in an open plea that Europe mainly regulates and keeps introducing new regulations, mainly in the field of greening. In the process, little attention is paid to the competitiveness of European car companies, causing it to decline. De Meo calls it an unbalanced competition: Americans stimulate, Europeans regulate and Chinese are planning. This is why De Meo pleads for clear plans to guide a multi-faceted automotive industry through the transition.
What will the future bring?
The European elections are coming, and the resulting party divisions will play a role in the future. In addition to De Meo, other automotive leaders also plead for a clear legislative framework to enable innovation and competitiveness in the European automotive (after)market. CLEPA, the representative of Europe's automotive suppliers, has a similar message and also states that after years of planning, it is time to focus on implementing it. All in all, there will be a lot of talk about the European automotive market, but one thing is clear: the market and value chains are changing. We are expected to see more Chinese cars in Europe and that will become the new normal. In addition, the discussion in Europe is full on and many developments will follow.
