Receive free Inside Business updates
We’ll send you a myFT Daily Digest email rounding up the latest Inside Business news every morning.
The best-selling budget electric car in China, priced at around $5,000, has contributed to a significant increase in China’s passenger electric vehicle sales. This surge in sales, reaching 5.9 million units, has surpassed the combined total of Europe and the US. However, the industry is now facing overcapacity issues due to aggressive investments made in the past decade.
Despite geopolitical tensions and complex government policies, Europe has emerged as a crucial target market for Chinese EV manufacturers seeking growth opportunities. This focus on Europe has intensified the efforts of European automakers to catch up in the EV market.
In 2021, nearly half of China’s car exports were sold in Europe, marking a 60% increase from the previous year. Battery electric cars accounted for approximately two-thirds of these exports. This trend mirrors the Japanese car makers’ push into the US market during the 1970s, indicating potential growth in Europe.
Currently, Chinese-branded EVs have a relatively low presence on European roads. Tesla cars account for almost 40% of the exports from China to Europe, while European and Chinese joint ventures make up 10%. However, Chinese EV exports are growing at a faster pace than anticipated, particularly in southeast Asia, where Chinese automakers dominate the market.
Europe, concerned about competition from Chinese EV makers, is investigating China’s subsidies for EVs. This probe may result in higher import duties on Chinese EVs, affecting their competitiveness in the European market. However, it remains uncertain whether potential tariffs would impede Chinese manufacturers in the long term, as the oversupply of EVs in China may lead to even lower prices.
China’s overcapacity issue is a major driving force behind its aggressive push into the EV market. With around 200 companies producing cars in excess of the local demand, production capacity is expected to exceed 15 million units, twice the expected local demand. The battery manufacturing sector is also grappling with excess capacity, with production estimated to surpass demand by four times by 2025.
Furthermore, the weak renminbi provides an advantage to Chinese EV companies when converting foreign currency receivables. Additionally, local raw material prices, including battery-grade lithium carbonate, have significantly decreased, reducing costs for the most expensive EV component.
Simultaneously, local investment in sodium-ion batteries for small EVs is accelerating. Although sodium-ion batteries have lower energy density compared to lithium-ion batteries, they are expected to be half the cost. These factors contribute to further potential price reductions and alleviate margin pressures for Chinese EV manufacturers.
Reflecting on the success of Japanese automakers in the US market during the 1970s, the strategy of starting with small, affordable cars to penetrate the mass market has proven effective. Chinese EVs may lack glamour but have become significantly more affordable in China, with the average EV price halving over the past eight years.
The European Union aims to have at least 30 million electric vehicles on the roads by 2030, significantly increasing the demand for mass market EVs in the region. To remain competitive, European EV manufacturers need to focus on reducing production costs through proven technologies, even if it means sacrificing design flair and character in early models. Innovation is crucial, and potential tariffs can provide a temporary advantage, but cost competitiveness is essential for European EV makers.
Contact: [email protected]
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
