As Vehicle Manufacturers Around the World Bet on EVs, the Competition Gets Fierce

According to China’s Association of Automobile Manufacturers, in the first half of 2024, China’s automakers exported more than two million vehicles, a 75.7% year-on-year increase. The shipments included 534,000 New Energy Vehicles (NEVs). Over the same period, China’s exports of EVs, lithium batteries, and solar cells increased by 61.6%.

Join us as we explore how this growth is leading to tensions in the EU as proposed tariffs seek to protect the region’s automakers, and find out how Supplyframe is helping automakers tackle uncertainty in the industry at Electronica 2024 in Munich!

China Shifts its Manufacturing Focus

The class of vehicles in the NEV family includes battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel-cell electric vehicles (FCEVs). According to China’s customs and industry associations, most Chinese NEVs produced, sold, and exported are BEVs and PHEVs.

China’s automotive industry, including NEVs, marks a shift from the dominance of the “old three” top sectors of clothing, home appliances, and furniture to the next generation of technologically advanced low-carbon transportation.

Many NEV manufacturers also produce power semiconductors. For example, automaker BYD manufactures automobile chips in China to meet the demand of NEV companies worldwide.

The rapid growth of China’s NEV exports indicates the country’s competitiveness in the global automobile industry. After decades of development, the electrification of China’s automobile manufacturing is raising the bar and challenging rival automakers.

Independent Trade Development on The Rise

The demand for NEVs, lithium batteries, and solar cells has become a hot-selling export product. In the first half of 2024, production of electric passenger cars, lithium batteries, and solar cells increased by 61.6%, which drove export growth up by 1.8%.

For example, Chinese companies, such as Jiangsu Nantong Wotai Energy Co., Ltd., are producing newly commissioned lithium batteries, increasing the production of photovoltaic and energy storage systems. 

In the first half of 2024, the company’s orders increased by more than 30% year-on-year. As market demand grows, Nantong Wotai will add more production capacity. When completed, its capacity will be six or seven times larger than its previous level.

Supply Chain Shifts

Thanks to tariff increases, Chinese NEV manufacturers will be challenged to diversify their geographical supply chains in 2024. “Chinese manufacturers are significantly accelerating their current plans and announcing fresh sites in new territories,” said Yu Du, China Research Lead at Rho Motion.

Between 2027 and 2030, market watchers will likely see China’s share of the total European EV market stagnate, falling to between 10% and 12%. They also expect volumes to rise to just over 900,000 by 2030 and a 55% drop in EU CO2 fleet emissions levels compared to 2020/21.

Confidence in the accuracy of the long-term forecast will hinge on the 2026 mid-term review, which still needs to confirm the projected goal. Some Brussels-based think tanks expect some adjustments will be allowed for vehicles powered by e-fuels, which will be part of the 2026 review.

Rising Tensions Between China and the EU 

Chinese NEV companies have recently been racing to bolster their European electric vehicle business. The purpose is to accelerate geographical supply chain diversification because of tariff increases. The shift means Chinese manufacturers are accelerating their plans to target new global end markets.

The European Union’s attempt to protect its carmakers from the threat of Chinese electric cars flooding the EU and an invasion of vehicles from the East for the rest of this decade appears survivable.

The EU recently announced that all new cars must be electric by 2035. However, Europe’s automakers lag well behind China’s in producing NEVs. The EU requires a massive increase in NEV sales to comply with its 2035 CO2 emissions-based targets. Today, that goal will be challenging, given current market conditions.

One option the EU has is to make it more challenging, but not impossible, for Chinese NEV makers to sell in the EU, bolstering the European automotive industry.

However, ambitious NEV targets require a ready-made mass market to increase production. One report of Chinese auto manufacturers in Western Europe forecasts that Chinese sales of NEVs will reach 200,000 in 2024 for a market share of just 9.9%. 

That is only 30,000 more than the 170,000 NEVs in 2023 for a market share of 8.8%. The report forecasts that EU sales of NEVs will reach an 11% market share by 2030.

According to China’s Association of Automobile Manufacturers, by the end of the first half of 2024, China’s automakers had exported 2.14 million vehicles, a 75.7% year-on-year increase. NEVs accounted for 534,000, or 25%.

Shenzhen-based BYD is one of the leading Chinese automotive contenders to establish a European presence and perhaps become Europe’s leading Chinese EV brand by 2027. Of course, a lot can happen in three years.

EU Considers Tariffs in Response to China’s EV Dominance 

There will be a price, though. The EU needs a massive increase in EV sales to make its 2035 CO2 emissions-based targets. That looks impossible under current conditions.

The EU has painted itself into a corner by decreeing all new cars must be electric by 2035 and close to 80% of sales by 2030. But its automakers lagged well behind the Chinese ability to make EVs for the masses. Should it stand behind its decree to make things easy for the Chinese and bankrupt its industry?

It would appear to have given a lifeline to the European industry by making it a bit more complicated but not too difficult for the Chinese EV makers. But the hugely ambitious EV targets require a mass market and fast, and there’s no sign of that. If the current arrangements stand, the CO2-based EV targets might be diluted.

A recent report on Chinese manufacturers in Western Europe by Schmidt Automotive Research forecasts sales of Chinese EVs will reach 200,000 in 2024 for an EV market share of 9.9%. This market share compares to 8.8% of just over 170,000 EVs last year. Forecasters suggest sales will hit just over 900,000 EVs by 2030 for an 11% market share.

China is eager to negotiate a better solution with the EU, but results thus far have been mixed. In mid-September 2024, Spain called on the EU to “rethink” its plans for the duties on Chinese electric vehicles, aligning with Germany in its opposition.

Valdis Dombrovskis, EU Commission Executive Vice President and Trade Commissioner, met with China’s Minister of Commerce, Wang Wentao, to suggest the two sides engaged in “comprehensive, in-depth and constructive consultations on the EU’s anti-subsidy case for electric vehicles against China.”

Dombrovskis said both sides are interested in continuing the discussion, but the terms have not yet been finalized.

Paris Auto Show Face-Off

Chinese and European automakers went head-to-head at the Paris Auto Show in October, the largest car show in Europe. Nine Chinese brands, including BYD and Leapmotor, exhibited their latest models at the show.

Tensions ran high on the news that the EU plans to impose hefty import tariffs on Chinese-made electric vehicles in a market struggling with weak demand. European automakers must prove their vehicles are competitive, while Chinese rivals must focus on establishing a foothold in Europe’s competitive auto market.

Carlos Tavares, the CEO of Stellantis, warned that tariffs would lead Chinese automakers to set up plants in Europe. Pundits suggest this would lead to European overcapacity and force European manufacturers to shutter production lines.

In October, EU member states narrowly backed import duties of up to 45% on Chinese-made EVs. The move was meant to counter what Brussels says are Beijing’s unfair subsidies to Chinese manufacturers. Beijing denies unfair competition and has threatened countermeasures.

While Chinese automakers have criticized the EU’s move, they are pressing ahead with European expansion plans. So far, no automaker has said it will raise prices to cover the duties.

European automakers are struggling to compete with Chinese rivals that offer lower costs than European companies. They have a shorter timeline of two years to develop new EVs, which is at least twice as fast as traditional Western automakers.

Join Supplyframe at Electronica 2024 in Munich! 

Automotive challenges, including the ongoing discussion of EU tariffs on Chinese NEVs, will be a major topic at Electronica 2024 in Munich. Join Supplyframe, a Siemens company, at the event from November 12th through the 15th in Hall B5, both 241. 

Visit our booth for product demos, live panel discussions, and more! You can also schedule a meeting with one of our representatives to discover how Supplyframe can help your organization navigate the complexities of the ever-changing automotive landscape.

We look forward to seeing you there!