Chinese electric cars are emerging, and the US and Europe are deeply divided over how to respond.
On both sides of the Atlantic, efforts to expand beyond internal combustion engines offer huge strategic opportunities for China, whose automakers already dominate global markets for batteries and clean energy technologies.
Politicians have since been divided in their response, as U.S. protectionism contrasts with the European Union’s low tariffs and generous government subsidies for battery imports. But in Washington and Brussels, the threat of another industry being taken over by China is becoming an issue governments can’t ignore, fueling debate over jobs, trade and the fight against climate change.
Scott Kennedy, an expert on Chinese economic policy at the Center for Strategic and International Studies in Washington, said: “The United States has not completely hung up the ‘Do Not Invest’ sign, but we have made it clear that we are concerned about Chinese auto companies.” “In Europe it is much less interventionist and much more supportive.”
The US has imposed steep tariffs of 27.5% on Chinese-made cars (introduced during Donald Trump’s presidency) and is backing it up with protectionist tax breaks in President Joe Biden’s inflation-cutting policies. North USA. Moreover, hostility toward Beijing from leaders of both parties will make it difficult for Chinese automakers to penetrate the U.S. market, at least publicly.
At the same time, Europe’s actions have, either intentionally or unintentionally, provided strategic opportunities for emerging Chinese auto brands. The EU tariff on imported cars is only 10%, and European subsidies for electric cars apply to both imported and domestic cars and trucks.
The EU’s recent decision to ban the sale of new cars with internal combustion engines from 2035 has further strengthened the European market’s attractiveness to electric vehicle manufacturers – a decision that has been followed in the UK.
That’s why a BYD car can be seen in Dusseldorf, but less often in Dallas. BYD, a maker of eco-friendly cars and the batteries to power them, sold nearly 2 million vehicles last year (much more than Tesla). This is one of many Chinese brands entering the European market.
“The European [electric vehicle] market is much more open than in China and the US, with national or regional assembly a requirement for purchase subsidies and higher import duties on foreign cars,” insurer Allianz said in a recent report. The company conducted an investigation into the threat that Chinese automakers pose to the EU.
The reputation of Chinese automakers has quickly changed from low-quality knockoffs to real competitors to Western brands. Its domestic market dwarfs other markets, with 27 million vehicles sold last year, compared with 13.75 million cars and light trucks sold in the United States and 9.25 million in the European Union.
Last year, 5.4 million electric vehicles were registered in China, accounting for two-thirds of the world’s total electric vehicles. It also controls about 76% of the world’s battery manufacturing capacity and maintains strict control over the raw materials used to produce batteries. This gives the country’s automakers a strategic advantage and the ability to produce electric vehicles at a lower cost.
Despite Washington’s trade barriers, it already has a foothold in the U.S. market: Chinese automaker Geely owns Swedish automaker Volvo and its luxury electric vehicle subsidiary Polestar, which is building a plant in South Carolina.
“We view China as our main competitor, not General Motors or Toyota,” Farley said at a financial summit hosted by investment bank Morgan Stanley. “I think the Chinese will become a great power.”
The fact that Ford has car plants in the US, Europe and China and is not focused on Toyota (the world’s largest automaker) or General Motors (its main domestic competitors) is a clear indicator of how the automaker views Volkswagen’s operations in China. threatens the electric vehicle market.
Last quarter, China overtook Japan to become the world’s largest auto exporter for the first time in history, according to China’s General Administration of Customs.
Michael Dunn, an independent automotive consultant working in the US and China, said the quality and cost of Chinese cars had risen rapidly, especially in the last three years.
At the Shanghai Auto Show in April, Chinese electric vehicles made global headlines, from high-end vehicles (the flashy HiPhi Y SUV) to lower-end vehicles such as the BYD Seagull hatchback, which sells for just $11,400.
“It reminds me of the heyday of the Tokyo auto show in the 1980s,” said Joe Langley, auto forecaster and analyst at S&P Global Mobility. He talked about the time when Japanese automakers changed the global automotive order by producing small, reliable cars such as the Toyota Corolla and Honda Civic.
The EU’s 2035 Clean Cars Directive, which has received traction in the UK, is the breakthrough Chinese brands need. Sales have also been boosted by relatively generous buying premiums in some wealthy countries such as France, Germany and the Netherlands.
Chinese companies invested $24 billion in Europe’s electric vehicle ecosystem last year, accounting for more than half of China’s total direct investment in the continent, according to a report from global consultancy Rhodium Group.
“Europe has few large battery companies of its own and remains very open to Chinese investment in the sector,” the report said.
China’s auto exports remain small, accounting for only about 3.5% of European auto sales last year, according to Standard & Poor’s. But green NGO Transport & Environment estimates that Chinese companies could have between 9% and 18% of the EV market by 2025.
Germany’s national statistics office reported in May that imports of Chinese-made electric vehicles (from domestic brands and Western automakers such as Volkswagen) accounted for 28% of total electric vehicle imports in the first quarter of this year. This is three times more than in the same period in 2022.
China’s advantages are twofold. Its electric vehicle makers are not bearing the legacy costs associated with European automakers’ transition away from internal combustion engines. With a large domestic market, China has cracked the code of cheap battery production, the main cost of electric vehicles.
“They are using their product-specific expertise to go beyond existing European brands that employ huge numbers of people to build engines,” said a senior auto executive who asked not to be named. “To match this efficiency, Volkswagen will have half the staff. be fired.”
The European economy faces big risks. The automobile industry is the continent’s largest industry and largest employer, accounting for 10% of manufacturing activity.
Allianz reports that over the past decade, car exports have generated a trade surplus of between €70 billion and €110 billion annually for the European economy.
The prospect of a disappearing trade surplus is putting growing pressure on the European Commission, the bloc’s executive branch responsible for trade policy in its 27 member countries, to raise tariffs on foreign cars.
This led to a split within the EU. French-backed automakers, for example, are seeking higher protective barriers, while German automakers, which rely on sales of Chinese cars and fear retaliation from Beijing, have remained silent.
The tariffs make it nearly three times more expensive for Chinese-made cars to enter the U.S. market than to enter the European Union market.
Suspicion of China is so widespread among both Republicans and Democrats that it extends into related policy areas. Concerns about Chinese imports are among the arguments used by U.S. automakers to warn the U.S. government against adopting EU-style rules on the sale of green cars.
John Bozzella, chief lobbyist for the American Automotive Alliance, said: “If U.S. regulators and policymakers move too quickly on EV mandates in the next few years, I expect China to play a significant role in the U.S. EV battery supply chain. even gain a foothold in our automobile market.”
Republican lawmakers in Washington have expressed similar sentiments, seeing an opportunity to use the president’s climate goals against him. “Joe Biden’s obsession with electric vehicles… is transferring American power and money to China,” Republican Sen. John Barrasso said on the Senate floor in February.
But Biden is working to reduce China’s influence on the U.S. auto industry, one of the goals of the Inflation Reduction Act he signed into law last year. The bill’s strict procurement rules include a specific ban on tax credits for electric vehicles manufactured outside North America.
The obvious solution for Chinese automakers is to open factories in North America. This is already happening in Europe, and some Chinese car companies and battery manufacturers are already exploring this option in America.
Polestar’s South Carolina plant is dedicated to producing all-electric SUVs for the North American market, which the company notes means they are eligible for IRA tax benefits.
”Mention the word ‘China’ to members of the House or Senate, Democrats or Republicans, members of the executive branch, and they’ll all look at you the same way and say, ‘No, you’re not welcome here,’” Dunn said.
The new instinct among many lawmakers in Washington is that even if Chinese influence emerges, such choices will hamper the development of the U.S. battery supply chain, a key goal of the landmark climate legislation passed by Congress last year.
The latest victim of anti-China sentiment is Texas-based Microvast, which received a preliminary $200 million grant from the Biden administration to build a battery module plant in Tennessee. The goal of the award is to “strengthen the domestic lithium-ion battery supply chain and create high-paying jobs in the United States,” the government said.
But last month, Biden’s Energy Department announced without explanation that it ultimately would not release the money. The proposed funding was met with sharp criticism from Republicans in Congress because of the company’s ties to China, which includes Microvast’s Chinese subsidiaries.
Ford faced similar resistance in February when it said it would partner with Chinese battery giant CATL to build a battery plant in Michigan. Ford insists it is only licensing the technology and that CATL will not be involved in the plant.
Ford CEO Farley deftly responded to criticism during a speech at a Morgan Stanley conference last month. Like other automakers, Ford is working to provide features Americans want in electric vehicles, such as extended range. Chinese companies are best positioned to take advantage of these benefits.
“They have some of the best battery technology,” Farley said of the Chinese. “If localizing their technology in the US gets bogged down in politics, you know customers are really going to be in trouble.”
William Totz, head of the Department of Transport and Environment, wants more people to switch to electric cars without damaging the continent’s most important industry.
“Our goal is not to interfere with ambitious car and battery manufacturers: the world urgently needs them. The goal is to ensure tough but fair competition,” he wrote in the policy document, adding that unless the EU takes action to prevent unfair competition from China. and the US: “Europe is likely to become a dumping ground for subsidized products. Chinese and American electric vehicles and batteries.”
Correction: This article has been updated to correct that U.S. tariffs apply to vehicles made in China.
The move away from internal combustion engines is becoming an election issue on both continents.
Post time: Apr-15-2024