China starts with electric cars

China started the millennium still with a reputation as the bicycle kingdom. 24 years later, the country has not only become the world’s largest car maker, but also entered the next calendar year as the new global export leader after taking the crown from neighboring Japan. The Asian giant is setting standards in the automotive sector for the first time in its history thanks to the unstoppable rise of its own electric vehicles (EV), which have opened up a number of opportunities and challenges that will shape the international scenario for decades to come. While every summit echoes the need to support ecological transformation – even if commitments are not always translated into action – on this side of the planet, new energy cars are no longer just a promise for the future.

The numbers are telling: in Europe, one in eight vehicles purchased in 2022 was electric (in the US, one in seven), while in China, electric cars accounted for 25% of total car sales. According to data from Association of Chinese Automobile Manufacturersin just two years, the penetration rate of electric cars in the world’s second largest economy has shot up from 10% to 35%, and Hong Kong bank HSBC estimates that it will reach 90% by 2030.

This change in mentality in Chinese society would not have happened without government support for the industry. Beijing introduced a tax exemption for the purchase of green cars in 2014 and has invested nearly 30 billion euros by 2022 to encourage their consumption. This year the Treasury announced the industry’s biggest concession yet, a €66.3bn tax holiday package over four years for battery electric cars, plug-in hybrids and hydrogen fuel cells.

“It’s much cheaper than a gas car,” a 35-year-old businessman from Wuhan, who identifies himself as Walden, explains over the phone. Three years ago, an XPeng P7 was purchased for approximately 38,000 euros at the current exchange rate. Walden, like many of his compatriots, prefers the Chinese model to the foreign one because it has more accessories – many liken it to a smartphone with wheels – and because the level of interaction with the user is much higher: ” “I can give you 90% of the instructions with my voice,” she says excitedly.

As of 2020, fierce competition among Chinese manufacturers (estimated to be more than 300) motivates local firms to innovate and adapt to consumer tastes faster than foreign ones. In fact, around 80% of new EVs registered in China in 2023 will come from domestic brands. “The speed with which China has adopted new technologies in the automotive industry is unparalleled,” they point out Moody’s rating agency.

The right infrastructure also eased the transition. China boasts the largest charging network in the world, with more than four million points spread across the country. In 2022 alone, more than 70% of the units that were installed worldwide were made in China, and between January and June this year, 442,000 seats were added, according to the China Cargo Alliance.

This love for the electric car was no accident. China, which has lagged behind in the production of combustion engine vehicles, has found in electric cars a gateway to markets that have resisted it. In the late 2000s, the authorities envisioned a strategic investment plan: if China developed the technology early enough, it could gain a huge competitive advantage. And so it happened.

China has established itself not only as the largest car manufacturer in the world, but also as a leading exporter. Its manufacturers sold 3.4 million vehicles abroad from January to September, more than Japan and Germany, which exported 3.2 million and 2.4 million respectively in the same period, according to a report by the German CAM research institute. Electric cars accounted for 24% of China’s exports, more than double from last year, driven by sales tesla. As of 2021, Elon Musk’s company is producing more cars at its Shanghai gigafactory than any other. However, China’s BYD stepped on the gas (it was the main exporter in August) and threatens to steal this position in 2024. Last year, BYD earned a great reputation: four of the ten best-selling electric cars worldwide were its.

Investment bank Natixis estimates that China will produce more than seven million electric cars in 2023, equivalent to 52% of global production, and that its share of exports will rise to 41%. In 2019, it was 21%. Consulting firm Gartner predicts that by 2026, more than 50% of electric cars sold worldwide will come from the Asian giant.

These impressive results are largely due to the fact that Chinese manufacturers are world leaders in a critical aspect of the supply chain: battery technology. More than three-quarters of the world’s battery manufacturing plants are located in China, and the country accounted for 78% of global manufacturing capacity in 2022, according to Benchmark Mineral Intelligence. Last year, six of the ten largest manufacturers on the planet were Chinese (led by CATL and BYD).

China was also a pioneer in the creation of lithium ferrophosphate batteries, on which it has a monopoly (99% of the global share). Less prone to overheating, these batteries enable long-distance driving at a significantly lower cost and can achieve up to 2,000 charge cycles without significant loss of capacity, nearly double that of traditional lithium-ion batteries. Likewise, Chinese companies are leading the research and development of a new generation of batteries: solid-state batteries.

This dominance is due to the fact that the Asian country controls more than half of the world’s refining capacity for graphite, nickel, cobalt and lithium and has guaranteed supplies of rare minerals from Latin America and Africa. This “advantage allows Chinese manufacturers to reduce production costs” and be “self-sufficient” from lithium processing to battery assembly, Moody’s noted in August.

In order to speed up production and ensure a cost-competitive supply chain, many European manufacturers have partnered with their Chinese competitors. Volkswagen bought a 4.99% stake in XPeng in July and announced in April that it would build an automotive development center in Hefei. VW has 33 factories with joint venture partners and 100,000 Chinese employees.

In 2022, China exported 371,000 electric vehicles to the European Union, an increase of 360% compared to 2020. However, the number of Chinese-branded vehicles on European roads remains relatively low at present, as exports from Asia continue to dominate. by Tesla (40%). Faced with a surge in exports from China, the European Union has formally launched an investigation into whether Chinese electric car makers have received public subsidies that encourage unfair competition. “The markets are flooded with cheaper electric cars, the prices of which have been artificially reduced on the basis of gigantic state subsidies,” condemned the president of the European Commission. Ursula von der Leyen, in September. In the case of the introduction of tariffs, European manufacturers established on Chinese soil, such as VW, BMW or Mercedes-Benz, would face a huge dilemma.

The Old Continent – the second largest global EV market – has become a key region for the expansion of Chinese electric cars. In 2022, the European automotive sector will see the highest concentration of Chinese investment in the sector in more than a decade (53%), according to data from Mercics. In addition, as of 2018, Chinese battery companies have announced investments of more than €17 billion in Europe and expect their European plants to account for around 20% of the continent’s total battery production capacity by 2030.

Hungary, which has strong ties with Beijing, benefited most from the wave of Chinese investments in the last year (20% of the total). In Spain, the Envision gigafactory project in Navalmoral de la Mata has been approved and is scheduled to be operational in 2025.

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