In 2009, China’s production of automotive vehicles overtook that of the US, but China still trailed – and continues to trail – behind the world’s number one and two vehicle exporters: Japan and Germany respectively.
That may change, however, with China developing the world’s largest electric vehicle (EV) production capacity, and some industry players touting China’s first-mover advantage.
In 2021, for example, half of the 6.5 million EVs sold were sold in China.
On the other hand, China becoming an EV-exporting powerhouse isn’t a clear pathway.
In terms of sales, Europe’s market is strong, with 2.3 million EVs being sold in Europe mostly by European owned companies, compared with 3.3 million in China in 2021.
Europe has an export surplus, exporting more EVs than it imported in 2021.
This suggests that while China does have a large productive capacity among manufacturers, it still faces tough competition in the international trade of EVs.
China’s EV sprint
It’s not yet clear whether Chinese manufacturers’ exports will come to dominate the EV market in Europe, but it is clear that multinational automakers are already moving manufacturing to China.
The Chinese government has made it easier for foreign companies to set up operations in China, after relaxing rules on joint venture’s for EV manufacturing.
For example, Tesla’s venture in Shanghai is solely owned by Tesla, whereas previously this sort of foreign direct investment (FDI) would have to be a joint venture and would have to be 50% Chinese owned.
BMW has also set up production in China, with different partners for different models.
Multinational companies and joint ventures already account for 30% of China’s total automotive exports (excluding Tesla), and in the EV sector, Tesla alone accounted for 57.5% of China’s total EV exports.
There are trade-offs, however. If multinational companies use China as an export hub, China benefits from manufacturing jobs and local suppliers’ demand increases, while the multinational company retains profits, R&D and service jobs, such as sales and after-sale services.
Despite 10% EU tariffs on EVs from China, logistic costs, and other international trade risks, multinationals still decide to locate manufacturing in China, demonstrating its efficiency and low-cost EV value chain.
With the basis of the low-cost EV value chain, Chinese manufacturers aren’t only focusing on domestic operations, but are engaging in a variety of strategies to boost exports as well.
Mercator Institute for Chinese Studies (MERICS) suggests that Chinese manufacturers have set up R&D centres in Europe to build market and regulatory knowledge and connections, build partnerships with European Union (EU) manufacturers, set up overseas operations, and potentially their own production.
Mapping the trajectory of the international EV trade will be difficult, however, given the idiosyncratic strategies of EV manufacturers.
This includes supplier choices and production location, which will affect the economic success of regions and manufacturers differently.
One example of this is NIO, a Chinese luxury EV manufacturer that manufactures in China, but 70% of its suppliers are foriegn companies, according to MERCIS.
Regional green transition policies will also affect the automotive industry differently.
As of 2021, EVs produced in the EU are allowed to emit 95g of carbon per km driven, but this will be gradually scaled down to 0g by 2035.
If Europe follows this policy, the FT has reported, 500,000 jobs related to internal combustion engine (ICE) automotive production and technologies associated with it could be put at risk.
On the other hand, China’s policy on ICE vehicles is more lenient, looking to take on any overflow of demand for ICE cars after bans.
The FT also points out that PwC found that 250,000 jobs could potentially be added in the EV industry.
These potential jobs from a thriving EV industry base in the EU are politically important, in that they would provide jobs aligned with a green transition.
This makes it important that the EU can build a value chain within the EU that multinational companies can leverage.
The battery supply chain battle
The US, EU, and China have all made public statements about the importance of localising the global value chain (GVC) for the production of electric vehicles.
In February 2021, US President Joe Biden announced a strategic review of critical supply chains that includes large capacity batteries for vehicles and semiconductors.
Lithium-ion battery supply chain capacity and resilience will be important in building a localised GVC for EVs.
This is because lithium-ion batteries can account for over 30% of the cost of EVs, and are therefore a valuable part in the overall EV supply chain to capture.
In 2020, China had a 77% share of global battery manufacturing capacity, according to S&P Global Platts.
China built this strong position from its consumer electronics industry and government subsidies focused on building the EV market .
China’s other advantage is that its battery supply chain in Shenzhen and Dongguan is all within a 500km radius.
In 2020, Europe had 14 gigafactories and 30 announced or under construction.
S&P Global Platts projected gigafactory capacity (GW/h) by 2030:
- Europe: 845
- Asia-Pacific: 1,286
- North America: 190
However, the building of gigafactories focuses on battery cell manufacturing – the late stage of the battery supply chain.
This is insufficient, because a localised supply chain would need to include raw materials suppliers, components suppliers (cathodes and anodes), and a closed loop that includes recycling.
Reuters has reported that Eramet, a mining group, found it difficult to partner with local chemical groups that would be willing to build refining capacity in Europe.
Eramet currently has a partnership with BASF focused on its nickel and cobalt reserves in Indonesia.
Berger Consulting from Germany has also suggested that 40%-50% of current investment in Europe’s battery supply chain is made up of battery cell manufacturing, which ignores other key components within batteries such as cathodes.
The EU is targeting 100% of sourcing to be from within Europe by 2027, and this will only be possible with recycling capabilities.
The EU is also hoping that recycling will take off the reliance on mining for new materials.
However, there are barriers. For example, at present, the different types of batteries and different types of cathode material make it difficult for recycling plants to process, thus making recycling uneconomical.
The US and Europe do have government-backed lithium-ion battery research programmes looking into recycling and more efficient use of high-value materials.
And the EU has set requirements for minimum levels of recycled content in batteries for 2027, 2030, 2035.
The race is on
The EV and green transition will continue to prove to be a complex industry to follow.
Each region will be competing for jobs, and, within these regions, each EV manufacturer will be competing for market share.
In sum, the EV sector will continue to have major political and economic consequences throughout Europe, the US, and Asia.