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China's Global EV Ambitions — The West Must Act
April 2024

China is not only the world’s largest car market with 26 million vehicles sold in 2023; it also features the highest BEV penetration at 24% in 2023 compared with 15% in Europe and 7.6% in the USA. China has also become the largest automotive exporter ahead of Japan, with 4.1m passenger vehicles shipped in 2023, of which 1.2m plug-ins (+80% yoy). 

China’s automotive exports are not limited to Chinese brands, by far. Western OEMs such as Tesla, Renault / Dacia, Volvo / Polestar, BMW, and others are leveraging China’s low manufacturing costs and its very competitive battery supply chain to grow their global volumes, with a focus on EVs.

Western brands have been losing market share to Chinese brands in China for several years. This decline accelerated with the growing ambition of established OEMs such as BYD or Geely — BYD sold more BEVs globally in Q4 2023 than Tesla. Furthermore, many new OEMs have emerged in the last few years and now offer very convincing new products fitted with advanced ADAS, highly integrated user interfaces, attractive styling and more. These players are also able to develop vehicles in extremely short cycles compared to Western OEMs and have managed to achieve significant volumes — e.g., around 150k each for NIO (see EC6 below) or Xpeng.

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The Chinese market has stabilized whereas capacity has boomed, reaching about 40 million vehicles thus far exceeding sales. A similar trend emerges for the battery supply chain where China overwhelmingly dominates global markets. Exporting has become existential for many OEMs and battery producers in addition to representing a political statement in the country’s transformation. China’s export ambitions are clear and visible in the market. 


China Is Way Ahead in Battery Supply Chain

China’s domination in the battery supply chain has been well documented. Chinese companies hold controlling interests in many lithium, cobalt, manganese, and nickel mines around the world. They have a dominating position in the processing of these minerals in China. They are also the clear leader in battery production with about 80% of global volumes in 2023 amounting to 905 GWh. CATL and BYD FinDreams are #1 and #2 globally with respectively 37% and 16% market share in 2023. The USA and Europe trail far behind with around 50 GWh each and are obviously racing to become independent all along this supply chain. This is strategic imperative as mobility becomes electric.

China’s strategy is not only about dominating global production, but also about leading in new cell technologies. This applies to lower cost, cobalt-free, lithium ferrous phosphate (LFP) cells, to potentially much lower cost, yet lower power density sodium-ion cells, as well as to (semi or all) solid-state cells. BYD and CATL hold a quasi-monopoly for LFP. BYD is building a 30 GWh plant to produce sodium-ion cells and presented its first application in the small Seagull last year (starts around $10k). Last, NIO is launching a 150-kWh swappable battery pack made of semi solid-state cells made by WeLion, and SAIC’s IM Motors announced the introduction of similar tech in its IM L6 later in 2024 (LS6 interior shown below).

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Very Convincing New Products Developed at Lightning Speed

Many Western automotive executives were surprised how fast Chinese OEMs had progressed during the Covid period. The latter emerged with a slew of very competitive products not just based on their price but also on the tech they feature. 

Established players whether public (e.g., SAIC, GAC) or private (e.g., BYD, Geely) has all stepped up their games. They have brought a number of new products to market and introduced new, EV-focused brands. For instance, SAIC’s brands now include MG, Boajun and IM Motors (co-owned with Alibaba) whereas GAC launched Hyper and Aion. Similarly, Geely launched Polestar, Jiyue (co-owned with Buidu, aimed at the robotaxi market) and Zeekr (partnered with Waymo for robotaxis). BYD expanded with high-end EV brand Yangwang — I recommend you check out U9, their new supercar (see below).


Emerging OEMs have also accelerated. Xpeng broadened its product offering to nine vehicles despite launching its first one in 2018 and reached sales of 142k units last year. NIO also started selling cars in 2018 and is now offering four vehicles, selling 160k units in 2023.


While Apple cancelled its EV project, its Chinese counterparts delivered on their plans. Consumer electronics maker Xiaomi recently presented the very mature (for a first iteration) SU7 with its impressive smartphone integration (see below). Likewise, Huawei has invested in several JVs with established OEMs such as in Aito (with Dongfeng), Avatr (Changan), Arcfox (BAIC) or Luxeed (Chery).

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A common denominator in all these new products: a significantly lower price than equivalent products sold in Europe or in the USA, as well as the latest tech whether it be infotainment, powertrain or ADAS — many are fitted with a Lidar as standard equipment. This puts significant pressure on Western OEMs.

European OEMs recognize the strengths of Chinese OEMs, which some have decided to leverage. Last year, Stellantis bought a 21% stake in plug-in vehicle OEM Leap Motors and is the majority stakeholder in their JV aimed at manufacturing and distributing the latter’s products outside China. Likewise, VW Group acquired 5% of Xpeng with the objective to develop at least two VW-branded BEVs based on the latter’s current platform for the Chinese market — Xpeng will keep the new tech for itself! Moreover, Audi is reportedly partnering with SAIC’s IM Motors to develop (or source) a next gen EV platform. If you can’t beat them, join them!


Europe Has Become a Major Export Target, the USA Not (Yet)

In Europe, Chinese brands now account for about 3% of the car market and 10% of the EV market. Formerly British, now SAIC-controlled MG leads the way. In 2023, its MG4 compact SUV was the fourth best-selling EV in 2023 with 72k units (ten times 2022 volume), just behind Tesla’s Model Y and 3, and VW ID.4. This is in part thanks to a low starting price of 25k€ (in France).

BYD has had more difficulties penetrating the continent despite having over 230 dealers across 19 European countries and selling five models. In late 2023, the company announced plans to step up its European strategy and build a manufacturing unit in Hungary. Others will continue to count massively on Chinese production for global export as demonstrated by large orders of car-carrying ships by local OEMs.

Xpeng and NIO entered Europe via EV-loving Norway in 2020 and have since branched out to other countries. In order to differentiate itself, NIO brought its battery swapping system to Europe and has now installed 42 such stations on the continent — of which a third are in Germany.

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As for the USA, there have been several attempts by Chinese OEMs to enter the market. However, its initial poor-quality image as well as more recent heavy import duties have been deadly deterrents so far. It appears though that these companies may try to enter the lucrative market by producing in Mexico which benefits from having no import barriers in the USA. 

In addition, Chinese OEMs have recently made major inroads in smaller yet significant markets such as Mexico, Brazil, Russia (deserted by Western OEMs) and S. East Asia. These countries do not have national players thus are more open to new, competitive products.


How Do Europe and The USA Respond to This Growing Ambition?

A rather easy— yet short term — solution to this growing global ambition consists in shielding domestic automotive industries, i.e., engage in protectionism. During the last US administration, duties on vehicles imported from China were raised to 27.5% vs. 2.5% for other sources. Currently, there are even talks to push this rate much higher and even to apply import duties on Chinese brands regardless of their origin.

This risk resulting from reduced exposure to (fair) international competition is the progressive atrophy of protected OEMs and their resulting inability to compete on global markets. It would eventually harm consumers by limiting the variety and competitiveness of products available.

Europe is taking a different route, noting that about 9 b€ of the 12 b€ worth of Chinese BEV exports landed in Europe in 2022. Last October, the EU initiated an investigation into subsidies awarded by the Chinese government to local OEMs. This approach is about establishing a level playing trade field.

France is taking yet a different path founded on the urgent need to limit global warming. Since January 2024, sales subsidies are only granted for EVs that receive a certain environment score. This score takes into account the carbon footprint of a vehicle’s complete production cycle through to delivery, including raw materials, sources of energy used in manufacturing as well as shipping to French dealers. Chinese-branded products were not the only losers; placed among the top 10 EVs, Tesla Model 3 and Dacia Spring also lost their incentives.

While the above initiatives may be fine in the short- to mid-term, others are necessary for the long run. Above all, it is critical for Western OEMs to accelerate their product, digital / software, and industrial transformation, continue reducing their cost base, radically shrink their product development cycle, and have higher mastery of their supply chain. Government can assist on the latter point. Well-funded initiatives in both the USA and Europe aim at developing independent battery supply chains, from mining minerals, to refining them and manufacturing cells.

In the end, the best defense is offense.

Marc Amblard

Managing Director, Orsay Consulting

FeeFeel free to comment or like this article on LinkedIn! Thanks!

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