The nation’s manufacturers now reign in sales and material supply
In the UK this year, MG4 dominates electric vehicle sales, having sold 5,200 units in the first three months after its 2022 launch. Priced at around £27,000, it’s notably cheaper than Tesla’s Model Y at £45,000. MG, a renowned British car brand, owes its recent success to China, as it has been owned by SAIC, China’s largest carmaker, since 2007.
China has been making western automakers uneasy with its production of high-quality and competitively priced EVs in recent years. In China, over a quarter of new car sales in 2022 were EVs or hybrids, compared to 13% globally. Furthermore, more than half of the 850,000 electric passenger cars imported to Europe in 2022 originated from China.
China’s President, Xi Jinping, has committed to achieving net zero emissions by 2060, while the EU aims for the same by 2050. Both regions see electric vehicles (EVs) as vital for decarbonizing transportation, and China is making impressive strides. By 2025, it is projected that 13% of China’s vehicle fleet will consist of fully electric or hybrid vehicles, doubling the 6% global estimate.
Despite the remarkable progress, analysts are questioning whether China’s EV industry can sustain its rapid growth. As the government reduces state support and geopolitical tensions potentially impact global demand for Chinese cars, uncertainties loom ahead.
From 2010 to 2020, more than 152 billion yuan (£16.5 billion) was invested in EV allowances in China. Instead of passing the higher costs to consumers, companies engaged in a price war, resulting in nearly a 15% reduction in prices for certain models compared to 2022.
In response to concerns about abnormal pricing and fair competition, Beijing compelled 16 companies, including Tesla and BYD, China’s leading brand and the world’s largest EV producer, to sign a pledge endorsing “core socialist values.”
While the cash subsidies have been phased out, China remains committed to supporting the EV industry, which is crucial for achieving climate targets and is projected to generate £227 billion this year. To further back the industry, the government announced a 520 billion yuan tax break package over four years in June.
BYD stands as one of China’s major EV success stories, originating as a mobile phone battery manufacturer in 1995 and later transitioning to cars, capitalizing on its cutting-edge battery expertise to make affordable EVs that entice consumers away from petrol-powered vehicles. The groundwork for China’s EV and battery industries was laid since 2009, according to Tu Le, the founder of Sino Auto Insights, a consultancy.
The key to BYD’s success lies in its almost complete control over the supply chain, which includes crucial minerals used in battery production. In the previous year, the prices of essential minerals such as lithium, cobalt, nickel, and manganese surged, causing disruptions in the EV market. Nevertheless, BYD has fostered strong relationships with miners and processing firms, enabling it to navigate the challenges. Notably, in April, BYD reached an agreement with the Chilean government to establish a $290 million lithium cathode factory in the mineral-rich country. Other Chinese companies are following suit, with UBS predicting that Chinese-controlled mines will account for nearly one-third of the global lithium supply by 2025.
China’s dominance in the supply chain poses a major concern for the western countries. Analysts are cautioning about potential security risks linked to Chinese-made sensors being utilized in autonomous and sensor-laden vehicles on European roads. Chris Miller, the author of “Chip War,” a book focused on the US-China semiconductor rivalry, emphasizes that companies and policymakers are only just starting to address the security implications of this growing trend.
Recognizing the worries, Beijing has taken measures to mitigate security risks by occasionally banning Teslas from specific areas when China’s leaders are present. For instance, during Xi’s planned visit for the University Games in Chengdu, Teslas were reportedly blocked from certain regions.
Moreover, there’s an economic threat to consider. In May, Allianz, the insurer, warned that European carmakers could face €7 billion (£6 billion) in lost profits annually by 2030 due to Chinese-made EVs. However, the US and Europe differ on how to balance these concerns with the objective of reducing dependence on fossil fuels. European manufacturers, particularly premium brands like BMW, Audi, and Mercedes-Benz from Germany, heavily rely on sales in China, making them wary of any measures that might restrict China’s access to the European market and potentially backfire.
European and UK politicians are facing a challenging dilemma, given their commitment to ban internal combustion engines by 2030 and 2035, respectively, without relying on Chinese EVs, as pointed out by Le. The situation calls for a resolution as “something’s got to give.”
However, there are concerns raised by human rights groups regarding the potential compromise on their stance against rights abuses in the EV supply chain. Researchers from Sheffield Hallam University highlight that much of China’s lithium processing occurs in Xinjiang, a region predominantly inhabited by Uyghurs, where there have been reports of forced labor (denied by the Chinese government). This raises the need for vigilance in avoiding forced labor supply chain risks in Xinjiang as the lithium EV battery market rapidly expands, as stated in a report by the researchers last year.
Nevertheless, Chinese battery brands are poised to make a global impact, as emphasized by economists from ING. Batteries represent a significant portion (40-60%) of an EV’s price, making it challenging for EV companies to produce an affordable vehicle without relying on China.
