The companies of the Asian country point abroad, and the average price of their electric ones is only 32,000 euros
China has been the goose that laid the golden eggs for Western manufacturers such as Volkswagen and BMW. But it seems more and more like a threat. Chinese groups such as BYD, a leader in electric vehicles, are targeting foreign markets. Europe seems especially vulnerable.
China exported 3.11 million vehicles in 2022, up 54.4% year-on-year, according to the China Association of Automobile Manufacturers. Exports of new energy vehicles, such as battery electric cars, increased by 120% compared to 2021.
According to the consultancy Inovev, in 2022 electric vehicles from Chinese manufacturers already had a 9% market share in Europe, almost double that of the previous year. But the pace is accelerating. In addition to BYD, other manufacturers looking to expand include MG, owned by state giant SAIC; Xpeng, a specialist in electric vehicles; and Geely, owner of Volvo, which in January detailed plans to expand its Zeekr and London Electric Vehicle brands in Europe.
Chinese manufacturers have many advantages. In recent years, Western brands have lost market share in China, allowing domestic manufacturers to achieve greater economies of scale and efficiencies in areas such as research costs. They have an extensive domestic supply chain, including the world’s largest battery manufacturer, CATL, which gives them access to innovative technologies such as battery swapping or lithium iron phosphate batteries.
Some, like Xpeng, aim to compete in quality with high-end Western brands, offering long autonomy or smart entertainment software. For many consumers, the appeal lies in the lower prices. While Western manufacturers have skyrocketed the cost of battery vehicles, Chinese groups halved the average price of an electric car in their country between 2015 and the first half of 2022, to just 32,000 euros, according to the consultancy Jato dynamics.
Its greater efficiency and the higher cost of battery cars in Europe mean that groups in the Middle Kingdom can export and compete vigorously. On average, Chinese manufacturers can build an electric vehicle for €10,000 less than their Western rivals.
The new competition will exacerbate a looming price war in electric vehicles, which has already begun in the United States, led by Tesla and Ford Motor. Europe, however, seems especially exposed. US automakers benefit from drivers’ fondness for bigger cars and government subsidies for domestic production under President Joe Biden’s Reduced Inflation Act. With the threat looming over European manufacturing, the continent could try to deter imports with additional tariffs or more subsidies for local manufacturers.
But the governments themselves are in a bind. If Europe wants to phase out combustion vehicles by 2035, it will need a large supply of cheaper electric vehicles. The average price of an electric car in Europe, estimated by Jato at 56,000 euros, is still too high for most consumers.
trade war
Also, a trade war would be unpredictable. The lower cost of manufacturing in China could help manufacturers in the country absorb the tariffs, while Western groups could face retaliation. China accounted for nearly 40% of Volkswagen deliveries in 2022, for example. Groups like Renault or BMW manufacture there and export abroad.
The result may be that Western groups have to compete for a smaller spot in their home markets, but also cut prices, which would hurt profitability. Inovev calculates that Chinese groups could capture 20% of the European electric market by 2030, while European brands would see their share fall from 66% in 2021 to a mere 45%.
The sector has had a good pandemic. Volkswagen, for example, has raised prices by around 10% on average in the last three years, according to RBC analysts. The growing threat from China means the lean years are beginning.
