EV evolution — a new chapter?

The arrival of China’s technologically competitive and inexpensive electric vehicles (EVs) on the world scene is fast reshaping the global automobile landscape. The protectionist policies being adopted by the United States to shut Chinese electric carmakers out of its market are only hastening this market adjustment. Currently, China is a leader in EV technology, controlling around 60 per cent of global EV sales and about 66pc of the world’s capacity for lithium-ion battery manufacturing.

Unlike the US, however, Europe is perhaps taking a more pragmatic approach as it seeks to remain open to Chinese investment in the EV sector to develop its own industry while balancing the need to safeguard its domestic production without blocking out affordable technology or triggering retaliation from China, which has its own reasons to avoid a trade war with the European Union (EU) that would disrupt its access to the European market. In 2023, Chinese imports accounted for 26pc of new battery EV sales in the EU, compared with 19pc from other countries and 55pc from domestic manufacturers.

Even though Brussels has increased tariffs on Chinese-made electric cars up to 45.3pc — it has imposed new tariffs of up to 35.3pc in addition to the existing 10pc duties to counter the competitive advantages of China — potentially attracting retaliatory actions by Beijing, both sides continue to engage with each other to seek a negotiated settlement on “price undertakings” (controls on prices and export volume employed as an alternative to tariffs).

Pakistan continues to miss opportunities while China’s EV dominance and Europe’s strategic approach reshape global auto dynamics

Optimism over the EU-China deal stems from a general view of analysts that the move to hike tariffs will not achieve the intended outcomes of increasing the price of Chinese imports into Europe and bolstering the competitiveness of the domestic car industry.

At the same time, the EU wants Chinese investment to help decarbonise its economy, increase competition, and offer consumers more choices. China’s investment, many say, can also help ensure competitive pressure on European manufacturers to innovate and improve efficiencies.

For both China and Europe, according to a Euro news article, the need for each other’s markets would increase as both are on US President-elect Donald Trump’s tariff list. Trump has repeatedly asserted his plan to impose new tariffs of 60pc-100pc on Chinese goods and 10pc-20pc on imports from other countries, including the European Union.

A European Commission study points out that China is not only still an important market for EU companies, but it is also increasingly becoming an important innovation hub for EU companies and a point of origin for exports. Almost all of the areas where EU investment in China has grown significantly are those in which China’s innovation and industrialisation are now ahead of the EU.

The EU investment in China’s automotive sector has increased from 33pc to 50pc. Rhodium Group statistics found that Chinese greenfield investment into Europe is growing rapidly, with electric vehicle-related supply chains being the main driver, accounting for nearly 70pc of Chinese FDI into Europe.

The EU is determined not only to save its own auto industry but also to save it with Chinese technology and models. The Financial Times recently reported that the EU is inviting Chinese companies to bid for a battery project with a subsidy of €1 billion, but requires Chinese companies to bring advanced technology and share their know-how with the local market. If the cooperation is satisfactory, the model will be extended to other EU projects.

The EU car companies are increasingly aware that they may no longer be able to make the difficult transition in their own markets on their own. German carmakers are already placing big bets on China amid the European Commission’s use of trade defence to draw in more Chinese investment, not block it outright.

German carmakers that have run against the US’s regulatory tide and deepened partnerships in China are calculating that lower-cost and technologically competent Chinese firms will enable a smoother transition from internal combustible engines to EV production.

In addition to attracting greenfield investment from Chinese enterprises in Europe, learning about manufacturing and cultivating the next generation of industrial workers, according to a report by The European Trade Union Institute on Chinese investment in Europe, the EU is increasing research and development in China to fully integrate into the supply chain.

Given that the trade and investment relations between the European Union and China have played a crucial role in the global business landscape, the outcome of the ongoing discussions on protecting their respective EV industries would be vital for their automobile sectors and how the global automobile landscape is reshaped.

China is already boosting its investments in Morocco and other countries in the Maghreb region to solve two important issues: sourcing critical materials needed in EV manufacture and bypassing import restrictions imposed by the United States and Europe.

The Chinese companies have stepped up investments in Morocco’s EV battery and vehicle manufacturing sectors, with Chinese-European battery maker Gotion High-Tech planning to build Africa’s first “gigafactory” in Kenitra at a cost of $1.3bn. Likewise, Chinese battery maker BTR New Material Group is building a $300 million cathode factory in the country and anode producer Shinzoom is building a $690m anode factory.

Regrettably, Pakistan is missing from the emerging global automotive supply chain landscape as new opportunities evolve, and no one is noticing them. Despite announcements by some Chinese EV companies to set up plants here, the evolving global scene doesn’t offer much hope for the materialisation of those plans.

Published in Dawn, The Business and Finance Weekly, December 2nd, 2024