Made in China

The EPA has finalized emissions rules for light-duty vehicles starting in 2027. The initial proposed rules drew opposition from the auto industry, among others. The rules would have required electric vehicles to make up 67 percent of new vehicle sales by 2032, the EPA noted.

By comparison, U.S. electric vehicle sales last year hit a record 1.2 million vehicles, or 7.6 percent of the market share, up from 5.9 percent in 2022. To meet the Biden administration’s goal of two-thirds of new car sales being electric, electric vehicle market share must increase by 60 percentage points over nine years — a dubious undertaking.

Annual car sales average about 17 million units. Meeting the EPA’s goal requires a 10-fold increase in electric vehicle production to nearly 12 million per year. That will require massive investment by the auto industry in new assembly plants, battery factories, mines and processing plants for key minerals needed for electric vehicles. Those minerals — cobalt, graphite, lithium, manganese, nickel and copper — are in short supply and are mostly found outside North America. That means finding mineral deposits all over the world and building vast new supply chains in a short time.

Late for the party

The United States was late to join the ranks of emerging nations in electric vehicles, and its efforts to catch up have been met with opposition.

Electric vehicle sales have largely been focused on the luxury car market, which is limited in size. With an underdeveloped EV charging network and many potential buyers unable to install home charging stations, buyers are hesitant.

In addition, electric vehicles are expensive and have limited range, which can require charging away from home. They perform poorly in cold weather and are expensive to insure and repair. These headwinds have combined to abruptly slow domestic sales of electric vehicles—much to the chagrin of auto executives who had been pouring billions into new factories while their losses on electric vehicles grew.

The slowdown in sales is not limited to the U.S., but has also spread to Europe and China, the world’s largest market for electric vehicles. For years, a subsidy-fueled boom had helped China sell more electric vehicles than Europe and the U.S. combined. Reductions in subsidies and slowing consumer spending meant that China’s EV growth rate fell short of that of Europe and the U.S. With excess EV capacity, China has embarked on a global expansion strategy.

Global dominance of electric vehicles?

China is now aiming to dominate the global electric vehicle market, and why not? If Western governments are determined to rapidly move away from fossil fuels and toward renewable energy, China wants to be the provider of the cheapest tools to facilitate that transition. What would be good for Westerners—cheaper renewable energy products—would be good for China’s economy.

Last year, China’s BYD, backed by Warren Buffett of Berkshire Hathaway fame, overtook Tesla as the world’s largest EV company. China is riding on the country’s EV boom to revolutionize the auto industry and leave traditional automakers in the dust. Traditional auto executives say Chinese EV companies are 30 percent faster at developing new EVs.

Instead of following the traditional protocol for developing a new model, these Chinese companies have taken on multiple phases of EV development simultaneously. They are willing to replace traditional suppliers with smaller, faster ones. They are doing more virtual testing instead of time-consuming mechanical testing. And they have redefined when a model is ready to go to market.

Western carmakers admit they are chasing Chinese car companies, once considered losers. But now there is concern that Chinese EV companies could flood the market with cheap EVs at a time when demand is falling. Financial losses would explode.

NIO, one of China’s leading EV makers, needs less than 36 months from project inception to delivery to customers. That’s a year faster than traditional automakers. Zeekr, the EV venture of Chinese auto giant Geely, can develop EV models in 24 months. Part of its strategy is to develop a variety of models — SUVs, multi-purpose vehicles and hatchbacks — that share the same manufacturing and digital architecture with other Geely brands, such as Polestar and Smart.

Another feature of China’s EV market is the rapid development of new models and the refresh of older models. Chinese buyers tend to favor the newest models. According to the China Passenger Car Association, car models launched last year contributed 90 percent of the growth in passenger car sales in the country.

Analysis by AlixPartners shows that “domestic EV makers have models on sale for an average of 1.3 years before they are updated or refreshed, compared with 4.2 years for foreign brands.”

Rather than being the underdogs, Chinese EV companies are being imitated and even partnered with for their skills, not as a ticket to enter the Chinese car market. Tesla’s Elon Musk and Ford CEO Jim Farley have warned that their biggest future threat will be Chinese EV companies. Germany’s Volkswagen is partnering with Chinese EV companies to speed up its design and production processes. The head of Volkswagen’s Chinese subsidiary noted that it has traditionally taken four years to bring a new model to market, compared with 2½ years for Chinese EV companies.

NIO, once considered the Chinese Tesla killer, has redefined when a model is ready to go to market by using “minimum viable products,” meaning they build their electric vehicles with more advanced chips, cameras, or sensors than their software can currently handle. Once they develop new technology that takes advantage of all the untapped potential, the vehicle receives software updates over the air.

Leadership in solar and wind energy

As China seeks to dominate the global electric vehicle market, it already dominates the solar panel market, having secured access to the technology from European manufacturers and then used the country’s cheap labor, energy and abundant polysilicon supplies to undercut the competition.

China now controls 80 percent of the solar panel market and plans to build more than 1,000 gigawatts of N-type cells, the next generation after P-type cells, which will be 17 times larger than their competitors. This market dominance means that Chinese modules cost half as much as those made in Europe and two-thirds less than American panels.

Is it any wonder that solar subsidies and tariffs are needed in Europe and the US to compete?

When it comes to wind turbines, China controls almost 60 percent of the global market, largely because it installs significant generating capacity and because the country’s policy is to make renewable energy the backbone of economic growth. In 2022, 10 of the world’s 15 largest wind turbine manufacturers were Chinese, and they shipped 56 percent of installed units. After shipping two-thirds of the 156 GW of installed capacity last year, China’s share of the global market has grown even further.

Too little, too late?

Western countries are trying to protect and develop China’s domestic competitors in all three markets – electric vehicles, solar panels and wind turbines. From government investigations into anti-competitive activities by Chinese manufacturers to imposing high tariffs and outright restrictions on access to local markets, Western governments are fighting back against China’s trade invasion.

At risk are jobs, capital investment and tax revenues, as well as potential national security implications. The recent slowdown and turmoil in the renewable energy market have only strengthened China’s position, as its actions are blessed by a government that looks to these industries for the long term to support the country’s economy.

This battle over economic policy will generate unintended consequences that we will only see when they occur. The biggest loser will be Western consumers forced to buy more expensive items. – MarEx