By Paul Homewood
I did warn you!
Tesla would have delivered more cars in the most recent quarter but for a shortage of boats. It’s having problems finding vessel capacity out of Shanghai. No wonder: China recently overtook Germany as the world’s second-largest car exporter.
China’s car exports rose more than 50% in the first nine months of 2022, shipping out more than 2-million vehicles. This isn’t just western carmakers using China as an export hub; home-grown brands are also finding their footing on the world stage. And demand is being led by Europe, the birthplace of the car, where a supply-chain crunch, energy crisis and war in Ukraine continue to hamstring manufacturers.
The threat is about more than price. Chinese-built cars are of far superior quality to those it tried to foist on European consumers more than a decade and a half ago. Europe’s carmakers are already losing market share in China due to a lack of competitive electric vehicles, and they risk doing so at home too, where Chinese carmakers already account for 5% of the EV market.
European politicians mustn’t be naïve but they should be wary of wielding a big stick: harsh new trade barriers on China would raise the cost of electric vehicles while lessening pressure on European automakers to boost their competitiveness.
China’s vehicle makers are making inroads after spending years preparing to meet growing demand for electric vehicles and the batteries that power them. Carmakers globally are partnering with Chinese battery makers to power their EV fleets.
Thanks in part to government largesse and an industrial policy that favoured domestic producers, Chinese EV brands dominate their rapidly growing local market, where they are looking to cut prices, which will further boost adoption.
China’s advance presents a thorny problem for European politicians, who are under pressure to ensure a level playing field. Currently, car imports into China face a 15% tariff compared to 10% when going into the EU.
Stellantis CEO Carlos Tavares wants Europe to raise tariffs on imported Chinese models. Meanwhile, French President Emmanuel Macron says purchase incentives should be contingent on local production, as they now are in the US following the Inflation Reduction Act. Germany, whose car industry has far more to lose if China retaliates, has so far been more reticent. German auto executives are part of Chancellor Olaf Scholz’s delegation of business leaders visiting China this week.
Europe is already worried about deindustrialisation due to its sky-high energy costs. There’s growing political concern too about the continent’s business dependence on China — a valuable trade partner but increasingly viewed as a strategic rival. The fate of industries like solar panels — where German consumers effectively subsidised the rise of Chinese manufacturers and domestic producers went bust — show the dangers of complacency.
While western carmakers overcame competitive challenge from Japanese and Korean producers in the past, the threat is bigger this time because EVs are a new technology and China is years ahead in batteries and associated supply chains. The EU reached a deal last week to ban sales of combustion-engine cars from 2035; so the continent’s manufacturers are stuck between a rock and a hard place.
Choking off Chinese vehicle imports may be politically popular, but European consumers will end up paying through higher prices and inferior products. Ultimately, Europe can choose protectionism or affordability. But regrettably it can’t have both.
We’ve long known that China can undercut European manufacturing industry. But until now European carmakers have held a crucial technological advantage.
However as Bloomberg point out, EVs are a new technology, and by banning conventional cars, we are giving away that dominance.
via NOT A LOT OF PEOPLE KNOW THAT
November 4, 2022 at 10:17AM