Electric Cars From China Are Putting The Squeeze On European Manufacturers

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According to Transport & Environment, a lack of regulatory incentives is slowing the electrification of European carmakers while Chinese EV manufacturers are seeing their market share increase. Based on current trends, China could be providing Europe with up to 18% of its battery-electric cars by 2025. A new T&E study suggests that if EU automakers do not scale up their EV manufacturing, Chinese companies could capture a majority of the market for electric cars in Europe over time.

Julia Poliscanova, senior director at Transport & Environment, said: “European carmakers have slammed the brakes on their electric car offering at a time when Chinese and American carmakers are rapidly bringing new models to the market. If Europe wants to maintain the competitiveness of its car industry, the EU must introduce a strong industrial policy of its own to match the Chinese and Americans’ muscular support for EVs. The continent’s climate and jobs are at stake.”

She added, “The absence of regulatory incentives is doing far more than the supply chain crunch to slow EV sales in Europe. The current car CO2 targets are not working. The EU must quickly lock in the 2035 phase-out of petrol and diesels and remove loopholes that weaken carmakers’ targets. It should also support measures such as low-cost leasing of electric cars to make them affordable for everyone.”

The share of electric car sales in Europe dropped to 11% for the first half of 2022, down from 13% in the second half of last year. Growing electric vehicle sales in the United States and China suggest that a lack of regulatory incentives, not a supply chain crunch, is the main cause of Europe’s sluggish electrification efforts, T&E claims.

BEV sales in China soared to nearly 18% of the new car market in the first half of 2022, while the share of EVs in the US grew 50%. In that same period the share of BEVs in Europe fell by two percentage points with Europeans facing excruciatingly long waiting times for electric models.

Slowing supply and long waiting times are not the only challenges facing the European auto market. Local automakers are increasingly focusing on premium models and ignoring the mass market, which leaves the Continent vulnerable to the risk of being dominated by overseas players.

T&E recommends the EU and national governments:

• Confirm a 100% CO2 reduction from all new cars by 2035 as proposed by the European Commission, and supported by the European Parliament and EU environment ministers
• Oppose any exemptions or credits for e-fuels
• Remove the ZLEV benchmark that gives credits to automakers for sales of electric cars from 2025
• Electrify all new sales of corporate fleet vehicles by 2030
• Use EU funds and national measures to accelerate BEV production beyond minimum targets
• Match the kind of industrial policy recently adopted in the US, for example, by applying local sourcing and environmental requirements to tax credits and subsidies for BEVs and batteries

The Takeaway

What we are seeing here is a massive rethinking of free trade in the era of globalization. The US and European leaders are bartering over the “Build In America” provisions of the Inflation Reduction Act. Europe wants them eased (as does South Korea) and is crying foul after decades of neoliberal economic policies promoted by the US. T&E is saying, in effect, forget about the US and the IRA. It’s Xavier Onassis time. (Fans of A Prairie Home Companion will understand that reference.)

Put policies in place that protect local businesses while there’s still time. Otherwise, the Chinese car companies are going to eat Volkswagen’s, BMW’s, and Mercedes’ lunch for them, not to mention Renault and the various brands in the Stellantis Group. It will be interesting to see how this new wave of protectionist sentiment plays out. If Europe follows T&E’s advice, There’s a risk it could get bitten by the conventional wisdom that says, “Be careful what you wish for. You just might get it.”