China began the millennium with the reputation of being the kingdom of the bicycle. 24 years later, the country has not only become the world's largest car producer, but is also entering the next season as the new global export leader after taking the crown from its neighbor Japan. For the first time in its history, the Asian giant is setting the benchmark in the automotive sector thanks to the unstoppable rise of its electric vehicles (EV), which has opened up a series of opportunities and challenges that will shape the world scene in the years to come. five years While every summit highlights the need to advance the ecological transition – although commitments are not always translated into action – new energy cars are no longer just a promise for the future on this side of the planet.
The numbers are eloquent: in Europe, one in eight vehicles purchased in 2022 was electric (one in seven in the US), and at the same time, in China, electric vehicles accounted for 25% of total car sales. According to the China Association of Automobile Manufacturers, electric vehicle penetration in the world's second-largest economy has risen from 10% to 35% in just two years, and Hong Kong bank HSBC expects it to reach 90% by 2030.
This change in mentality in Chinese society would not have happened without the government's support for the sector. Beijing introduced tax exemptions for the purchase of environmentally friendly cars in 2014 and has invested almost 30 billion euros by 2022 to encourage their consumption. This year, the Treasury announced the biggest concession to the industry: a tax relief package worth €66.3 billion over four years for battery, plug-in hybrid and hydrogen fuel cell electric vehicles.
“It's a lot cheaper than a gas car,” a 35-year-old Wuhan businessman who identified himself as Walden explains by phone. Three years ago an XPeng P7 was bought for around 38,000 euros at the current exchange rate. Walden, like many of his compatriots, prefers a Chinese model to a foreign one because it has more accessories – many compare it to a smartphone on wheels – and because the interaction with the user is much higher: ” “I “I can give you 90% of the “Giving instructions through my voice,” he says enthusiastically.
Since 2020, fierce competition between Chinese manufacturers (there are estimated to be more than 300) has motivated local firms to innovate and adapt to consumer tastes more quickly than foreign ones. In fact, about 80% of new electric cars registered in China in 2023 will be from domestic brands. “The speed with which China has adopted new technologies in the automotive industry is unparalleled,” emphasizes risk assessment agency Moody's.
The right infrastructure also made the transition easier. China boasts of having the largest charging network in the world, with more than four million points across the country. In 2022 alone, more than 70% of the world's installed units were manufactured in China and 442,000 slots were added between January and June this year, according to the China Cargo Alliance.
This love for electric cars is no coincidence. China, which had been lagging behind in the production of internal combustion engine vehicles, found in electric vehicles a gateway into markets that had previously resisted them. At the end of the first decade of the 2000s, authorities imagined a strategic investment plan: if China developed this technology early enough, it could gain a major competitive advantage. And that's how it was.
Technicians assemble batteries into electric cars in Hefei, Anhui, last October. It is estimated that by 2030, 90% of cars sold in China could be electric.NurPhoto (Getty Images)
China has positioned itself not only as the world's largest automobile producer, but also as a leading exporter. Its manufacturers sold 3.4 million vehicles abroad from January to September, more than those of Japan and Germany, which exported 3.2 million and 2.4 million, respectively, in the same period, according to a report by research institute German CAM. Electric vehicles accounted for 24% of Chinese exports, more than double last year, driven by Tesla sales. As of 2021, Elon Musk's company has produced more cars in its Gigafactory in Shanghai than any other. However, the Chinese company BYD has stepped on the accelerator (in August it was the main exporter) and threatens to take over this position in 2024. Last year, BYD gained an excellent reputation: four of the world's ten best-selling electric vehicles came from it.
Investment bank Natixis estimates that China will produce more than seven million electric vehicles in 2023, accounting for 52% of global production, and that its export share will rise to 41%. In 2019 it was 21%. Consulting firm Gartner predicts that more than 50% of electric vehicles sold worldwide will come from the Asian giant by 2026.
These stunning results are largely due to Chinese manufacturers leading the world in a critical aspect of the supply chain: battery technology. More than three-quarters of the world's battery factories are located in China, and in 2022 the country had 78% of the world's production capacity, according to Benchmark Mineral Intelligence. Last year, six of the world's ten largest manufacturers were Chinese (led by CATL and BYD).
China has also been a pioneer in the production of lithium ferrophosphate batteries, where it has a monopoly (99% of global share). Less prone to overheating, these enable long-distance journeys at significantly lower costs and can achieve up to 2,000 charging cycles without significant loss of capacity, which is almost twice the capacity of conventional lithium-ion batteries. Likewise, Chinese companies are leading the research and development of the next generation of batteries: solid-state batteries.
This dominance comes as the Asian country controls more than half of the world's refining capacity for graphite, nickel, cobalt and lithium and is guaranteed supplies of scarce minerals from Latin America and Africa. This “advantage allows Chinese manufacturers to reduce production costs” and be “self-sufficient” from lithium processing to battery assembly, Moody's noted in August.
To speed up production and ensure a competitive supply chain, many European manufacturers have entered into partnerships with their Chinese competitors. Volkswagen acquired a 4.99% stake in XPeng in July and announced in April that it would build an automotive development center in Hefei. VW, for its part, has 33 factories with joint venture partners and 100,000 Chinese employees.
In 2022, China exported 371,000 electric vehicles to the European Union, an increase of 360% compared to 2020. However, the number of Chinese-branded vehicles on European roads remains relatively low for now, as exports from Asia continue to be dominated by Tesla (40% ). Amid a surge in exports from China, the European Union has formally launched an investigation to determine whether Chinese electric vehicle manufacturers have received public subsidies that promote unfair competition. “The markets are being flooded with cheaper electric vehicles whose prices have been artificially reduced by gigantic government subsidies,” condemned European Commission President Ursula von der Leyen in September. If tariffs were to be imposed, European manufacturers based on Chinese soil such as VW, BMW and Mercedes-Benz would be faced with an enormous dilemma.
The Old Continent – the second largest global electric car market – has become a key region for the expansion of Chinese electric cars. According to Merics data, in 2022 the European automotive sector recorded the highest concentration of Chinese investment in any industry in more than a decade (53%). In addition, Chinese battery companies have announced investments of more than 17 billion euros in Europe since 2018 and expect their European factories to account for about 20% of the continent's total battery production capacity by 2030.
Hungary, which has close ties with Beijing, benefited most from the wave of Chinese investment last year (20% of the total). In Spain, the Envision Gigafactory project has been approved in Navalmoral de la Mata, which is scheduled to be operational in 2025.
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