Euro Car Industry Could Be Smashed By China’s Growing EV Dominance

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Chinese car makers dominate the EV market, giving the European car giants a massive shake-up, and a potentially devastating loss of income. With the changes in the car market as electric vehicles cause a change in consumer behavior, China’s growing share of the EV market in its home market and the EU will see the European car industry shrink by €24 billion a year and associated supply chain industries shrink by an additional €21 billion.

The recently released report titled “The Chinese challenge for the European automotive industry”, cites several factors at play including a shift away from a car-centric society, the Chinese lead in EVs, the fact that electric cars have fewer components, and Europe’s ban on new fossil fuel cars from 2035.

“With the 2035 phase-out of internal combustion engines (ICE) looming, the automotive sector is on the cusp of a complete shake-up, facing a transformation of its supplier base, changing customer needs, competition from new entrants, and the reality of a less car-centric society,” the report says.

The stakes are high for Europe’s automotive industry because 80 percent of cars sold in Europe are assembled locally and the industry’s exports have generated a trade surplus of between €70 billion and €110 billion every year over the past decade for the European economy.

China’s rapid consumer shift to EVs has enabled Chinese EV makers to capture the bulk of the new market at the expense of European legacy automakers. This has enabled them to scale significantly in recent years which now opens up export opportunities to the EU.

Despite its rapid growth, Europe’s adoption of alternative energy vehicles comes only second in the world, and at a lagging pace as well. In 2022 alone, more than 5.4 million battery electric vehicles were registered in China, an 83% boost from 2021, forming two-thirds of the world’s total. China is the world’s largest car market with around 27 million cars sold in 2022. China also accounts for around 50% of European auto giant Volkswagen’s global sales and as domestic EV makers find their ground, the giants are getting squeezed out.

Reports state that if Chinese manufacturers increase their domestic market shares to 75% by 2030, the total sales in China by European carmakers would fall from an estimated 4.4 million units to 2.7 million. This would hurt German car makers, and the German economy, the most.

Speculations have been confirmed that the Chinese government identified electric vehicles as the future competitive battleground in the late 2000s and invested heavily in the sector. “But support to EVs was also clearly identified as a major opportunity for the domestic industry to leapfrog from being a tier-two country in legacy engine technologies to a leader in alternative energy technologies,” claim reports.

Alliance says that Europe has become a key target for Chinese EV exports since the US is now a tougher market to crack after the introduction of the Inflation Reduction Act. Alternative energy vehicle sales reached 4.4 million in Europe in 2022,  representing 47% of all new vehicle registrations – although that number includes mild hybrid cars.

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