China’s Ev Carmakers Have A Growing Toehold On The European Market

Chinese electric vehicle (EV) manufacturers are gaining traction in the European market, as local carmakers are facing surging energy costs, inflation concerns, and a tight supply chain, leading to a decrease in European-made EVs over the first half of the year. 

According to a study by the European clean transport organization, Transport & Environment, Chinese carmakers accounted for 5% of all battery-operated electric vehicles (BEVs) sold so far this year. The group has warned both governments and carmakers that unless they can scale up production, coupled with clean energy subsidies, China could provide Europe with 9% to 18% of its BEV cars by 2025.  

The threat is more than rising production costs and surging inflation that have eaten into manufacturers' bottom line and consumers’ disposable income. China is swiftly gaining superiority in the EV market, as the country leads in both manufacturing and innovative technology. 

From a production point of view, Chinese carmakers are holding the upper hand, localizing a majority of the manufacturing for their vehicles. On the back of this, European makers have been toiling with ongoing supply chain issues caused by the COVID pandemic, leading to a shortage of components needed to complete a backlog of orders. 

Now as China gains a strong toehold among European consumers, both manufacturers and lawmakers are now being pushed to impose new measures as they’re scrambling to save the continent’s dwindling automobile industry ahead of a looming recession. 

Weak emissions targets are holding back the market

In the last-minute agreement in late October ahead of COP27, the European Commission welcomed the new European Green Deal, which will see all new cars and vans registered across Europe comply with new zero-emissions standards by 2035.   

European nations have been toiling at the string of the new European Green Deal for quite some time, as developed nations across the new world are imposing stringent regulations that look to promote sustainability and environmental awareness. 

As part of the new agreement, European car makers have been struggling to meet ambitious CO2 standards. Despite EU car emissions falling by 2% in the first half of the year, some major contenders in the local market, aside from Volkswagen, have been able to reach feeble emission targets. 

Issues concerning EU emission standards have left a majority of carmakers to make voluntary commitments to design, manufacture, and the introduction of more battery-power vehicles within the European marketplace. Experts suggest that if car makers can commit to the minimum of the outlined standards, BEV car sales are projected to jump by 55% in the coming decade. 

Regulatory incentives and government subsidies have done little but improve sales of electric vehicles across the continent, even as nations remain committed to meeting their green targets by 2035. 

The issue here is not only focussed on how manufacturers will meet emissions targets, but rather how they can do so through more affordable practices. The continent is currently facing a severe energy crunch, and some experts are worried this is putting the continent on the fast track to de-industrialization of its automobile industry. 

The surge in energy prices, paired with red-hot inflation has meant that carmakers have been steadily increasing the prices of new cars over the course of the year. The result led to European consumers pulling from the car-buying market as they brace for uncertain economic conditions. 

Unlike foreign visitors, especially Americans that have been enjoying their stronger dollars to pay for anything from expensive housing and property, the best road trips in Germany, and cheaper cars - EU citizens are bracing for hard times ahead despite the central bank and EU Parliament introducing solutions to the continent’s severe economic and energy problems. 

Europe is an open house 

Europe has become an open house for foreign car makers, putting production and jobs at risk as new competitors start to flood the local market. 

In a new study by PwC, it was found that by 2025, somewhat 800,00 cars from China could be sold across Europe, and the vast majority of them will be electric vehicles. The continent’s commitment to putting more electric cars on the road has created a massive opportunity for existing and upcoming Chinese car makers. 

Chinese EV brand BYD has already been slowly entering the market, initially looking to sell three full-electric passenger vehicles in six different European countries. Additionally, the EV maker will add a smaller and more compact car to its local offering in the year to come. 

Aside from giving European buyers comfort and luxury and an affordable price compared to other domestic brands, BYD has also been establishing relationships with governments in central and southern Europe to lock in lucrative investments to manufacture cars locally. 

In the meantime, French President Emmanuel Macron has criticized the European Union for being “too open” to foreign car makers on the topic of state subsidies for electric vehicles. In a recent interview, Macron felt that the EU has become an “open house” to foreign competitors, unlike the U.S. which has introduced new laws to protect its industry, Europe will need a Buy European Act if it looks to better promote domestically manufactured electric cars. 

The lack of government support for local car makers has meant that Chinese manufacturers are swiftly entering the market, opting to deliver a novel concept to Europeans. Complex politics and foreign policy has been hampering western car makers to step up to the plate and lead the local EV market. 

Supply and demand remain a critical issue 

Pandemic-related lockdowns and travel restrictions saw western car manufacturers deal with a surging backlog of orders, as China, once again a hub of components manufacturing, remained closed off to the rest of the world. 

The country’s highly criticized Zero Covid policy meant that manufacturing plants, ports, and airports remained dormant for weeks on end. While a majority of these restrictions have been waived in recent months, western brands are now struggling to meet supply with demand, despite consumers having to pay more for new vehicle orders. 

Unlike China, where EV makers manufacture and assemble a majority of their vehicles within the country, EU makers require additional materials and components from several countries, including the likes of China. 

Although western brands do outsource some of the production to Chinese manufacturers, during the first nine months of the year the country exported more than 2 million vehicles, seeing exports rise by more than 50%.

This staggering number doesn’t only include western carmakers, domestic brands native to China make up a sizable portion of the exports, making the country a muscular contender on the world stage. 

In places like Europe, where western EV car makers heavily rely on outsourced factories to supply components, it’s becoming increasingly difficult for manufacturers to match China’s product delivery. Amid a frantic supply chain caused by the pandemic and the war in Ukraine, and an energy crisis, manufacturers are experiencing major headwinds from all sides, online stagnating the growth of domestic EVs further. 

What’s next? 

Chinese EV makers have firmly planted themselves within the European marketplace, though there are some challenges these companies will still need to overcome in the next couple of years. Dealer networks and service agents are among two of the most critical components that it will need to establish if it looks to win over European consumers, albeit some are offering more affordable and reliable vehicles. 

Additionally, safety standardizations can be another thorny issue for manufacturers, though some of the cars companies have delivered in recent years have improved a lot compared to those from 15 years ago. 

For Europe, the introduction of Chinese electric cars is more than foreign policy or political gain, rather it’s become a threat to the continent's long-standing legacy with the automobile industry. 

In the coming years, Europe will need to decide what’s important to them, their long-lived industry, their sustainability efforts, or providing consumers affordable alternatives to domestic brands. Regrettably, Europeans can’t have all three, unless lawmakers find a new methodology for their growing problems.