Were European manufacturers too blinded by their thirst to conquer a giant country to not see the “threat” it could represent a few decades later? While Europe has always been in favor of free trade, China quickly realized that it had to protect its industry. Thus, in order for foreign manufacturers to be authorized to produce cars in China, they were required to merge with a Chinese brand and form a joint venture that could not hold more than 50% of their shares.
Problem: joint venture means… technology exchange and transfer. Therefore, for years, Chinese brands have had varying degrees of access to engineering from the American or European auto industry. And we know how masterful the Chinese are at reverse engineering! Of course, the big historic car groups aren’t completely ignorant, they quickly realized that they would have to find ways to not give the Chinese too much to grind. China had an abundance of industrial tools and cheap labor, but lacked the expertise and “design office” part. In 2022, they have everything: factories, workers and engineers, as well as raw materials and the government on their side!
Also read: How China dominates the world of electric cars
Will Europe become China’s “customer” in 2025?
PWC study: Europe will be an importer of (electric) cars from 2025. The European Union is losing one battle after another: digitization lost, now our leading industry: the car https://t.co/5ynLida5Kf
—Alexander Prym (@AlexanderPrym) November 4, 2022
In 2005, China’s motorization rate was 28 cars per 1,000 people, compared to 593 in Europe. The big brands of the Old Continent therefore quickly realized the potential of China. 20 years later, they managed to defeat the famous missile strike! In 2021, China’s ratio rose to 200 and continues to rise. The Chinese are no longer country neo-urbanites hoping to buy their first car, they have become real car customers like every European. And it’s been a game changer in many ways: China’s auto industry, benefiting from joint ventures and government support, has grown strongly to meet domestic demand. 2020 will be the decade of “China’s first”.
The Xi Jinping administration has set production quotas for new energy vehicles (NEVs with electric and plug-in hybrids): a minimum of 16% in 2022 and 18% in 2023. And government incentives don’t just apply to national brands. A policy recently voted by the United States. What about Europe? He observes and waits.
European manufacturers must respond to them as well as other hyper-protectionist laws. This now has Stellantis (who recently bankrupted Jeep China and is considering starting up in the Middle Kingdom) and the Germans themselves questioning the relevance of China. German Chancellor Olaf Scholz even visited China to ease increasingly strict regulations for foreign companies. This is to say that the period is critical for Europe.
Fast-changing Europe: From 35,000 electric cars sent to us in 2021, China should increase to 66,000 in 2022. A study by the firm PwC talks about the volume of 800,000 cars manufactured in China and sold in Europe in 2025. 330,000… produced by European brands! Smart, Volvo/Polestar, Dacia, DS, Mini… examples of expatriation are not lacking recently. In 2025, with 800,000 Chinese imports, Europe will turn from an exporter to an importer with an import surplus of 221,000 cars. That’s it.
Obviously, this phenomenon can be explained by the deindustrialization of our continent. One figure is very surprising: in 2017, 14.9 million cars were produced in Europe. In 2021, only 9.9 million people remain, one third of them in Germany. Disadvantages certainly play a role, but they don’t explain everything…
The only hope for Europe? The battery passport, which is still expected to enter into force, state aid for the construction of factories is given only to European companies (in the coming years, a large part of the sites that will produce batteries in Europe will be in the hands of Chinese giants), but also, and above all, bonuses for cars manufactured only within our borders.