Why China Holds the Edge in the Electric Vehicle Sector

Why China Holds the Edge in the Electric Vehicle Sector

The dominance of China as a country of both local and foreign electric vehicle production is an undeniable fact.

No one can deny that the "center of gravity" of the global automotive market has shifted to Asia. In other words, 51.6% of new passenger car sales today occur there, a share that is twice that of North and South America combined (23.7%). Meanwhile, only every fifth new car sold in the world (19.5%) is registered in Europe.

Electric Vehicles and Plug-in Hybrids Capturing the Market

Electric vehicles, namely fully electric transport and plug-in hybrids, are developing at a rapid pace, accounting for 14% of global sales. China is penetrating the fully electric car segment at an incredible rate, bolstered by its massive internal market (in 2023, for instance, 8.5 million electric cars were sold in the country, making up 60% of the global level according to the China Passenger Car Association).

As of 2022, China's share in the European market was nearing 4%. Additionally, in 2023, about 35% of electric vehicles exported worldwide were of Chinese manufacture. As a logical consequence of this trend, imports from China to Europe have increased fivefold since 2017. This sharply increased the trade deficit between Europe and China, which currently stands at nearly 400 billion euros, having doubled from 2020 to 2022.

Chinese Financing of the Automotive Industry

Regarding the financing of the industry, China is providing increasingly large subsidies to its manufacturers at an accelerating pace. A corresponding study shows that the total amount up to 2022 ranged from 110 to 160 billion euros. On their part, after the passage of the Inflation Reduction Act in August 2022, the USA injected 387 billion dollars into its economy, mainly in the form of tax benefits. Of this amount, 40 billion dollars were allocated to tax deductions for the development of "green" production technologies.

Europe, meanwhile, has not introduced any similar system.

China's Cost Advantages

Currently, energy costs are twice as high in Europe compared to China and three times higher than in the USA. Simultaneously, labor costs in Europe are 40% higher than in China.

In parallel, China has significantly invested not only in the development and production of electric vehicles but also in an entire supply chain related to electric mobility – from the mining of rare metals to battery recycling. As a result, today it controls 75% of global battery production, from 80 to 90% of the mining of materials for their manufacture, and half of the mines for rare metals extraction.

It's no surprise that a typical C-class model produced in China enjoys a cost advantage of 6000 to 7000 euros (about 25% of the total price) compared to a similar European model.