The effect of China’s EV dominance on the global automotive sector

China's supremacy in the electric vehicle (EV) industry and its exports are reshaping the global automotive landscape. China is strategically targeting both developing economies' nascent EV markets and developed nations through competitive exports.

Recently, the EU has raised concerns over significant Chinese state support for the EV industry, the rapid rise of cheap exports to Europe, and a growing overcapacity in China. The European Commission cites these factors as a threat to the EU's own electric vehicle industry, which is still striving to become profitable.⁴ To address these concerns, the Commission has initiated an investigation, considering the threat of injury rather than documented harm. This approach is being taken to prevent a repeat of Europe's experience in the solar photovoltaic sector, where state-supported Chinese players disrupted the EU's domestic industry.

The EU argues that the influx of low-priced Chinese EVs, coupled with rising production capacity, poses an imminent threat to both the European and global auto industry. The European Commission believes that many of these less expensive vehicles could flood the European market and beyond, making it challenging for other companies to compete.

China's rapid ascent in the EV sector is partly attributed to the absence of significant entry barriers or bottlenecks. Unlike certain industries like semiconductor manufacturing, which require substantial capital investments and advanced technological capabilities, EV production involves readily available technology and less complex manufacturing processes. This accessibility lowers the barriers to entry for both established automakers and new entrants, facilitating China's remarkable rise in the sector.

China boasts an immense manufacturing infrastructure that can be quickly adapted to EV production. The country's experience in mass production of conventional vehicles, consumer electronics, and other products provides a significant advantage. China's automakers can leverage their existing production facilities and skilled labor force to scale up EV production rapidly. This capacity to achieve economies of scale further solidifies China's dominance in the EV sector.

The country has also actively participated in setting technical standards related to EV technology, particularly in charging infrastructure and communication protocols.⁶ By playing a leading role in establishing these standards, China has positioned itself to influence the global EV ecosystem. This ownership of standards provides a competitive advantage and makes it challenging for other countries to gain a significant foothold in the sector.

China controls a significant portion of the global supply chain for key EV components, particularly rare earth elements and lithium-ion batteries. Its dominance in the extraction, processing, and production of rare earth materials and lithium batteries offers a unique advantage. This control over crucial elements of EV manufacturing grants China a strategic edge, as it ensures a consistent supply of essential materials.

The Chinese government has shown a strong commitment to promoting the EV industry through domestic policies and investments in infrastructure. Substantial financial incentives, subsidies, and regulatory support have encouraged consumers and manufacturers to embrace electric vehicles. The development of charging infrastructure and research initiatives further solidify China's position as a global leader in the sector.

EV market expansion and government support

The EV market is poised for substantial growth, with projections indicating a rising share in the automotive sector. A Morgan Stanley report predicts that EVs will account for 26% of global car sales by 2030, surging to 72.2% by 2040 and around 81.5% by 2050.⁷ Furthermore, market forecasts from Mordor Intelligence anticipate significant revenue growth in the EV sector, with predictions of a market size yielding US$725.14 billion by 2026, compared to US$171.26 billion in 2019.⁸

Competitive exports of Chinese-made EVs

China’s approach to global EV industry domination involves investments in local assembly plants, supply chain integration, technology transfer, and government support to address transportation needs and environmental challenges while establishing China as a global leader in the EV industry. In developing economies across Asia, Latin America, and other regions, Chinese EV automakers are exporting affordable and diverse EV alternatives.¹²

Simultaneously, Chinese EV manufacturers have made significant inroads in Western developed nations like the United States, the United Kingdom, and various European countries by exporting competitive, affordable EV alternatives.¹³ Their diverse product offerings and rapid technological advancements have resonated with price-conscious consumers. These companies often expand into these markets with localized production and partnerships to navigate regulatory challenges. If challenges related to regulatory compliance, quality perception, and competition with established automakers can be addressed, it will further solidify China's role in the global automotive sector.

One compelling case study highlighting China's rise in the EV industry is NIO Inc.'s success in Norway (and Europe broadly).¹⁴ NIO, a Chinese EV manufacturer, entered the competitive Norwegian market with its electric SUVs, gaining a strong foothold due to competitive pricing and advanced technology. The company's plans to establish local manufacturing and collaborate with Norwegian partners to ensure better charging infrastructure and customer support made them a leader in the market. Following this success, the company also started operations in Germany, Netherlands, Sweden, and Denmark in October last year. It provided consumers the option of buying online, from its stores or leasing the cars. Reports now say that the company is looking for dealers in the European market to drive up EV sales. China's growing influence is slowly growing in global EV markets as more countries transition to a climate-friendly automotive industry. This also illustrates the potential future dominance of EV manufacturers in the global automotive industry.

The industry impact and the response

China’s dominance has triggered intensified competition and innovation among traditional automakers worldwide, compelling them to invest in EV technology and design.¹⁵ The country’s central role in the global supply chain for essential EV components, such as lithium-ion batteries and rare earth materials, underscores the need for diversification to mitigate dependency risks.¹⁶

For traditional automotive-exporting countries, this shift presents both challenges and opportunities. They need to adjust their strategies, invest in EV production, and form partnerships to maintain their positions in an evolving automotive landscape. European countries which are major automotive manufacturers are trying to assess the best actions in countering China’s influence while adapting to the new EV-led automotive market in the near future.

The Commission's decision to impose countervailing duties on EV imports from China aims to protect and bolster the competitiveness of the European auto industry. However, it's a delicate situation for the EU, as various member states have differing interests in the matter. Germany, which is heavily reliant on the Chinese market, is cautious about potential retaliation, while France sees this investigation as an opportunity to strengthen Europe's green technology sector.¹⁸

The rise of China's dominance in the EV industry and its export strategies are fundamentally changing the operation of the global automotive landscape. While this brings both opportunities and challenges to the established automotive export players (and current EV competitors) they are ultimately pushing the industry towards a more sustainable mobility infrastructure that can benefit both the environment and consumers worldwide. Countries with a large share of automotive exports and legacy companies in the automotive sector have the multifaceted challenge of both cutting into China’s EV market share and building domestic EV manufacturing and export capability.

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[1] Britain’s carmaking industry is increasingly under threat, The Economist, January 26, 2023.
[2] The US Hasn’t Noticed That China-Made Cars Are Taking Over the World, Tom Hancock, Bloomberg, January 26, 2023.
[3] Developing Nations Aren’t Ready for EVs—Unless They Are Made in China, River Davis, The Wall Street Journal, January 8, 2023.
[4] Opening Salvo: The EU’s Electric Vehicle Probe and What Comes Next, Camille Boullenois, Agatha Kratz and Reva Goujon, Rhodium Group, October 23, 2023.
[5] “China Replaces Japan As Top Auto Exporter in Jan-June 2023”, Richard Katz, Japan Economy Watch, August 3, 2023.
[6] Standards Bearer? A Case Study of China’s Leadership in Autonomous Vehicle Standards, Matt Sheehan, Marco Polo, June 3, 2021.
[7] Megatrends: Driving the Adoption of Electric Vehicles, James Ferraioli, Morgan Stanley, December 20 2022.
[8] Global Electric Vehicles Market Size & Share Analysis - Growth Trends & Forecasts Up To 2028, Mordor Intelligence.
[9] Electric Transport in the Netherlands, Netherlands Enterprise Agency, Government of Netherlands.
[10] Government sets out path to zero emission vehicles by 2035, Department for Transport, Government of the United Kingdom.
[11] France to uphold ban on sale of fossil fuel cars by 2040, Reuters, June 11 2019
[12] Developing Nations Aren’t Ready for EVs—Unless They Are Made in China, River Davis, The Wall Street Journal, January 8, 2023.
[13] Chinese automakers want to sell electric cars across America, Joann Muller and Han Chen, Axios, July 27, 2023.
[14] How Nio's Norway Market Entry Is Unfolding, Shanthi Rexaline, Yahoo!Finance, August 31, 2021.
[15] The Chinese carmakers planning to shake up the European market, Financial Times, June 29, 2023.
[16] General Motors invests $650mn in US lithium mine to secure EV battery materials, Harry Dempsey and Claire Bushey, Financial Times, February 1, 2023.
[17] BYD’s US$1 billion investment plan reportedly rejected by India on security grounds in blow to global strategy, Daniel Ren, South China Morning Post, July 24, 2023.
[18] EU Tariffs on Chinese EVs May Hurt Germany, Minister Says, Aggi Cantrill and Monica Raymunt, Bloomberg, October 18, 2023.

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