Porsche’s Chief Financial Officer Lutz Meschke has stated in a media interview following the conclusion of the Macan EV unveiling on January 25, 2024, that Europe’s initial plan to ban the sale of new fuel cars by 2035 may be postponed, as reported by Bloomberg.

TrendForce’s Insights:

• Prolonging the Battle and Gradually Narrowing the Gap with Chinese Automakers through Trade Barriers

In March 2023, the European Union passed a ban on the sale of new petrol and diesel cars starting from 2035.

Due to opposition from Germany and Italy, after coordination, the European Union agreed not to ban models using synthetic fuels. Range anxiety of electric vehicles continue to affect the willingness of end consumers to purchase cars, becoming the biggest obstacle to the growth of electric vehicle sales.

Coupled with China’s electric vehicle market, which accounts for over 50% of global BEV sales, nurturing Chinese automakers led by BYD, who continuously lead in the technical level of the the battery system, the electric drive system, and the electronic control system compared to Europe, America, and Japan.

Not long ago, Tesla CEO Elon Musk stated that without trade barriers, Chinese automakers would destroy the vast majority of their competitors. Whether this statement is exaggerated or not, trade barriers currently serve as the most effective means for Europe and the United States to prevent the continued growth and expansion of Chinese automakers, as exemplified by the United States’ IRA legislation and the European Union’s anti-subsidy investigations.

Delaying the implementation of the ban on the sale of new fuel cars can synergize with trade barriers, allowing consumers to maintain distance from Chinese-made electric vehicles. This approach provides breathing space for European automakers and US and Japanese automakers in the fuel car market.

With the Dual Strategy of Western and Japanese Automakers, Taiwanese Manufacturers Need Greater Flexibility in Planning

Assuming the postponement of the ban on the sale of new fuel cars, automakers in Europe, the United States, and Japan may simultaneously pursue synthetic fuel technology based on traditional fuel car frameworks while continuing to develop electric vehicle technology.

However, this dual approach, which does not favor one technology over the other, is likely to affect the allocation of resources for electric vehicles. During the era of internal combustion engine vehicles, dominated by Western, Japanese automakers, and Tier 1 suppliers due to various constraints such as patents and technological barriers, it has been challenging for Taiwan to access system-level supply opportunities.

In the era of electric vehicles, Fukuta Elec & Mach Co.’s all-in-one electric drive and control system has entered Mazda’s range-extended electric vehicle supply chain, while Foxconn has launched an electric vehicle manufacturing platform to vie for opportunities in complete vehicle manufacturing from carmakers. Consequently, Taiwan is gradually moving from Tier 3 and Tier 2 to Tier 1.

If automakers in Europe, the United States, and Japan adopt a dual strategy, Taiwanese manufacturers’ opportunities in the electric vehicle field may face reduction or fiercer competition.

Apart from continuously strengthening relevant technologies in the electric vehicle domain, Taiwanese manufacturers also need to enhance the commonality and modularity of their product lines to adapt to the ever-changing industrial regulations under geopolitical shifts.

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• [News] Six Companies, Including BYD and CATL, are Included in the U.S. Procurement Ban List
• [News] China’s New Energy Vehicle Penetration Rate Exceeds 40%, Expected Optimistic Growth by 2024

(Photo credit: Pixabay)

According to the article written by Tony Chen, Head of Investment Research at UBS Asset Management, the European Commission initiated an investigation in October into Chinese electric car manufacturers suspected of receiving national subsidies. The EU believes that Chinese state subsidies will create an “unfair trade competition environment” for EU electric car manufacturers.

If the EU’s investigation uncovers “subsidy evidence,” it will result in the calculation of corresponding “average anti-subsidy taxes,” which will apply to all electric vehicles imported from China, including prominent models produced in China such as Volkswagen, Tesla, BMW, and others.

The UBS research team suggests that, in the worst-case scenario, the EU may impose additional tariffs on Chinese electric cars imported into the EU.

What led to the trade conflict between China and the EU in electric vehicles? Firstly, the disparity in tariffs plays a crucial role.

Currently, Chinese cars entering the European market face a 10% import tariff, while in China, the situation is reversed, with a 15% tariff imposed on cars imported from Europe. This significant gap indicates potential room for negotiation.

Additionally, a report from the European Commission reveals that China’s market share for electric vehicles in Europe has risen to 8%, with expectations to reach 15% by 2025.

However, this figure includes cars manufactured in China for international brands, not exclusively domestically produced Chinese electric vehicles. According to JATO, an automotive industry research organization, the market share of “pure” Chinese brand electric vehicles in Europe was still below 1% as of the first half of this year. Nevertheless, overall, it underscores the strong presence of Chinese-manufactured electric vehicles in Europe.

From a practical standpoint, initiating a trade war in the electric vehicle sector involves consideration of various complex background factors. China is not only a primary supplier of raw materials to Europe but also a crucial market for European brands. In fact, China is already the world’s largest sales market for electric vehicles.

Chinese Electric Cars Enjoy High Margins, Positioned for Price Wars

The research team at UBS believes that, given the potential to boost sales through lower pricing, the competitive pricing of electric vehicles between Chinese and European brands will be crucial. Taking Tesla as an example, the company has adopted an aggressive pricing strategy for its EVs. In April, Tesla lowered the selling prices in the European region, with the retail price for the popular Model Y around €46,000. According to JATO, the Model Y is currently the best-selling EV in the European Union this year, showcasing the positive impact of a competitive pricing strategy on sales.

Following this argument, another set of data from JATO reveals that the selling prices of Chinese brand EVs in Europe range from €50,000 to €60,000, approximately in line with the European average.

In comparison, the average selling price of Chinese EVs domestically in China is only around €30,000. This indicates that Chinese EV manufacturers exporting to the European market enjoy relatively higher margins, providing them with the capability to engage in price wars. One major reason for the cost advantage of Chinese electric cars lies in battery manufacturing.

According to a previous report by TrendForce, Chinese battery manufacturers command a global market share exceeding 60%, allowing them to cover the entire battery production chain, share production costs, and continually advance new technologies. Since batteries represent approximately 40% of the total vehicle cost, Chinese electric cars offer superior cost-effectiveness.

On the other hand, the space for European car manufacturers to gain a competitive advantage through subsidies has gradually diminished. As the EV market expands, government subsidies in Europe are losing momentum. Germany has already reduced EV subsidies from €5,000 per vehicle to €3,000 this year.

Similarly, subsidies in the Netherlands, of a similar scale, are subject to quota limitations and were even exhausted by mid-2022. This implies that entering a price war could place European EVs at a relative disadvantage.

Overall, the EV market exhibits high price sensitivity, and European automakers face challenges in terms of cost competitiveness. In contrast, Chinese EV manufacturers have a cost advantage. Consequently, there is a growing possibility of a trade conflict in the European electric vehicle market.

(Photo credit: Pixabay)

On the 25th of October, the European Commission announced that, through a sampling method, it has selected three Chinese automakers: BYD, SAIC Motor, and Geely, to initiate an anti-subsidy investigation.

The EU had previously declared its intent to investigate electric vehicles originating from China earlier this month. However, due to the multitude of companies involved, the European Commission resorted to a sampling method to determine the specific targets of this inquiry.

This report was initially revealed by the trade publication “MLex,” which claimed that the EU seeks to establish a fair competitive environment for European electric vehicle manufacturers.

Furthermore, according to the South China Morning Post, despite Tesla shipping more electric cars from China to Europe compared to any other company, it is not among the companies being investigated by the European Union.

Additionally, if the EU’s investigation uncovers “subsidy evidence,” it will result in the calculation of corresponding “average anti-subsidy taxes,” which will apply to all electric vehicles imported from China, including prominent models produced in China such as Volkswagen, Tesla, BMW, and others. The three companies selected through the sampling method mentioned earlier will bear “individual responsibility” based on their respective subsidies.

BYD’s Executive Vice President, Stella Li, recently stated that despite the EU launching an anti-subsidy investigation into Chinese electric vehicles, BYD remains committed to driving strong growth for the company in Europe.

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• [News] BYD and BYD Electronic Expect Profits to More Than Double in the First Three Quarters

(Photo credit: BYD)

On September 20, 2023, France unveiled new incentives for purchasing electric vehicles, offering cash subsidies ranging from €5,000 to €7,000 for qualifying models. The subsidy criteria now take into account the carbon footprint during both the electric vehicle and battery manufacturing processes.

Given that China’s electric vehicle production relies more on coal-fired power generation, there’s a strong possibility that Chinese-made electric cars may not qualify for these subsidies. The French government plans to announce the list of eligible models in December 2023.

TrendForce’s point:
…

Global sales of NEV (new energy vehicles, which include both BEV and PHEV) skyrocketed in the final two months of 2020, with various models setting historical sales records, according to TrendForce’s latest investigations. TrendForce estimates total NEV sales for 2020 at 2.9 million units, a 43% increase YoY, and further expects yearly sales to reach 3.9 million units in 2021. However, as the current shortage of automotive chips has had a considerable impact on the auto industry, some uncertainties still exist in the forecast of EV sales.

With regards to the BEV market, Tesla primarily focused on marketing the Model 3 as its key model for 2020. The automaker took leadership position with a 24.5% market share last year, while the Model Y is expected to be key to securing its continued leadership in 2021 primarily because China has issued a sales permit allowing the Model Y to be exempt from purchase tax. Furthermore, Tesla was able to catch its competitors off guard by discounting Model Y prices by 30% on the first day of 2021. Volkswagen took second place in the rankings due to not only the excellent market reception of the e-Golf, but also the remarkable sales figures set by the ID.3 in 2H20, which helped Volkswagen stabilize its market share. Incidentally, as the ID.4 is set to hit the market later on, it is expected to make meaningful contributions to Volkswagen’s overall EV sales in 2021 instead of 2020.

BYD derives its competitive advantage from having a comprehensive model lineup. The Chinese company comfortably took third place with a 6.4% market share. Conversely, fourth-ranked Wuling Hongguang became the dark horse of 2020 by fielding a single EV model, the Hongguang Mini. Not only was the Hongguang Mini attractively priced, but the Chinese government also made a heavy push for NEV sales in China’s rural areas. Both of these factors allowed the Hongguang Mini to become one of the global top sellers within six months of its release. Hot on the heels of Wuling Hongguang is Renault, which took fifth place in the ranking. Renault was able to score a 5.6% market share thanks to its longstanding best seller ZOE. Although other models, including the Nissan Leaf and Hyundai Kona, also posted remarkable sales performances last year, their respective automakers did not place on the top five list because these automakers each had total EV sales that fell short of the five automakers on the list.

On the other hand, the top PHEV manufacturers were neck and neck in terms of ranking by market share. BMW and Mercedes-Benz each possessed a 13% market share, followed by Volvo with 12%. Fourth-ranked Volkswagen and fifth-ranked Audi registered a 10% market share and 6% market share, respectively.

TrendForce indicates that China and Europe are perfect examples of EV markets propelled by government policies. For instance, European automakers have adopted a proactive position to expand their EV lineups as a result of the stringent emissions standards set by the EU, and these automakers have subsequently been aiming to achieve zero carbon emissions or increase the share of EVs in their total vehicle sales. Apart from China and Europe, the US is yet another market where policies may have a positive effect on EV sales. After winning the 2020 presidential election, Biden is now set to launch his clean energy proposal, which includes replacing the US government’s existing fleet with EVs, removing the previously set ceiling on federal tax credits for EV purchases, and offering consumer tax incentives to replacing their conventional fossil fuel vehicles with EVs, among other actions. If these proposed actions were eventually implemented, TrendForce believes they would be able to drive up EV sales in the US.