Challenges in the Realm of "Green Races"

What will the complete abandonment of petrol and diesel cars mean for European consumers? Not much hardship is expected for them. Perhaps they'll have to pay a bit more for an electric car compared to a petrol one. However, for companies producing cars in the EU, the situation is far from easy. That's because the sweet spots are already occupied by Chinese companies.

In the parking lot near the Chery New Energy car factory in the Chinese province of Anhui, the sun gleams on hundreds of new Chery eQ1 electric cars (see the main photo of the article). Soon, they'll be loaded onto car carriers and sent off to their future owners. Interestingly, a significant portion of these electric cars won't roam the roads of China but, in a month or two, will find themselves in various European Union countries. And more will head to Europe in a few months.

All of this is because Chinese companies are not resting; they are penetrating the European market. The EU has decided to completely phase out internal combustion engines and switch to "clean" fuel by 2035. While European car manufacturers are frantically preparing for a carbon-neutral future, their Chinese competitors have struck gold and are winning over customers in the EU.

Buyers themselves are moving towards Brussels' decisions, feeling reluctant to spend more than 2 euros per litre of fuel. Yes, buying an electric car is currently more expensive than a petrol one, but later it's all about fuel savings. Even in relatively less affluent Ukraine and amidst a full-scale war, the electric car market continues to rise. According to the "Ukravtoprom" association, since the beginning of 2023, Ukraine has imported 28.7 thousand electric cars, which is 2.7 times more than in the first 10 months of 2022. And this is in Ukraine. In the EU, the demand for electric cars will likely increase even more.

The question is, what exactly will they be buying? Surprisingly, in Ukraine, around 75% of new purchases in October were five models - Volkswagen ID.4 (more than a third of new cars), Toyota BZ4X, Honda e, Volkswagen ID.6, Audi Q4 e-tron. As we see, not Chinese brands, although some of them might be assembled in China.

"Neutral" fuel remains

The European Union began preparing for the phasing out of cars with internal combustion engines two years ago. In 2021, the European Commission announced plans to reduce emissions from new cars by 65% by 2030, essentially meaning a reduction in the production of cars with internal combustion engines by almost two-thirds. So, European car manufacturers had time to prepare for the transition to electric cars.

In November 2022, the European Parliament agreed with the EU member states on the reduction of CO2 emissions by 100% by 2035. And in February 2023, the European Parliament approved a law on the complete ban on the sale of new cars with internal combustion engines from 2035.

However, after that, some EU countries decided to backtrack. Germany, the Czech Republic, Italy, Poland, Romania, Hungary, and Slovakia started insisting that even after 2035, there should be the possibility to produce cars with internal combustion engines that will use synthetic fuel with a "zero" carbon footprint. Such fuels include hydrogen, ammonia, and methane.

As a result, Germany, which acted as a sort of leader among the "rebellious seven" countries, managed to ensure that there would still be an opportunity to produce and sell cars using carbon-neutral fuel even after 2035.

Germany's Minister of Transport, Volker Wissing, proudly announced that even after 2035, the "path will be open" for the registration of cars with internal combustion engines that use only zero-emission CO2 fuel.

No concessions for anyone

Few would argue that the shift from petrol and diesel to electric power is clearly not in favour of leading car manufacturers and the oil lobby. However, in some places, the impending ban seems too categorical.

Even plug-in hybrids will be out of the race. That's why some carmakers (including Renault, for example) insisted that the abandonment of "dirty" fuel should happen by at least 2040. This would soften the migration process to electric cars through hybrid vehicles. For instance, the American state of California, which also decided to block the sale of new internal combustion engine cars from 2035, did not prohibit plug-in hybrids with a minimum range of at least 50 miles.

The nervousness of some Euro-officials is also linked to the fact that the automotive industry in the EU is a huge chunk of the economy. The EU's automotive industry generates about 7% of the GDP. Around 13 million people are employed in this sector, and European plants produce over 13 million cars, buses, and vans annually.

The ban on producing cars with internal combustion engines could seriously hit European companies. As Italy's Minister of Infrastructure and Transport, Matteo Salvini, noted, the abandonment of internal combustion engines will be a "gift" to Chinese automakers. And BMW's CEO, Oliver Zipse, believes that European carmakers will face an influx of cheaper electric cars from China, and they are unlikely to win the price war against Chinese competitors.

Beijing is gearing up for a leap

China is systematically entering the European market. According to the European Commission, in 2023, the share of Chinese electric cars in the EU was 8%, and by 2025, it could almost double to 15%. The European Commission also notes that the cost of electric cars from China is on average 20% lower than their European counterparts.

The expansion of Chinese manufacturers has so alarmed EU authorities that the European Commission decided to investigate the reasons for the sharp increase in the import of electric cars from China and launched its own anti-subsidy investigation. In the sights of the European Commission are primarily manufacturers such as BYD, SAIC Motor, and Geely, whose products dominate supplies to the EU. The investigation also extends to cars that are actually produced in China but its brands are not of Chinese origin. This includes Tesla, which, at the end of the first half of the year, captured 13% of the electric car market in the EU, and even European manufacturers with factories in China, such as Volkswagen and BMW.

Following the investigation (which will last 13 months), the European Union may decide to impose protective duties on electric car imports from China to "level the playing field."

China is already preparing a countermove. As of November 4, the Chinese electric car manufacturer BYD announced the launch of its first car plant in Europe. This facility will be located in Hungary. The government website in Shenzhen, where BYD's headquarters is located, last month published an article stating that Hungarian Prime Minister Viktor Orban met with BYD Chairman and President Wang Chuanfu during a visit to the company.

PHOTO: BYD CEO Wang Chuanfu (right) and Hungarian Prime Minister Viktor Orban (left) at the BYD plant in Shenzhen on October 19, 2023. SOURCE: Press Service of the Prime Minister of Hungary

"Race with Obstacles"

On the whole, the electric vehicle sector in the EU is showing brisk growth. In September, the market share of electric cars reached 14.8%, and hybrids accounted for 27.3%. For comparison, petrol cars make up about 34% in the European Union, and diesel less than 13%.

The question is, what comes next. European manufacturers desperately need imported parts for electric vehicles, like a breath of air. Primarily, this includes battery packs. The lion's share of these power elements is produced by China, Japan, Korea, and the USA. Moreover, three countries, namely Australia, Chile, and China, control 90% of lithium extraction, a crucial component without which all battery production would grind to a halt.

The surging global demand for electric vehicles also fuels the demand for their components. However, major battery manufacturers are primarily attempting to saturate the domestic market, with global customers considered only secondarily. Experts are concerned: by 2025, the electric vehicle industry may face a shortage of capacity for battery production.

Adding to the problems for the European car market is the trade standoff with China, into which the European Union is sinking, akin to a quagmire. If the European Commission does decide to limit the supply of Chinese cars to the EU, retaliatory measures from Beijing will not be long in coming. This could involve a ban on the export of components for electric vehicles and the creation of problems for EU automakers striving for a foothold in the Chinese market.

So, European manufacturers face a long and grueling marathon. They must not only endure the transition away from internal combustion engines but also wrestle for the domestic market against aggressive competitors from China.

Additionally, automakers risk encountering consumer resistance. In many European households, an electric car is the second vehicle, a weekend ride, so to speak. Electric vehicles still lag behind in terms of autonomy and turn into a useless toy in case of power supply disruptions. Although the range from a single charge continues to grow, averaging 300-350 km, electric cars still lag behind diesel and petrol cars on long journeys. The situation is unlikely to change radically very quickly.