Automotive Industry:Europe: Difference between revisions

In a historic first, Chinese automakers reached parity with foreign brands in 2022 and surpassed them in Q4, capturing 51% of the market share (Figure 3). Their share in electric vehicles alone stood at 80% and showed no sign of abatement in Q1 2023.Due to:

* A strong cost advantage for BEV manufacturing based on the bigger volumes of the Chinese car market and a competitive supplier base

* A wider range of available BEVs (city and compact cars in particular) compared with international competitors, which have so far mostly focused on large and expensive sedans and sport utility vehicles

* Positive product reviews and customer reception for China-branded EVs resulting in good brand recognition

* A compound annual growth rate of +2.5% for the Chinese passenger car market by 2030, bringing annual registrations to 28.6mn units, and a linear progression of the market shares of Chinese carmakers to 75% of total passenger car registrations.  

* A compound annual growth rate of +6.3% for the European passenger car market by 2030, bringing annual registrations to 15.1mn units. Higher growth for the European market does not reflect greater potential, but the historical low in registrations reached in 2022 and a progressive return to the peak registration levels of the 2010s. BEV penetration would stand at 80%, which is close to the weighted average of the pledges made by leading carmakers present in Europe for 2030 (81%), meanwhile, imports from China climb to 10% of all car sales in Europe as the continent goes electric

* Value added per vehicle of EUR14,200. Value added data were retrieved using Eurostat’s national accounts aggregates by industry database, using value added for 2019 rather than 2020 or 2021, which are often incomplete and reflecting the highly unusual pandemic year

* Total sales in China from European carmakers would fall by -39%, with local production falling from an estimated 4.4mn units in 2022 units to 2.7mn units in 2030, and exports from 480,000 to 290,000 units

* Their combined Chinese sales amounted to about 22% of their global deliveries. Assuming their operations in China are as profitable as those in other markets, 22% of their combined EUR67bn in net profit for 2022 brings the net profit at risk to EUR14.7bn. Because 50-50 joint ventures still account for the bulk of their local sales, at least EUR7.3bn of that EUR14.7bn can be attributed to European carmakers.

* Chinese exports would reach 1.5mn vehicles in 2030, equivalent to 13.5% of the EU’s 2022 production or the combined output of the region’s three largest automotive assembly factories. Rising Chinese imports would take a bigger toll on local production compared with competing but modest imports from Japan and South Korea. Greater reliance on imports would lower the capacity utilization rates of European factories, weigh on their profitability and encourage further capacity eliminations.

* The value added impact on the European economy would stand at EUR24.2bn in 2030 for the automotive sector, the equivalent of 0.15% of the region’s 2022 GDP.

* Eliminating the same 14% of lost automotive production on the value added generated by the automotive industry in other sectors would amount to an extra EUR21bn in lost value added for the European economy. Note, however, that this is an upper bound estimate, given that some services such as retail are provided irrespective of the actual place of car assembly.

* Seeking reciprocity in trade terms, not just with China but also the US, should be a priority to have a more level playing field for the European industry.

* Well-performing charging infrastructure would lower the price tag for the average BEV and convince users in less urbanized areas to make the switch. In our previous report, we estimated the necessary investment in charging infrastructure at EUR13.4bn per year to meet Europe’s Fit For 55 target

* If Europe struggles to compete with China the short run, it could seek to join it. All else unchanged, it would be far more beneficial for Europe to have Chinabranded vehicles on its roads if they were assembled locally rather than imported.

* Europe should also consider prioritizing the development of mining and refining capacities when possible, and establishing trade deals with partner countries when not, to secure its economic and strategic interests. In this respect, the European Critical Raw Material Act (CRMCA) is a step in the right direction whose specifics will need to be communicated and enforced as soon as possible.

* Late in current battery technology manufacturing, Europe should also prepare for what lies ahead as both China and the US are heavily investing in next generation battery technologies. The reliance on constrained metals such as cobalt necessitates the exploration of alternative battery technologies to mitigate supply risks and develop different types of batteries for different needs.