Chinese electric vehicle industry boom: A boost to the Western economy

Global electric vehicle outlook - A representational image
Global electric vehicle outlook - A representational image

A brief history of the automotive industry and the advent of electric vehicles

Undoubtedly, exports bolster a country’s economy, and automobiles are the most beloved among the export categories. For perspective, it was through automobile exports that Germany and Japan gained advanced industrial economy status. The first gasoline-powered commercial car in the world was launched in 1886. The automobile industry suffered due to the global economic crisis from 1980-2008. It went through a transitional phase with increased competition for domestic sales, rising oil and fuel prices, and oil shortages during the 1980s. The 1973 oil crisis and growing climate concerns forced the world to shift to environment-friendly solutions in every sector. Very soon, transport followed suit, which further propelled the development of electric cars.

Status of the Electric vehicle market today

Electric cars became popular in the 1990s and 2000s. The first mass-produced, purpose-built, modern electric car was introduced in 1996 by General Motors. However, it was only in 2010 that the first mass-market EV was launched. Let us look at the data and insights from some of the world’s leading authorities on market research and industry experts on the electric vehicle industry.

– According to a global EV outlook report by the International Energy Agency (IEA), the sales of electric cars exceeded 10 million in 2022. Electric car sales were a mere 5% of the total new cars sold in 2020, which slowly rose to 9% in 2021 and a remarkable 14% in 2022. This momentum in electric car sales is believed to continue throughout 2023.

Electric cars – a representational image

– Over 2.3 million electric cars were sold in 2023 Q1, which is 25% higher than the electric cars sold in Q1 2022. The IEA has estimated that electric car sales could reach 14 million by the end of 2023, which represents a 35% hike in year-on-year sales. New electric car sales are most likely to get a boost in the second half of 2023. This means that electric cars could account for 18% of the total cars sold in the entire 2023 calendar year.

– Another report has valued the global electric vehicle market at USD 388.1 billion in 2023. It is estimated to reach USD 951.9 billion by 2030, at a CAGR of 13.7% from 2023 to 2030.

A paradigm shift in the global automotive industry

The growing consumer acceptance of electric vehicles is reshaping the automotive industry. Other factors that have led to this tremendous growth in EV sales are the rising pressure on economies to reduce their carbon footprint and subsequent legislation and policy changes in the transport sector. Many European and American global automobile brands that had dominated the sector for decades have lost their market shares and leadership positions in the electric vehicle space. New EV brands have emerged and overtaken these leading brands. The technology race to the EV car segment leadership position has witnessed a considerable shift in global market trends.

The rise of the Asian giant in the automotive sector

China, a manufacturing, and export hub for EVs

Today, China has become the world’s leading exporter of electric cars, with 35% of all exported electric cars coming from China in 2022, compared to 25% in 2021, which is a 10% increase. China’s share of electric cars sold in Europe rose from 11% in 2021 to 16% in 2022, making Europe China’s largest trade partner. Most Western brands exported to Europe are either owned or produced by Chinese companies, many of which were acquired years ago.

China – a manufacturing and export hub for Electric Vehicles

China exported over 2.5 million cars in 2023, a 42.4% increase from 2022. Almost 40% of these exports are electric vehicles, according to Chinese customs data. China has surpassed Japan as the world’s leading car exporter this year. Although Chinese car brands are not available in the United States, they have gained significant market share in other countries such as Australia (11%), South Africa (8%), and Spain (7%). The global popularity of Chinese vehicles is increasing, while sales of American and German cars are declining in China, the biggest car market in the world. In contrast, Chinese vehicles are gaining popularity within China itself, and are expected to make up the majority of cars on the road for the first time later this year.

How the Western economy is gaining from China’s rise

China has become a manufacturing export hub for global brands, and Chinese companies are becoming increasingly competitive and exporting more to new markets. Tesla was the top EV exporter from China between January and April 2023, accounting for 40.25% of exports. Other companies like BMW, Renault, and Volkswagen are also expanding their presence in China and have either already started exporting or are planning to export to other markets. Some Chinese companies are pursuing manufacturing outside the country to better access those new markets as well. For instance, BYD, a Chinese brand, is rapidly expanding internationally and aims to surpass Tesla in global EV sales this year.

Representational image of an electric car factory

China’s increase in EV production leads to growth in auto exports to the Americas. Latin America has shown potential for EV market growth, with many countries transitioning their public bus fleets to EVs and reducing taxes on them. Brazil has a 35% import tariff on combustion cars but zero percent on EVs. Chile plans to prohibit the sale of vehicles without zero carbon emissions by 2035. Chinese cars have become extremely popular in Ecuador, with their market share rising from 10% in 2018 to over 30% presently. According to a top Ecuadorian daily, out of the 107 car brands available in Ecuador, 47 are of Chinese origin. Ecuador is also a growing destination for Chinese vehicle assembly. In 2013, GWM established a plant for assembly and began exporting to Colombia and Costa Rica in 2019. In 2017, the Ecuadorian government and BYD established a factory that produces 300 electric buses annually. BYD also constructed an electric vehicle charging station, “la electrolinera,” in Guayaquil in 2019. This station can charge a car in 90 minutes and a bus in 3.5 hours. In 2020, BYD delivered the first 20 electric buses to Guayaquil. BYD provided Bogotá with 379 electric buses, making it the second-largest South American city with an electric bus fleet after Santiago, Chile. BYD has provided 60 percent of the city’s electric buses, the highest percentage among all the cities in the world except China. Besides Bogotá, BYD’s electric buses are also present in Argentina, Brazil, and Uruguay.

Global Electric vehicle export market – representational image

The world’s largest market for EVs

China accounted for 60% of the new vehicle registrations in 2022 and owns 40% of the world’s electric vehicle stock. Most electric cars sold here are manufactured locally, and the quantity of exported vehicles is on the rise. Today, about one-third of cars running on Chinese roads are electric. Thanks to substantial government incentives, China now produces more than half of the world’s electric vehicles (EVs). The models range in price from $11,000 to $160,000.

How China became the EV industry leader

The reason why China has rapidly risen as an EV and EV component manufacturing hub is that way back in 1999, the Chinese government encouraged local companies to invest in foreign territories once the domestic market got saturated. This move was backed by Chinese development banks, which funded Chinese projects worldwide, giving China access to vital resources necessary for EV production. As a result, despite the growing EV supply chain, the manufacturing of batteries and EV components is highly concentrated in certain regions, with China dominating the trade. Currently, China supplies over 50% of the raw materials required for producing electric motors, as per EU estimates.

The changing consumer perception of Chinese electric cars

An Electric Car – Representational image

Vehicles made in China are affordable and of increasing quality, making them attractive to consumers worldwide. This is especially true in Latin America, where the perception of low quality associated with Chinese ICE cars is changing fast, particularly in the case of Chinese EVs. The Chinese have established a good service network and built exceptional designs with great quality.

Final thoughts

As the rest of the world contemplates a slow transition toward EVs, more EVs are sold in China than in the rest of the world combined. This gave China a gigantic domestic opportunity to improve EV exports. China’s competitiveness in producing cost-effective electric vehicles is expected to lead to its continued success as a major exporter. The country’s vast production capacity and increasing number of EV models are likely to boost their acceptance in the global market.

Blog by Amith Raj

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