In recent weeks, Chinese power battery manufacturers have faced mounting challenges from both the United States and Europe.
On December 1, the U.S. released the "Guidelines for Foreign Sensitive Entities under the Inflation Reduction Act." Starting January 2024, vehicles with batteries containing "Made in China" components will be ineligible for a $7,500 subsidy, a policy that will gradually expand from battery components to key minerals.
Following the U.S. move, the European Commission proposed on December 6 to invest 3 billion euros to boost the EU's battery manufacturing industry. This proposal implies an extension of the current rules of origin for electric vehicles under the EU-UK Trade and Cooperation Agreement (TCA) until December 31, 2026.
The TCA, a product of Brexit in 2020, aims to reduce dependence on Chinese imports and stimulate investment in the EU's battery manufacturing capabilities.
With the world's second and third-largest automotive markets targeting Chinese power battery manufacturers, the industry faces significant pressure. From January to October 2023, China's power battery installation market share exceeded 60%. Coupled with the recent global expansion of Chinese new energy vehicles, which are gaining market share due to their cost-effectiveness, traditional automotive powerhouses in the internal combustion engine era are feeling threatened.
The West's century-long dominance over the automotive industry, partly due to their "oil hegemony," is being challenged by the new energy vehicle sector, which doesn't require the same barriers as the old track.
The shift towards new energy vehicles is indeed shaking the stable position of Europe and America in the automotive industry. This is evidenced by the recent layoffs at traditional car companies and the struggle of Europe and America to rapidly develop their industries.
The fear and strategy behind Europe and America's "encirclement" of China's electric vehicle industry are evident in statements like European Commission President Ursula von der Leyen's claim that cheap Chinese electric cars are "distorting" the EU market, and President Joe Biden's open declaration of bringing the entire battery supply chain back home.
Europe's Hesitation Facing the formidable Chinese power battery industry, Europe initially hesitated, possibly due to the TCA's origins in Brexit. Despite being partly intended to regulate governance and disputes between the UK and EU, the TCA ultimately bet on the UK for Europe's industrial development.
The EU's leniency towards the UK is evident in the TCA rules. Without them, UK exports to the EU, including electrical machinery, would face an average 10% tariff under World Trade Organization standards.
By the end of 2020, shortly after the agreement was reached, a temporary exemption was granted due to the nascent stage of electric vehicle development in the region: until December 31, 2023, electric vehicles exported between the UK and EU could enjoy tariff exemption as long as no more than 70% of their parts came from outside the UK and EU.
Starting January 1, 2024, this threshold will drop to 40%, meaning at least 60% of parts must come from the UK or EU to avoid a 10% tariff on imports and exports.
However, the development of the UK's battery industry over the past three years has not met expectations. Instead, the map of battery factories in the UK includes several Chinese manufacturers.
According to a distribution map of European battery factories published by CIC energiGUNE in November 2022, three battery factories in the UK included Envision AESC, EVE Energy, and a factory taken over by Australian company Recharge Industries after Britishvolt's bankruptcy.
The UK's battery factory map is a microcosm of Europe's, with Chinese power battery manufacturers like CATL, Honeycomb Energy, and Envision AESC blossoming across Europe. BYD's first European battery assembly plant, set to supply Tesla's Berlin factory, is also recruiting.
Despite publicly seeking to reduce reliance on China's new energy vehicle industry, Europe's actions closely align with Chinese enterprises in the sector.
The most significant factor is the unbeatable cost-effectiveness of Chinese batteries.
Stellantis, for example, has been vocal about its tough stance on China. CEO Carlos Tavares has repeatedly called for higher tariffs on new energy vehicles imported from China while actively collaborating with Chinese companies in the field. Stellantis has recently announced a partnership with CATL to explore producing low-cost electric vehicle batteries in Europe and is discussing a joint venture.
Tavares publicly stated that the partnership with CATL is "another component of our long-term strategy to protect the mobility freedom of the European middle class." Outside Europe, Stellantis' South American CEO revealed in August that they were actively considering a strategic alliance with BYD to expand their influence in South America.
An EU official admitted, "We are facing a problem where we don't have enough batteries, or we don't have enough raw materials. We want these batteries to be made in continental Europe or the UK. But we haven't gotten to that step yet."
The Society of Motor Manufacturers and Traders (SMMT) in the UK warned that if the investment is not approved and the 10% tariff regulation scheduled to start on January 1, 2024, is implemented, UK citizens will have to pay an average of 3,400 pounds more for new energy vehicles. SMMT also stated that EU consumers buying new energy vehicles from UK manufacturers would face an average price increase of 3,600 pounds.
Media reports suggest that if the agreement is not extended, Chinese new energy vehicle companies will emerge as the biggest winners, with an estimated 30% price advantage.
According to Inoeve data, 8% of new energy vehicles sold in Europe this year were manufactured by Chinese brands, with the European Commission expecting this figure to rise to 15% by 2025. The Financial Times even claims that about a third of new energy vehicles in the country are made in China.
Meanwhile, Chinese power battery companies, led by CATL, are accelerating their expansion in Europe.
CATL's journey in Europe is just beginning. In January this year, CATL's first European battery factory in Germany was officially established. In addition to a potential joint venture with Stellantis, CATL plans to build another factory in Hungary with an annual production capacity of 100GWh.
European automakers, seeking more affordable batteries to compete with Tesla and new energy vehicle models from China, Japan, and South Korea, are aligning closely with Chinese companies.
While the public sector is blossoming, economic foundations determine the superstructure. Europe's mixed feelings towards Chinese power batteries and smart cars - both welcoming and rejecting - are evident.
At this point, compared to Europe's contradictory attitudes and actions, the United States appears more resolute in protecting its domestic battery production, even if it risks being outcompeted by China's battery industry.
The U.S.'s Resolute and Repeated Stance Under Biden's administration, the U.S. firmly supports the development of clean energy, rejecting the "temptation" of Chinese car companies and providing unprecedented high subsidies for new energy enterprises. However, the U.S. government's incentive policies for the new energy electric vehicle industry have also experienced fluctuations.
Since 2010, during Obama's presidency, the U.S. has implemented electric vehicle subsidies, offering up to $7,500 in tax credits for eligible models. The policy stipulated that once a car manufacturer sold more than 200,000 electric vehicles, the subsidy would gradually be phased out.
Tesla and General Motors were the first two companies to reach this threshold, achieving this milestone by the end of 2018, the first year of Trump's presidency. Ideally, if the policy had been retained, only Tesla and General Motors would have been affected, and other manufacturers could still receive subsidies.
The U.S. has had a significant advantage in new energy vehicle subsidies, both in terms of start time and amount. The UK began its subsidy of 2,500 pounds in 2011, later reduced to 1,500 pounds and ultimately canceled in 2022. Germany's subsidy of 6,000 euros, which started in 2020, also lags significantly behind the U.S. policy.
For well-known car companies, in 2010, Tesla's Model S had not yet been launched, and Li Bin and He Xiaopeng were still struggling in the PC internet era.
However, Trump, Obama's successor, was relatively conservative in energy policy. The U.S. government's inconsistency and the domestic electric vehicle industry's fluctuations meant that the policy did not stimulate the prosperity of the U.S. power battery industry chain.
After winning the election, Trump stated on his official website that he would use energy policy to achieve energy independence for the U.S.: "America will embark on an energy revolution that will make us a net energy exporter, creating millions of jobs."
During his tenure, he relaxed 164 climate change regulations and facilitated the development of oil, natural gas, and coal.
By the end of 2018, Trump proposed canceling the subsidy, saving the treasury $2.5 billion in expenses. In a speech in September this year, his views remained unchanged, telling workers, "Now they want to go all-electric, bankrupting all of you... Biden's policies are destroying the automotive industry."
Unlike Trump, who relied on traditional energy sources, Biden's energy policy continues the Democratic Party's consistent platform. With the slogan "Our best days still lie ahead," he vigorously promotes clean energy.
After test-driving Ford's F-150 Lightning, Biden sharply commented, "This sucker is quick," and delivered a speech about reviving the U.S. electric vehicle industry. He proposed investing $174 billion to revitalize the industry.
Biden's intentions are clear: to restore confidence in the U.S. automotive industry in the capital market and re-prioritize the acceleration of electric vehicle transformation.
Subsequently, related regulations such as the Inflation Reduction Act, which continues the electric vehicle subsidy policy from the Obama era, and the Infrastructure Law, emphasizing support for electric vehicles and power batteries, were introduced.
"We are in a real race here - China is ahead of us," Biden said, presenting a significant challenge for the U.S., which has been committed to revitalizing its industry in recent years.
Therefore, his actions cannot only be "beneficial internally" but also need to "deter externally."
Has the Biden administration really revitalized the U.S. electric vehicle industry? Recent news suggests this may be questionable. First, General Motors and Ford laid off associated workers, followed by over 4,000 auto dealers jointly requesting Biden to stop incentivizing electric vehicle sales.
The Struggle for the "Industrial Jewel" According to the latest U.S. Inflation Reduction Act, Ford's Mustang Mach-E, which uses CATL's LFP battery, may be ineligible for the maximum $7,500 tax credit starting next year.
For a vehicle with a starting price of $30,920 in the U.S., $7,500 already accounts for one-fifth of the total price.
In November, Mach-E sold 4,294 units in the U.S., ranking second in Ford's new energy vehicle lineup.
The fate of the F-150 Lightning, often referred to as America's "national pickup," is also uncertain - Ford has not disclosed whether the vehicle will be eligible for tax incentives next year.
Given these circumstances, coupled with Europe's risk of involving its own companies in disputes, their measures to limit Chinese battery manufacturers raise questions: why are they so fearful or averse to Chinese battery companies?
The underlying reasons for major actions taken by economic entities inevitably involve economic factors.
According to SNE Research, from January to October, six of the top ten global power battery installation companies were Chinese, with three Chinese companies accounting for over 57% of the market share among the top six companies with over 83% share.
With CATL actively expanding overseas recently, its installations outside China have nearly doubled on all continents. BYD, leveraging the expanding sales of ATTO 3 and Dolphin in overseas markets, has also rapidly increased its share in the battery market.
The frequent overseas moves of these leading battery manufacturers reflect the overcapacity of China's power battery industry.
The China Automotive Power Battery Industry Innovation Alliance noted that China's power battery capacity utilization rate was 51.6% in 2022 and might drop to 41% in 2023. In June, Zhu Huarong, Chairman and Party Secretary of Changan Automobile, stated that the domestic demand for power batteries is expected to be around 1,000GWh by 2025, but the industry's planned capacity has already reached 4,800GWh.
The overcapacity issue in China's power battery industry means that significant domestic demand growth is unlikely, but it also indicates that Chinese power batteries are poised for a comprehensive global expansion.
This trend has alarmed Europe and America, which have already experienced a shock in the traditional fuel vehicle sector and urgently need to develop their electric vehicle and battery industries. The U.S. is no exception.
The importance of the automotive industry to the national economy can be understood from the attention it receives in Europe and America, as well as from its nicknames like "the jewel in the crown of industry" and "the industry of industries." Its characteristics of long supply chains, high interconnectivity, and strong driving force all indicate its role as a "ballast" for industrial economic growth.
In today's era, where the train of time is heading towards the new energy vehicle track, can Europe and America smoothly navigate through the "rust belt" with the buffer time provided by policies?
For China's new energy vehicle industry, can they seize this once-in-a-century opportunity to achieve a turnaround in "thirty years of eastward flow, thirty years of westward flow"?
The economic factors behind the U.S.'s tough stance on batteries in Biden's speeches are evident. He stated, "Currently, 75% of battery manufacturing is done in China. For some battery components and key materials, China controls nearly half of the global production." He also mentioned that the $2.8 billion funding would drive billions of dollars in private investment by these companies.
In 2021, several media and institutions surveyed the employment situation in the automotive industry and the impact of electrification transformation in several major European car-producing countries.
The results were not optimistic. European governments need to accelerate the skill transformation training of workers; otherwise, hundreds of thousands of workers face the risk of unemployment.
For example, in Germany, which hosts several major car manufacturers, the Ifo Institute for Economic Research reported that the automotive industry provided 840,000 jobs in 2021, with 210,000 related to powertrain production.
By 2025, at least 175,000 automotive jobs in Germany will require skill transformation for electrification, with an estimated 73,000 workers unable to adapt to the change. Reuters' forecast is even more bold, suggesting that over 100,000 jobs could be lost.
In other countries like France, Italy, and the UK, the number of workers affected is also in the tens of thousands.
Governments in Europe need new economic growth points to fill this gap and ensure citizens' livelihoods. However, the new energy vehicle industry, seen as a new hope, faces the challenge of Chinese companies. The situation is similar in the U.S.
The automotive industry's significance to the national economy can be inferred from the attention it receives in Europe and America, as well as from its epithets like "the jewel in the crown of industry" and "the industry within an industry." Its characteristics of a long supply chain, high interconnectivity, and strong driving force all highlight its role as a "ballast" for industrial economic growth.
As the era's train heads towards the new energy vehicle track, can Europe and America smoothly navigate through the "rust belt" with the buffer time provided by policies?
For China's new energy vehicle industry, can they seize this once-in-a-century opportunity to achieve a turnaround in "thirty years of eastward flow, thirty years of westward flow"?
The economic factors behind the U.S.'s tough stance on batteries in Biden's speeches are evident. He stated, "Currently, 75% of battery manufacturing is done in China. For some battery components and key materials, China controls nearly half of the global production." He also mentioned that the $2.8 billion funding would drive billions of dollars in private investment by these companies.
In 2021, several media and institutions surveyed the employment situation in the automotive industry and the impact of electrification transformation in several major European car-producing countries.
The results were not optimistic. European governments need to accelerate the skill transformation training of workers; otherwise, hundreds of thousands of workers face the risk of unemployment.
For example, in Germany, which hosts several major car manufacturers, the Ifo Institute for Economic Research reported that the automotive industry provided 840,000 jobs in 2021, with 210,000 related to powertrain production.
By 2025, at least 175,000 automotive jobs in Germany will require skill transformation for electrification, with an estimated 73,000 workers unable to adapt to the change. Reuters' forecast is even more bold, suggesting that over 100,000 jobs could be lost.
In other countries like France, Italy, and the UK, the number of workers affected is also in the tens of thousands.
Governments in Europe need new economic growth points to fill this gap and ensure citizens' livelihoods. However, the new energy vehicle industry, seen as a new hope, faces the challenge of Chinese companies. The situation is similar in the U.S.
The automotive industry's significance to the national economy can be inferred from the attention it receives in Europe and America, as well as from its epithets like "the jewel in the crown of industry" and "the industry within an industry." Its characteristics of a long supply chain, high interconnectivity, and strong driving force all highlight its role as a "ballast" for industrial economic growth.
As the era's train heads towards the new energy vehicle track, can Europe and America smoothly navigate through the "rust belt" with the buffer time provided by policies?
For China's new energy vehicle industry, can they seize this once-in-a-century opportunity to achieve a turnaround in "thirty years of eastward flow, thirty years of westward flow"?
