The Coming Chinese EV Export Boom

there is an EV export wave building in China recently I read a Reuters article about an EV auto show in Shanghai there China's leading domestic EV producer byd showed off their seagull hatchback it was priced at just 11 300 USD it immediately caught my eye byd later announced that they received 11 000 orders from the seagull 24 hours after pre-sales opened according to self-reported uncom trade data in 2022 Chinese electric vehicle exports grew 131 percent year over year to 20.9 billion dollars in value though there is a little caveat here that we will talk about later anyway I've been wanting to do this one for a long time now in this video just a few thoughts on the coming Chinese EV boom but first let me talk about the patreon Early Access members get to see new videos and selected references for those videos before the release of the public it helps support the videos and I appreciate every pledge and I recently added an annual subscription option too thanks and on with the show let us start with some history the development of China's EV industry they say new energy vehicles in China but I'll stick with EVS is a story of an incredibly successful industrial ketchup the three critical systems inside an EV are the battery Drive motor and powertrain control systems the battery stores energy the drive motor converts that energy into motion and the powertrain oversees and manages that whole process in 2000 China's Lithium-ion batteries and electric Drive systems lagged about 10 years behind Japan to catch up the Chinese government gave the EV High status as one of the 863 projects over the next 10 years the 863 policy offered about 2 billion RMB of financial support to domestic firms this was to help blunt the financial burden of developing these pricey but critical EV Technologies so the Chinese government's first EV policies focused on improving their domestic players technical sophistication so in addition to financial subsidies the government implemented technology transfer requirements whenever foreign players wanted to tap the Chinese market for instance Toyota could only enter China in 2005 after they agreed to jointly produce the car with China faw Auto Group but it was in 2009 that the People's Republic really moved the EV Into the Heart of their automobile industrial policy the 2009 Automotive Readjustment and revitalization plan this is a big multi-component plan encompassing all types of cars but specifically with regards to EVS it's sought to expand domestic EV production capacity Chinese firms were encouraged to offer new EVS by 2011 and manufacture their EV parts locally furthermore they were given a Target EV market share of five percent or about 500 000 units and on the other side the central government passed new policies to kick-start demand first they announced that they would subsidize 13 City governments to purchase EVS for use in public services like post taxis and sanitation and then in 2010 they trialed consumer subsidies for EVS in five cities individual buyers or leasing companies can get subsidies ranging from 50 000 RMB for a plug-in hybrid or 60 000 RMB for a full EV ocal governments can also provide grants of their own on top of that to essentially Place EVS at Price parity with internal combustion engines according to statista Chinese electric vehicle sales Grew From 480 to 1090 from 2009 to 2010 then grew again to 4750 the year after a 10x increase in two years the number of charging poles went from 134 to 6200 to 13 300 over that same period it has since gone to 159 000 in 2015. new entrants flooded into the market just as importantly patent applications grew 44 indicating increasing r d intensity this policy success and the industry's growing technical proficiency convinced the Chinese government that they had opened a window of opportunity to dominate a growing valuable industry in 2012 the EV consumer subsidies were rolled out to the rest of the country and despite the occasional fraud or two the consumer subsidies have been extremely successful helping to subsidize some three to six percent of the Eevee's cost in 2022 those National subsidies were finally entirely removed originally they were to be gradually phased out starting in 2017 with a total removal in 2020 but then were extended due to covid according to one estimate from China Merchants Bank International the government had paid out some 15 billion dollars in total from 2012 to 2021. another article by the excellent online magazine six tone said that the government spent 22.5 billion dollars in EV subsidies from 2010 to 2020 citing data from the Chinese Ministry of industry and information technology 10 years and 15 to 22.5 billion dollars have changed a whole lot China's EV Market has grown to become the world's largest in 2022 with 6.5 million new energy Vehicles EVs and plug-in hybrids shipped with 5.67 million sold according to the China Association of automobile manufacturers there were nearly 26.86 million automobiles sold in China in 2022 so EVS made up 22 percent of all automobile sales in China and nearly 60 percent of global EV sales volume this large Market has also fostered intense competition domestic EV makers have hit every metric the government has set out for them according to Counterpoint research there are over 94 brands with 300 models ranging from five thousand dollars to ninety thousand dollars local brands have over 80 percent of the market at the very top you have byd the market leader with nearly 30 percent of the market but there are also traditional players like wuling Sherry changan plus EV startups like x-pang and Neo with the exception of Tesla China's most popular EV brands are made by domestic manufacturers notable brands are the byd song which is a crossover utility vehicle mini EV which is a small City Car capable of seating four people it is quite cute comes in multiple colors and doesn't cost much something like five to ten Grand the byd chin which is a compact sedan all the byd cars are named after Chinese dynasties so if it is like anything like its namesake I expect this one to collapse shortly after its first model and my award for Evie with the best name the aura good cat Hao Mao or funky cat it sort of looks like a Porsche this intense competition has cut margins in the Chinese EV ecosystem byd makes something like a thousand dollars USD of net profit for each EV sold xpang Neo and Lee Auto all sold millions of dollars of EVS in 2022 but were not able to turn a profit the competition will only intensify in 2023 Tesla a lagger in the Chinese market kicked off the Year by cutting prices and going for volume over 40 other brands have followed in turn the competition has cut a lot of fat out of the Chinese EV ecosystem China is the world's Factory but their EV manufacturing advantages are particularly strong this is due to lower r d costs better scale less Capital invested and cheaper labor at the CES convention in January 2023 the CEO of forvia an auto supplier said that Chinese EV makers can make a small Eevee for 10 000 Euro less than the Europeans can the EV supply chain Advantage is substantial internal combustion engines have on average 30 000 components compared to the EVS 20 000. many of these electric car components are made inside China further cutting down on cost one of the biggest cost drivers in an AV is the battery pack byd and especially kadle are some of the world's biggest producers of battery packs leveraging scale and an integrated supply chain they strike deals directly with the resource holders to cut costs to the Bone in 2022 kadle generated about 48 billion USD in revenue and 4.4 billion in profit they have about 32 percent market share of the EV battery pack industry a comfortable lead on Korea's LG Energy Solution there are also r d leaders a while back I talked about their sodium ion batteries in an earlier video commercializing such a thing would be a massive Leap Forward on the materials front I consider them one of China's most formidable national champions anyways the intense competition and cost advantages have incentivized the Chinese EV makers to go abroad in search of new markets the American markets are somewhat difficult for Chinese EV makers to import into because of higher duties but the European markets are for now pretty open the top countries importing these Chinese EVS in 2022 are Belgium United Kingdom Spain and Slovenia now here comes the caveat if we break down what brands are being exported out of China to Europe 49 of chinese-made EV exports to Europe from January 2021 to March 2022 where Tesla cars after that we have chinese-owned European brands with 35 percent these are like pole star a sweden-based brand owned by Gili and mg motor which is owned by psych motor and then we have the European joint ventures with 14 market share like BMW and Renault group BMW exports the ix3 electric SUV while Renault the Dacia spring EV hatchback Tesla's exports into Europe are yet another indication of the superior cost structures of the Chinese EV manufacturing supply chain as opposed to that in Europe less material shortages cheaper labor and more aggressive work practices but Tesla is also working on a gigafactory in Germany which I presume will eventually cut into Chinese Tesla exports you might also argue that Tesla should be a unique case because it is an American brand but I think it would be a mistake to underestimate these Chinese owned brands in 2006 the Chinese automaker Brilliance tried to bring their low-cost sedan the bs6 unfortunate name to Europe but then the car received a Euro NCAP rating of one out of 5 Stars deliveries were suspended and it created the impression that Chinese cars were unsafe but like I said I don't think you should underestimate these companies prowess I am reminded of the European smartphone industry 20 years ago the top mobile phone brand was Nokia with 35 share Siemens and Erickson had significant share as well the Koreans were the only Asian vendors in the market today the European smartphone market has drastically changed Apple and Samsung are in the lead but the next two vendors are xiaomi and Huawei likewise with the Chinese mobile phone brands the Chinese EV brands are following a strategy of flashy marketing extensive investment dollars and fully featured offerings at good prices Great Wall Motors or a funky cat a cousin to the aforementioned good cat is launching in the UK for about 32 000 pounds features like facial recognition and of course a five-star safety rating over the past two years byd launched byd branded models in 16 countries and ordered carrier ships so to ship their EVS over to Europe and Australia xpang also built experience stores and service centers in Denmark the Netherlands and Norway they also recently opened up Norwegian sales for their SUV and sedan cars this year a significant portion of the European economy is based on automobiles so any new entrant or development is worth tracking but what if anything should Europe do should they raise protective trade barriers like what was done in the United States EU policy makers are probably talking about it William Lee CEO and founder of the Chinese EV maker Neo said that he would not be surprised to see some form of protectionist policies coming from importers but these policy makers will need to walk a fine line many European automakers have joint venture operations in China and heavily rely on Chinese sales of traditional cars Volkswagen chairman Oliver Bloom has said that China is their most important Market any protectionism against EV Imports will see trade retaliation of some form furthermore these EV cars are not just going to Europe they're also being exported to Southeast Asia the Middle East and Latin America too the United Arab Emirates is the fifth biggest EV importer and a kind a generator viewer from Saudi Arabia emailed me to note the large number of Chinese branded cars he sees on the roads there Legacy automakers in Korea Japan Europe Canada and the United States will have to compete hard for both their own markets and those overseas they can't just Retreat into Regional castles I reckon what is most likely to happen is that Europe gets the biggest Chinese EV makers to build a factory on European soil kadle already has one in Germany I don't see a joint venture or technology transfer agreement happening though it would be strange for them to do something like that it echoes the entry of the Korean car makers Hyundai and Kia a few years back some tensions ameliorated by localization meanwhile the traditional European automakers bring out their EVS to occupy the premium and medium price markets while the Chinese makers take a comfortable Niche behind the home teams I think it is hard to argue against the successes of China's EV consumer subsidy policies yet at the same time one has to consider the strange effects that nine years of subsidies might have had on the Chinese market by 2020 the average amount of subsidy per car was about 19 000 RMB 2755 the Chinese government is unlikely to continue paying out these subsidies it is a lot of money to be dulling out to an industry that is growing at very high volume provinces are free to give their own subsidies too and some are but there will be a lot of pushback from members of the industry who will argue the China's leading position in the new energy economy will be challenged and copied by other countries like America's inflation reduction Act of 2022 which I might argue Apes the Chinese subsidy policies if it works for them could be working for the Americans too Reuters reported last year that the Chinese government started talking with its automakers about the issue we also have another Nikkei Asia piece discussing tax exemption extensions as well it will be interesting to see how the central government responds and doubly interesting to see how the European economy responds to the coming EV Onslaught from China all right everyone that's it for tonight thanks for watching subscribe to the Channel Sign up for the newsletter and I'll see you guys next time

Channel: Asianometry

Views: 179,480

Keywords: asianometry

Id: 04rvKCoZWLM

Length: 15min 23sec (923 seconds)

Published: Sun Apr 30 2023