Chinese EVs pose a threat to Europe amid Australian concerns
【Summary】Chinese EVs are causing geopolitical implications in the West, with an influx of Chinese-made EV cars in Australia and threatening the EU's interests. China's progress in EV technology and their access to raw materials give them a competitive advantage over European and American counterparts. The EU plans to launch an investigation into Chinese car industry access and may increase tariffs. China seeks German help to prevent European tariffs.
With the increasing popularity of all-electric vehicles (EVs), car manufacturers worldwide are investing in their electric fleets. Chinese-owned Polestar and BYD have made significant progress in recent years, threatening Tesla's dominance in electric car sales. The Chinese automotive giants' investment in EVs has geopolitical implications in the West, as more Western consumers are opting for electric vehicles, many of which are made in China.
In Australia, there is currently a surge in EV cars, with over 86% of EV cars on Australian streets being made in China. This includes not only Chinese brands but also major European ones like BMW and Volvo. This influx of Chinese EV cars complicates the relationship between Australia and China, adding another layer of complexity. Furthermore, China's success in EV technology not only concerns the Australian government but also poses a threat to the EU's interests.
The Chinese automotive industry has made impressive strides in electrification, with companies like BYD, Nio, and Xpeng breaking sales records. This success gives China a technological advantage and an export lifeline during a challenging time for Chinese exports. Additionally, China's vast stockpile of raw materials needed for battery production gives them an unprecedented advantage in manufacturing and distribution.
China's abundance of resources allows them to maintain leadership in the sale of electric batteries, making Chinese companies more competitive than their European and American counterparts. As the world shifts towards electric cars, China's competitive advantage in EV battery production and sales is expected to solidify. Many of the world's top engineers in this field are choosing to work in China, further diminishing the popularity of EV cars made in Europe.
China's ability to produce and export high-quality electric cars at relatively low prices disrupts the European car industry. This threatens the sales of European giants and could lead to the loss of many European jobs. Chinese electric cars currently occupy 2.8% of the European market, a significant increase from 1% two years ago. If the current regime of Chinese exports to the EU continues, their market share could reach up to 15% within the next two years.
In response to this growing challenge, the European Commission, led by Ursula von der Leyen, plans to launch a thorough investigation into the access that the Chinese car industry has gained in the European economy. The Commission is considering increasing tariffs on Chinese cars beyond the existing 10%. However, the question of battery imports remains open as imposing similar tariffs on batteries would create significant problems for the European car industry in the medium term.
China is seeking Germany's help to prevent the rise of European tariffs. Chinese President Xi Jinping is pressuring German Chancellor Olaf Scholz to influence the EU's stance on trade sanctions and additional tariffs on Chinese exports. China's leverage against Germany lies in the substantial investments made by German giants in China. Currently, over 5,000 German companies operate in China, with more than two-thirds of German foreign investment directed towards the Chinese manufacturing sector in 2022. The German car industry's heavy reliance on the Chinese market for sales threatens their competitiveness in the event of a trade war between the EU and China.
China's success in developing electric cars and EV technology is a significant factor in the potential trade war between the EU and China. If German cars produced in China are treated as Chinese by the EU, it would harm the interests of German car manufacturers. While Beijing continues to pressure Berlin, Brussels appears to align more closely with Washington's approach to limiting China's commercial and technological advantage in automobile electrification.
China's ambivalent geopolitical strategy further complicates the situation. While China has subtly sided with Russia in the war in Ukraine and refrained from supporting Israel like the EU, it has not directly threatened the EU's geopolitical interests. Cutting off ties with China would be detrimental to the EU, so finding a balance between protecting the common market from an influx of cheap Chinese EV cars and maintaining a profitable relationship with Beijing is crucial. Although Chinese cars have not yet gained traction in the Greek market, the Greek government's incentives for purchasing EVs may change this in the future.
To maintain its economic superpower status, the EU must navigate this complex situation. With potential changes in the US Presidency, the EU needs to find its own way of dealing with Beijing and maximizing the benefits of this politically challenging but economically profitable relationship. Incentivizing the production of EV technology in Europe and repatriating German automobile companies are essential. If the EU enforces tariffs on Chinese EV technology, it should ensure that European consumers have access to EV cars made in Europe, creating a win-win scenario for the EU on an industrial and political level.
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