The EV car crash is a warning for Europe’s industrial transition

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Introduction

At an event last week, a businessman suddenly pulled out his phone to show me his experience in a driverless taxi in downtown Beijing. In the video, a robotaxi impressively navigated a turn across several lanes of a busy road. Needless to say, the autonomous fleets roaming around an increasing number of Chinese cities are electric. The lasting impression, for him at least, was how far China has pulled ahead in the future of transport.

Chinese Dominance at Munich Motor Show

Those at the Munich motor show last week came to a similar conclusion. Germany’s biennial celebration of its own automotive prowess was dominated by Chinese brands, who were there in double the numbers seen in 2021. While European manufacturers showed electric vehicles coming to market in 2026 or 2027, the Chinese had cars ready for the forecourts. Gone were the shoddy motors of years past; these were quality vehicles for the European market. The sense was of an industry left behind. “It took too long to get the new reality,” says Ferdinand Dudenhöffer at the Center for Automotive Research in Duisburg. “There was a long time when carmakers said, ‘We see the issue of battery electric vehicles but we don’t believe in it.’”

The Growing Electric Vehicle Market

The market is changing at speed. Almost one in five cars sold in Europe is electric. The International Energy Agency raised its forecast for EV share to 35 per cent of global sales in 2030, from less than 25 per cent in last year’s projection. The Chinese market, by far the world’s largest, is already there. Slowing local demand and overcapacity after years of state-directed growth means Chinese manufacturers are looking overseas: exports have surged this year. Chinese brands’ market share in Europe has gone from less than 1 per cent in 2021, to 2.8 per cent so far this year, according to Schmidt Automotive Research. In electric vehicles, they have over 8 per cent share. Whereas Europe’s engineers credibly claim superiority in combustion engines, Chinese technology comes top in batteries, which comprise 40 per cent of the cost of an electric vehicle.

China’s Advantages and Trade Barriers

The complaint that China’s success is down to a multi-decade government-planned effort is both true and slightly academic at this stage. The country’s accumulated advantages are daunting. It controls two-thirds of global capacity for processing lithium, the raw material for batteries, and dominates every aspect of battery production. It produced 10 times as many battery vehicles last year as Germany. It has a manufacturing cost advantage of perhaps 20 to 25 per cent. Shipping costs (as well as 10 per cent tariffs) have narrowed that gap but will become less important as China’s exports rise, particularly of the affordable mass-market vehicles that face little European competition.

The Need for Decisiveness and Support

Erecting trade barriers is a terrible option for an industry reliant on selling to China, and for policymakers wary of the costs of energy transition for consumers. The European industry body this month called for a “robust industrial strategy that guarantees a level playing field” with both China and the US. It is true that UK and European policy — either through complacency or ineptitude — has been heavy on setting targets, like the 2035 halt to sales of combustion engines, and light on planning and support to get there.

But the sector itself continues to hedge its bets. It is still demanding “technological neutrality” from policymakers. That arguably gives policymakers an out from, say, building the dense charging network needed for widespread adoption and for reducing battery size and costs. Europe’s exemption for cars run on so-called e-fuels to Europe’s 2035 sales ban is a classic example — a political sop that spreads industry hopes across another technology that isn’t commercially viable, isn’t available at scale and will be needed in other sectors, such as aviation.

“This discussion of ‘what is the best technology’ is not helpful,” says Fabian Brandt, head of automotive at Oliver Wyman. “From an efficiency standpoint, there is no doubt that battery electric vehicles are the preferred technology. The industry needs to be decisive and go all in.” That should be a lesson for other sectors, from energy to steel to other forms of transport, prevaricating over critical investment or strategic change in the hope that politics, subsidies, or technology will make difficult choices easier.

The Disruptive Potential of Electric Vehicles

Electric vehicles should have been a “sustaining technology” for Europe’s incumbents, says Harry Benham of Carbon Tracker, referencing Christensen’s classic theory of innovation. Thanks to indecisiveness and delay, they could now be a disruptive one. “The industry was whistling as the darkness crept in,” says Benham. “Eventually, you run into reality.”

helen.thomas@ft.com