While U.S. and European automakers struggle with weaker demand for electric vehicles, China is churning out a growing number of small and cheap EVs that are taking over the domestic car market and other markets in Asia.
Affordability has been a key driver of consumer choices when buying a car. The average consumer in the U.S. and Europe has yet to afford an EV manufactured by a Western carmaker. That's not the case in China, where generous government subsidies have helped EV manufacturers make many models priced on par or even lower than gasoline cars of the same class.
EV sales in China are soaring as domestic manufacturers aggressively cut prices, undercutting Tesla and the legacy manufacturers.
The Chinese strategy is a winner in Southeast Asia, where demand for electric small city cars and two- and three-wheelers is set to grow exponentially in the coming years.
In China alone, EV sales are set to jump to about 10 million this year, accounting for about 45% of all car sales in the country, the International Energy Agency (IEA) said in its Global EV Outlook 2024 report this week.
To compare, the U.S. will see roughly one in nine cars sold in 2024 to be electric, while in Europe, electric cars are still set to represent about one in four cars sold despite a generally weak outlook for passenger car sales and the phase-out of subsidies in some countries, noted the agency advocating for a fast transition to EVs and clean energy. Related: U.S. Crude Oil And Gasoline Inventories Drop Off
This year's EV outlook by the IEA stresses the most important factor for the rapid uptake of electric cars-affordability.
"The pace of the transition to electric vehicles hinges on their affordability," the agency says.
China is already winning in affordability, leaving Western carmakers, including Tesla, struggling to balance price cuts with heavily eroded profit margins.
The IEA has estimated that more than 60% of electric cars sold in China in 2023 were already cheaper than their average combustion engine equivalent. However, EVs sold in Europe and the U.S. remain between 10% to 50% more expensive than their combustion-engine equivalents, depending on the country and car segment.
Moreover, two-thirds of all available EV models globally last year were mostly the more expensive SUVs, large cars, and pick-up trucks, the agency noted.
"In 2023, 55% to 95% of the electric car sales across major emerging and developing economies were large models that are unaffordable for the average consumer, hindering mass-market uptake," the IEA said.
But Chinese carmakers expanding overseas have been offering since 2022 smaller and much more affordable models that "have quickly become bestsellers," the agency added.
Chinese manufacturers have an advantage in conquering smaller markets in Asia, such as Vietnam and Thailand, where EV sales picked up last year.
Europe and the U.S. are unhappy with the Chinese competition in the EV sector, which enjoys generous support from China's authorities.
The Chinese government has granted direct subsidies of at least $3.7 billion (3.4 billion euros) to EV manufacturer BYD, which has been one of the main beneficiaries of China's massive subsidies for green technologies, a German think tank that advises the government said in a report earlier this month.
"China's subsidy policy has been a controversial issue for years: European industries often struggle to compete with Chinese counterparts on price," said Dirk Dohse, Research Director at the Kiel Institute and co-author of the report.
The EU and European carmakers are already spooked by Chinese EV manufacturers' plans to boost sales in the EU.
The EU launched in October anti-subsidy investigations into EU imports of EVs from China to determine whether the value chains in China benefit from illegal subsidization and "whether this subsidization causes or threatens to cause economic injury to EU BEV producers."
The findings of the investigation will establish whether it is in the EU's interest to impose anti-subsidy duties on EV imports from China, the European Commission said at the time. The EU probe into the Chinese subsidies is ongoing and set to conclude by November, but the bloc could impose tariffs as early as July.
By Tsvetana Paraskova for Oilprice.com
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
Comments
Instead of the EU's and the United States' EV manufacturers improve their efficiency to compete with China's manufacturers, they always opt for the easy and confrontational option, namely imposing high tariffs on Chinese EV exports if not making it extremely difficult for Chinese exports to reach their markets on trumped up excuses such as China subsidizing its manufacturers. Instead, they should face realities and stop behaving like spoilt children.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert