Embracing the Dragon: Europe's Bold Gambit in the EV Revolution (part 2)

Embracing the Dragon: Europe's Bold Gambit in the EV Revolution (part 2)

In our previous analysis , we unveiled the stark reality of Europe's EV crisis and China's dominance in the global market.

With European sales plummeting by 43.9% in August 2024 and Chinese manufacturers commanding 56% of global battery demand, Europe finds itself at a critical crossroads.

Today,

we explore a strategy that may seem counterintuitive

yet could be Europe's lifeline:

Embracing collaboration with China.


The Case for Collaboration

Recent developments strongly support this approach:

1. On September 25, 2024, Chinese Commerce Minister Wang Wentao emphasized the importance of cooperation between China and Europe for the future success of the automotive industry in both regions. This statement came during a significant roundtable in Brussels attended by 30 executives from Chinese and European EV sectors.

2. European industry leaders are increasingly supportive of this collaborative approach.

Andrea Levy, president of the 2024 Turin Auto Show, stated that

"The advanced technology and high quality of Chinese automotive companies can help strengthen the competitiveness of their European partners."

3. Chinese EV-related foreign direct investment (FDI) in Europe reached $7.6 billion in 2023, following a record $11.8 billion in 2022. This financial commitment demonstrates China's interest in the European market and the potential for mutually beneficial partnerships.

4. At the Brussels roundtable, European companies emphasized that they are not afraid of competition and do not require tariff protection. They voiced opposition to trade protectionism and support for free trade, open markets, and fair competition.


The Apple Model:

A Blueprint for Success

Consider Apple, a paragon of Western innovation. Despite its American roots,

~90% of iPhone assembly occurs in China, and the rest NOT-in-USA.

This isn't a weakness; it's a strategic strength that has propelled Apple to unprecedented success.

What if European automakers adopted a similar model?

By leveraging China's manufacturing prowess and scale, they could focus on their strengths in design, user experience, and high-end innovation.


Addressing Europe's Midstream Vulnerability

Europe's most glaring weakness lies in midstream production – cathodes, anodes, and electrolytes. Instead of starting from scratch, risking further delays and investments, why not leverage China's expertise through strategic partnerships?

This approach could:

1. Rapidly close the technology gap (remember CATL's 1,000 km range "Shenxing Plus" battery).

2. Address the gigafactory investment shortfall, potentially reviving the €15 billion in delayed or cancelled projects.

3. Reverse the alarming trend of declining EV sales growth, which dropped significantly recently.


Beyond Batteries: Reimagining European Mobility

This strategy extends beyond just battery production. By embracing collaboration, European companies could:

1. Accelerate access to cutting-edge technology

2. Rapidly scale production to meet the projected 4,500 GWh global EV battery market by 2030

3. Reduce costs, making EVs more accessible to European consumers

4. Refocus resources on areas of European strength, such as luxury vehicles and sustainable manufacturing.


Recent Developments and Challenges

EU Tariff Negotiations

The European Commission is considering imposing tariffs of up to 35.3% on Chinese EVs, on top of the standard 10% import duty.

This decision could significantly impact the market dynamics:

- A vote by the 27 EU member states was scheduled for end of September 2024.

- If approved, these duties could be implemented by the end of October.

- The decision requires a qualified majority of 15 EU member states, representing 65% of the EU population.


LATE UPDATE below

German Support for Free Trade

German Vice-Chancellor Robert Habeck has expressed strong support for free trade and against tariff hikes on Chinese EVs:

  • Habeck showed enthusiasm for Chinese investment in Europe's automotive sector.
  • He called the comprehensive solution proposed by the Chinese industry an "important step forward."
  • Germany's stance is particularly significant given its 19% share of the total EU population, potentially swaying the outcome of the tariff negotiations.
  • Habeck urged the EU to take a more constructive approach and stated that Germany would do everything in its power to help the EU and China find a mutually acceptable resolution.


Chinese EV Makers' European Production Plans

Chinese EV makers are shifting their strategy from exporting vehicles to producing them within Europe:

for instance...

  • BYD is constructing its first European production facility in Hungary, with production aimed to start in three years.
  • SAIC, China's largest state-owned carmaker, is actively seeking a site for a European factory.

These moves could potentially circumvent tariffs and create a more integrated presence in the European market.


Market Dynamics and Challenges

The global EV market is experiencing a slowdown. According to Bank of America, electric vehicle sales in July 2024 totalled 853,000 globally, increasing by just 6% year-on-year.

European automakers are struggling to keep pace:

  1. Stellantis' market share dropped to 2.7% in July, a sharp decline from 3.6% in the second quarter of 2023 and 4.0% a year earlier.
  2. Volkswagen Group's market share fell to 6.6%, down from 7.5% in the second quarter of 2023.
  3. Mercedes-Benz saw its market share tumble to just 1.9%, down from 2.5% a year prior.

Higher costs are holding back battery electric vehicle adoption in Europe. In Germany, battery electric vehicle prices remain around 20% higher than their internal combustion engine counterparts, even after accounting for subsidies and rebates.


Navigating the Challenges

This collaborative approach isn't without its hurdles:

1. Intellectual Property Concerns: These can be managed through carefully structured agreements, as demonstrated by companies like Apple.

2. Geopolitical Tensions: While real, economic interdependence often serves as a stabilizing force in international relations.

3. Public Perception: A robust communication strategy can highlight the benefits of collaboration over the risks of inaction.

4. Regulatory Hurdles: The potential implementation of high tariffs on Chinese EVs could complicate collaboration efforts.


A Call for Visionary Leadership

Europe stands at a pivotal moment. It can either cling to the ideal of complete autonomy and risk irrelevance, or embrace a collaborative future that could redefine its role in the electric age. This isn't surrendering to China; it's about smart, strategic collaboration.

In the 21st century, technological leadership is increasingly about integration, innovation networks, and global value chains rather than end-to-end domestic production.


The Urgency of Now.

The EV revolution waits for no one. While Europe deliberates, China's NEV sales are hitting record highs, with over 1 million units sold in September 2024 alone.

The question isn't whether Europe should collaborate with China, but how quickly and effectively it can do so.

By embracing this bold strategy, Europe has the opportunity to:

  • Rapidly close the technology gap in battery production
  • Revitalize its automotive industry for the electric age
  • Potentially leapfrog current limitations by combining Chinese manufacturing with European innovation
  • Address the alarming drop in EV sales and reverse the downward trend


As we stand on the brink of an all-electric future, the choice is clear:

adapt, collaborate, and lead – or risk being left behind in the greatest transportation revolution of our time.

The path forward requires not just strategic vision but also diplomatic finesse to navigate the complex landscape of international trade relations, regulatory challenges, and rapidly evolving technology.

The future of Europe's automotive industry, and perhaps its industrial relevance in the 21st century, may very well depend on its ability to forge a new path of collaboration in the face of unprecedented challenges and opportunities.


What do you think ?



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Cheers for now,

Magnus.

https://www.dhirubhai.net/in/magnus-bekker/



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