Cheap Chinese EVs and the Battle for the Western Conscience

 ·21 Jun 2024

Last week, the European Commission announced additional import duties of up to 38% on Chinese electric vehicles (EVs). This is on top of its existing 10% tariff, and it follows an even more radical move by the US, which recently increased its tariffs on Chinese EVs from 25% to 100%. It’s a trade war in all but name, and it’s an extension of the much larger anti-global trade sentiment that underlies President Biden’s 2022 Inflation Reduction Act, which provides substantial subsidies and tax incentives for US states to produce homegrown green technologies.

European policymakers argue that the tariffs will protect their domestic automotive industries from a flood of cheaper EVs from Chinese producers, which, they maintain, have benefitted unfairly from state subsidies. The EU has become the largest importer of Chinese EVs in the world, with the share of Chinese EVs sold in the EU growing from less than 1% in 2019 to 8% in 2023 and projected to reach 15% by 2025.

EU states will vote on whether to make the tariffs definitive by November, although they will provisionally be applied from July. Several countries, most notably Germany, have voiced their opposition, arguing that it is not self-evident that the tariffs will have the desired effect. One study estimates that while the tariffs could reduce Chinese EV imports to the EU by a quarter and stimulate domestic production, owing to the price competitiveness of Chinese EVs, exports of EU-produced EVs will remain low, resulting in an increase in EV prices for European consumers.

It is also not clear that the tariffs will reduce the number of Chinese EVs imported to the EU. Chinese EVs are estimated, on average, to sell for 20% less than EU models, which means that even with increased tariffs, Chinese EVs may still prove cheaper than local brands. The percentage hike on tariffs varies between Chinese EV producers – BYD, the world’s largest EV producer, will, for example, only be subject to additional tariffs of 17.4%, the news of which ironically caused its share price to jump by 9% on the day of the EU’s announcement.

The tariffs will not only impact Chinese EV producers but also affect international producers with factories in China, such as Tesla. In every case, the net result is that the price of EVs for consumers will rise – this, in a world where EVs are already considered unaffordable for many people, despite the apparent urgency to transition away from internal combustion engines amid the larger global effort to reach net zero.

China responded with some petulance, as expected, calling the tariffs an act of “blatant protectionism” and threatened retaliation. In this fight, it is worth considering just how much power China holds given the extent of its dominance over the global EV market. A decade ago, the market was roughly equally split between the US, the EU and China, while in 2023, Chinese producers accounted for almost 60% of global EV sales, which reached 14 million units, representing a 35% year-on-year increase. At just over $250 billion, China’s total revenue from EV sales last year constituted around 1.4% of its GDP.

But sales represent only one part of a much bigger picture. China has also gained a monopoly over the entire EV lifecycle through its mining, refining and manufacturing activities. China is the largest steel producer in the world by a substantial margin, producing over a billion tonnes per year, and it also controls 41% of the world’s cobalt supply and 28% of the world’s lithium reserves. Additionally, regardless of which country extracts the resources needed for EVs, most transport them to China for refining into battery-grade materials. In 2023, China refined 73% of the world’s cobalt, 67% of lithium, and more than 60% of graphite, manganese and nickel. As of 2024, China also controls 70% of the world’s production of lithium-ion batteries, which account for around 40% of the cost of each EV.

China’s dominance over the EV market is unsurprising, however, given its growing influence at the highest level of policymaking as it relates to the global energy transition, that is, within the UN. Over the past two decades, China has taken an increasingly active role in shaping the governance of the multilateral institution through funding, resources, personnel appointments, and strategic alliances. China is currently the UN’s second largest funder and four of the UN’s 15 specialist agencies are headed by Chinese officials.

China has also forged strategic relationships within the UN with many developing, and often highly indebted, nations, most notably through its signature Belt and Road Initiative. As China gains a stronger foothold in the UN, it simultaneously grows its geopolitical power, which is central to bolstering its position on the issue of carbon emission targets imposed by the UN at a country level. Overall, its strategy is to drive global uptake of the three main components of energy transition, as it is currently proposed – EVs, lithium-ion batteries and solar power. If there was ever any doubt of China’s true intent, one need only look to the June 2024 issue of Chinafrica magazine, whose cover bears the headline “Going Green: Chinese EVs Power Africa’s Mobility Push”. It is clear that China’s strategy to dominate the supply of critical green technologies dovetails neatly with all of its UN lobbying, influence and propaganda. A cynical observer may even surmise that it is an industrial economic strategy rather than a climate crisis agenda that drives China’s desire to flood the world with ultra-cheap green energy transition products to satisfy consumers’ consciences in the West.

• Buckham is founder and CEO of Johannesburg-based international management consultancy Monocle Solutions.

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