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How Beijing buried Western industry under a wave of cheap electric cars

EV charts
EV charts

China has seized on the net zero transition to launch an electric car manufacturing push that’s gone from nought to 60 in the blink of an eye and is now poised to reshape the global car industry beyond all recognition.

Having already secured a switch to electric in its home market, the Asian superpower has embarked on a push for wider domination of the $2.6 trillion (£2.1 trillion) auto industry. It is flooding emerging markets and Western economies alike with electric cars priced to vastly undercut rivals.

A new report from the International Energy Agency (IEA) has laid bare just how far the Chinese electric vehicle (EV) landgrab has progressed.

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It highlights China’s potential to leave established auto giants – everyone from Ford to Nissan – trailing in its wake as road transport undergoes the biggest transformation since the first Model T rolled off a Detroit production line in 1908.

China is already the biggest market in the world for electric cars by sales.

Figures published in the IEA’s annual Global EV Outlook show 60pc of global electric car sales last year were in China, with Europe accounting for 25pc and the US just 10pc.

In part, this represents the size of the market: there are 1.4bn people in China. However, demand for electric cars is also rising rapidly.

More than one in three new car registrations in China last year were EVs. The proportion rose above 40pc for the first time at the start of 2024.

The IEA predicts electric cars will account for almost half of all sales in China for 2024 as a whole – almost twice the anticipated market share in Europe and more than four times that in the US.

Registrations remain buoyant even after Beijing ceased subsidising purchases, a policy that underpinned the expansion of the sector for more than a decade. While tax breaks remain, sales are now being spurred more by price competition.

Electric cars are also now entirely responsible for overall growth in Chinese car sales, with demand for petrol and diesel models falling. Plug-in hybrids are flying out of the showroom faster than pure battery models, though from a lower base.

It is not just demand that is strong – supply is too.

Chinese carmakers produced more than half of all electric cars sold worldwide in 2023. Manufacturers exported 1.2 million EVs, a jump of 80pc compared with 2022. The biggest markets were Europe and emerging economies in the Asia-Pacific region.

China’s EV industry is benefiting from low labour costs, economies of scale from a large home market and a command economy that made battery and EV production a focus of China’s five-year plan introduced in 2021.

National champions are now beginning to build manufacturing bases overseas.

BYD, which last year briefly eclipsed Tesla as the world’s biggest EV maker, plans to start production in Thailand this year with an annual capacity of 150,000 vehicles.

Chinese companies already account for more than half of all EV sales in the country, the IEA says.

BYD is also planning to begin manufacturing in Brazil, investing $600m in its first EV plant outside Asia. Its rival Great Wall plans to open a factory in the South American country too, with access to local deposits of battery metals an added incentive.

The US remains resistant to encroachment.

The chair of the Senate Banking Committee this month urged President Joe Biden to block all Chinese-made cars, saying that a deluge of concealed subsidies represents “an existential threat to the American auto industry”. The president has said they pose a threat to national security.

Mexico is a test case of China’s ability to project its EV might on to the doorstep of the US. The country benefits from subsidies under the Inflation Reduction Act, and three Chinese manufacturers – BYD, Chery and SAIC – are considering expanding to Mexico to take advantage.

Elsewhere, the EU has opened an anti-dumping investigation into Chinese EVs, even as Chery begins selling its Omoda and Jaecoo brands in Italy, its second European market after Spain.

Sales in the UK are expected to begin before the end of the year.

The arrival of cheaper Chinese vehicles in Britain could rescue an EV market that’s stalled in recent years. However, the Transport Secretary has said Britain will use “robust” trade sanctions to prevent China from flooding the car market with artificially cheap EVs.

The next government, of whatever hue, will face tough decisions in seeking to promote the adoption of EVs without surrendering the UK market to Chinese manufacturers, though the IEA numbers suggest their advance is almost irresistible.

One of the most startling comparisons is just how cheap EVs are in China compared to the rest of the world.

The average electric vehicle cost 16pc more than a combustion-engine car in China in 2018. However, by 2022 EVs were selling for 14pc less than their petrol and diesel-powered rivals, data from the IEA shows. That was even before subsidies.

This is a unique development: EVs still cost 44pc more than combustion-engine cars in the UK and 59pc more in the US.

In France and Germany, the cost gap between EVs and traditional motors actually widened in the four years up to 2022, according to the IEA.

In China, it is smaller cars that have seen the biggest drop in prices.

Small EVs now sell at a 37pc discount to comparable combustion-engine models. However, the gap has narrowed even for SUVs, which are approaching price parity.

Achieving price parity is regarded as a key tipping point for mass adoption. Surveys of American drivers suggest affordability is the biggest barrier to their adoption.

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The IEA forecasts that price parity between electric and fossil-fuel cars could be reached in some countries by 2030, so long as the expansion of charging infrastructure is maintained.

However, with China slashing prices far faster than the rest of the world, parity seems most likely to be achieved through a flood of imports.

That points to an uncertain future for some of the industry’s most established names – and a political headache for governments committed to net zero but bound to protect their own economies.