China's EV Market and its Development

In reference to the European Commission's recent announcement about the tariffs imposed on the import of electric cars from China, many of you have asked us to share our point of view on the threat that Chinese electric vehicles represent for Italy and Europe.

Before sharing our comments with an analysis of numbers and of the major Chinese players, we believe it’ important to start from the fact that, if the discussions on the matter with the Beijing authorities do not lead to a shared solution, in addition to the existing tariff of 10 percent, the new ones will come into force on July 4 in a provisional form. The temporary duties decided by the Commission have been defined in a percentage ranging from 17.4% to 38.1% depending on the manufacturer. The temporary tariffs will have to be definitively approved by the member states within 4 months of the entry into force of the provisional ones.

Companies such as BYD, Geely, SAIC, GAC and SGMW, are redefining the global automotive landscape. China's automotive industry, with a particular emphasis on electric vehicles (EVs) and plug-in hybrids, is the world's largest by production volumes. In this context, BYD emerges as the global leader in the number of "green" vehicles sold. BYD is a private enterprise founded in 1995, initially focused on the production of batteries for electronic devices. According to BYD's latest statements, in 2024 the company has reached a cumulative production of more than 7 million electric and plug-in hybrid vehicles. Almost all of its sales took place in China from 2012 to 2019 with about 85-90% of BYD's production placed in the Chinese market according to Investor Insights Asia; while between 2021 and 2023, the % is equal to 74.1% according to Statista.

The expansion in Europe is currently limited: the sales in 2023 have not reached 16,000 green vehicles per year (Source: DataForce). In 2023, BYD sold more than 3 million green cars, of which 1.6 million were electric-only. It is therefore Tesla's main competitor, which nevertheless maintained its leadership in all-electric vehicles, with 1.84 million units sold (Source: CNBC). In addition to BYD, The China Project reports that there are many EV manufacturers in the Chinese market, but in 2022 only 13 of these companies manage to exceed 100,000 units of EVs sold annually.

Analyzing the European markets, about 90% of the sales of green cars refers to European brands like Volvo and Polestar, which belong to the Geely group, or emerging brands like MG, a British marque acquired by SAIC in 2007. Pure Chinese brands represent a very small percentage of the market, with BYD’s battery-electric car market share in western Europe was just 1.7 per cent in the first quarter of 2024 as stated by the Financial Times. Overall, according to Transport&Environment the market share of electric cars produced in China in Europe is currently close to 20%.

Focusing on Italy, the automotive sector has undergone a massive decline in the number of vehicles produced over the past 30 years; it had suffered significant and ongoing disinvestments, and very limited investments in electric vehicles. Italy is considered the least developed electric vehicle market in Europe. Il Sole24ore newspaper reports that only 4% of new car registrations are fully electric, while the European average is 14%. in 2023. Italy recorded only 66,276 new electric car registrations, while other countries such as Germany, the United Kingdom and France exceeded 300,000 units according to Statista.

The European automotive industry is expected to remain an important pillar of the economy and energy transition, according to McKinsey accounting for around 7% of GDP. According to the International Energy Agency, by 2030 the EV car fleet is expected to grow to 240 million units, with annual sales of 20 million in 2025 and 40 million in 2030.

Let’s add another element into the analysis: China is making large investments in the global EV industry in relation to some emerging markets. Chinese companies are investing in the production and processing of raw materials: this is evident in China's involvement in the EV ecosystem in Indonesia, home to the world's largest reserves of nickel, a key component of EV batteries. The Financial Times reported that in the last year China- and Hong Kong-based companies invested about $13.9 billion in Indonesia, mainly in metals and mining. Great Wall is investing about $1.9 billion in Latin America, while BYD is actively seeking lithium mineral resources in Brazil.

Turning our focus back to the West and the European Commission's decision to increase tariffs on the import of electric vehicles from China, with the aim of protecting the European automotive industry from Chinese competition, what will be the related impacts on the economy and the development of renewable energy?

In our view, these tariffs could increase the cost of electric vehicles for European consumers, curbing the adoption of greener vehicles. Considering that the transport sector accounts for approximately 30% of the EU's total CO2 emissions, promoting electric mobility is crucial to achieving the EU's goal of reducing greenhouse gas emissions by 55% by 2030.

Even emerging countries are not immune to political pressures to increase tariffs on Chinese imports: Brazil, for example, recently reimposed tariffs on electric vehicles in order to boost domestic production, starting at 18% and set to rise up to 35% in 2026. According to the World Economic Forum, given China's dominance over green technologies, the country could play a crucial role in supporting global decarbonization efforts through the production and export of clean energy technologies. Therefore, trade tensions risk slowing down the transition to renewable energies.

In our opinion, the tariffs will likely push Chinese companies to establish production facilities in Europe, among other regions. For instance, BYD is planning to build a new manufacturing plant in Hungary, set to begin operations in 2026.

This trend mirrors historical patterns in the automotive sector, where companies tend to produce vehicles in the same markets where they are sold. It’s what American, Japanese, and Korean multinationals did by investing in production facilities in countries like the United Kingdom and Germany.

Therefore, an attraction of Chinese investment to Europe in batteries and final production should perhaps be considered, also aiming to force an interaction with the European automotive supply chain. In this context, if things remain unchanged, Chinese investments will unlikely be addressed in Italy and perhaps not even in other Western Europe, but rather in Hungary, Poland, or other Eastern European nations.

To further address the central question of the article, we also need to consider that the European electric vehicle industry currently relies heavily on critical components like batteries, predominantly sourced from China. By imposing tariffs, the EU risks disrupting the supply chain, leading to higher production costs for European automakers and potentially slowing down production processes. This could result in job losses and reduced competitiveness of the European automotive industry on a global scale.

European countries have different opinions and positions in relation to the Commission's decision; Germany is opposing to and calling for dialogue with China. Many European automakers, such as BMW, have voiced their opposition, cautioning that entering into trade disputes could result in self-inflicted damage. The tariffs also impact imports of cars produced in China by American or European companies; for instance, Tesla and Volkswagen manufacture certain models in China for import to Europe.

In Italy, the government has embraced the decision, while Stellantis, has voiced a preference for free and fair competition, opposing measures that could fragment the overall market. Access to low-cost Chinese vehicles could, in fact, help develop the electric market in Italy, boosting consumer adoption and helping to close the gap with other more advanced markets.

Instead of imposing tariffs, in our view, Europe should consider adopting more courageous and forward-thinking policies that promote the development of hydrogen technology. We think it is indeed a viable solution; it would not only diversify the transportation energy mix, but also reduce dependence on battery components dominated by non-European players.

India, for instance, has recognized that hydrogen offers a sustainable and scalable solution to the limitations of battery storage, such as long charging times and the environmental impact of rare earth metal mining. India is investing heavily in hydrogen fuel cell technology and hydrogen combustion engines, aiming to become a global leader in hydrogen technology, with significant investment in regeneration.

Investing in hydrogen infrastructure and research could position Europe as a leader in this field, providing a competitive edge in the global market and a strategic response to the development of Chinese electric vehicles.

In Europe, everyone seems to agree the need for measures that genuinely support the European industry rather than harm it.

In addition to diversifying the energy mix of transport in a long-term analysis, our long experience in China makes us add that the ability to dialogue with China on this front to find compromise solutions will be an aspect on which to leverage, so as not to undermine trade relations between Europe and China to Europe’s disadvantage.