China’s EVs make inroads in Europe

  • Sales of electric vehicles (EVs) in the EU are booming, growing by 28% year on year in 2022, accounting for 12% of all new vehicle registrations. Taking advantage of its strong industrial base, China has invested heavily in EV and renewable technologies in the past decade, gaining competitive advantages in nearly all aspects of the EV value chain. In 2022 Chinese EVs only constituted 5.8% of EV sales in the EU, but this will rise significantly in the coming decade. Increasing pushback to Chinese EV imports—to protect EU carmakers—casts doubt on the EU’s ability to meet the 2035 deadline for ending sales of new internal combustion engine (ICE) cars, despite the exception made for e-fuel vehicles.
  • The EU’s relatively high trade openness has made the bloc vulnerable to a growing EV trade deficit. Chinese vehicles face a 10% import duty in the EU, compared with 27.5% in the US—in addition to various trade barriers imposed by the Inflation Reduction Act (IRA). Rising labour costs and more difficult access to raw-earth materials mean that European car manufacturers are increasingly unlikely to be able to compete with Chinese marques on a cost basis. In addition, China continues to dwarf Europe’s lithium battery production capacity (148 megafactories are planned compared with Europe’s 21 by 2030); Europe also faces a severe shortage in lithium by the end of the decade (China currently accounts for around 60% of the world’s supply of processed lithium). 
  • If current trends continue, central and east European manufacturers stand to be the worst affected owing to their heavy integration into the ICE supply chains of west European car brands. As a result, we expect the EU to raise direct and indirect trade barriers to prevent a glut of Chinese EV imports in the coming years. Working drafts of the EU’s response to the IRA included in the Green Deal Industrial Plan have already moved away from prioritising domestic production quotas to more environmentally driven and World Trade Orgnisation-friendly restrictions that would, in effect, limit imports of EVs and EV batteries from China. China is unlikely to set up EV factories in the EU to circumvent trade restrictions owing to new investment screening regulations and rising production costs. Weakening competition in the EV market and limiting EV production risk damaging the EU’s prospects of reaching the bloc’s EV adoption and climate targets.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the economic, political and policy outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.