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China Takes The EV Lead By Investing.com


Investing.com – After spectacular gains sales of electric vehicles are struggling in the West, with China taking the lead. This has resulted Western governments proposing tariffs on Chinese EV imports. Barclays takes a look at the situation.

EV Stocks: What’s Happening Globally?

The electric vehicle (EV) market has been one of the success stories of the 21st century, with the growth in sales nothing short of remarkable. In 2020, there were 10 million EVs on the road, in 2023 there were 45 million.

But after years of soaring sales, EV growth appears to be stalling, particularly in the West.

Sales of new battery-electric cars in the European Union dropped 12% in May from a year earlier, led by a 30% plunge in Germany.

Additionally, global sales of the world’s largest EV maker, Tesla (NASDAQ:), were actually lower in the first quarter of 2024 than in the same period in 2023.

However, China has in many ways avoided the “EV Winter” that has set in upon the West, noted analysts at Barclays, in a note dated June 26.

Indeed, despite facing a more challenging macro situation China has propped up global EV volumes of late and its domestic manufacturers, most notably BYD (SZ:), have continued to capture EV market share.

Whereas EVs as a percentage of new car sales are tracking at 17% in Europe and only 9% in the U.S. year-to-date, EV penetration in China is tracking at 36%, with recent months well north of 40%.

The China EV Advantage: Government Support

The core driver of the China EV story is significant cost advantage, the U.K. bank said. Indeed, Chinese manufacturers have been profitable on vehicles as cheap as around $10,000 a vehicle, while in the West manufacturers have been losing significant amounts on far more expensive vehicles (i.e. over $50,000).

This begs a key question – how did the Chinese EV cost lead emerge?

While government support for consumer EV uptake in China still exists, it’s far less direct than in the past – for instance, instead of EV purchase credits, EV uptake is stoked by way of reduced restrictions for EVs.

Yet the support from the Chinese government goes beyond direct subsidies, and more critically reflects the efforts by the government to build a robust EV and battery supply chain, which is far ahead of what exists in the West.

Chinese EV battery raw mats and component supply chains have been developed extensively over past years, while China has established a dominant position in the refining/processing of key battery raw mats, even in materials which aren’t all that prevalent domestically, i.e. cobalt and lithium.

This development came in advance of demand and led to the vast majority of global EV batteries and (especially) key components flowing through China.

EV Battery Supply Chain

The EV battery supply chain has become a key factor, with the lead China has developed supporting lower costs, and raising dependence concerns for the West.

In 2024 China accounted for around 85% of global battery cell production capacity, with an even greater share in battery components production. This is largely a function of extensive early investments ahead of the broader EV inflection, establishing a mature Chinese EV battery/supply chain ecosystem, with fierce competition on price forcing players in the industry to adapt or be consolidated.

Another key cost advantage from China’s robust EV ecosystem relates to its sharp lead in lithium iron phosphate (LFP) cells, with the likes of Tesla having plans for all standard range EVs to use LFP cells over time.

Importantly, China accounts for effectively all LFP production globally, and local champion BYD (SZ:) uses LFP cells exclusively.

Some efforts to build LFP capacity in North America are underway, but this involves licensing from Contemporary Amperex Technology (SZ:), the leading Chinese battery maker, a point of notable contention.

Moreover, in addition to its lead in LFP, China also appears to be leading the industry’s push into new battery technologies, such as sodium-ion cells.

Electric Vehicle Tariffs for US and EU

The EV Winter has seen a pullback from Western manufacturers, while domestic Chinese manufacturers have been dealing with overcapacity concerns and fierce competition in their home market via growing exports.

This has prompted Western governments to seek the shielding of their own manufacturers from potential existential risk via tariffs while navigating the geopolitical concerns around China’s EV dominance.

The United States imposed 100% tariffs on EVs along with a much longer list of 13 items, spanning from raw materials to components and final products.

The European Union, on the other hand, has announced plans to impose 38.1% tariffs to be added to the 10 percent already in place.

However, the EU is set to hold talks with China in early July, with Beijing rejecting accusations of unfair subsidies, saying the development of its EV industry has been the result of advantages in technology, market and industry supply chains.

Europe paints the most complex case, according to Barclays, as EV imports from China already have a notable presence in Europe, accounting for around 18% of 2023 EV sales.

Yet Tesla is a key portion of this (around a third of imports, and about 6% of total sales) and the European brands of Chinese manufacturers made up another third of the imports.

The European EV share of the domestic Chinese brands (led by BYD) is indeed growing, but still quite modest at around 3% of the market in 2023.

Despite this relatively small mix today the growing focus on exporting to Europe by the Chinese domestics has been scrutinized by the EU, including a months-long investigation into the extent that the EVs are subsidized by the Chinese government.

At the currently proposed levels, the incremental tariffs are “manageable” for both EU manufacturers into China and Chinese companies into Europe, the bank added.

Chinese EVs sell for a significant premium in the EU relative to their price in China, and given this pricing premium and an increasingly difficult EV market in China, we find that the Chinese EV manufacturers consistently make “extra profit” on selling in the EU.

Indeed, it’s been estimated that at least an approximate 50% tariff would be needed to make the EU market unattractive for China exports given their cost advantage.

What Should EV Investors Buy?

The clear winners of heightened tariffs on EVs from China would be mass-market manufacturers with minimal China exposure such as Stellantis (NYSE:) and Renault (EPA:), as this would support their competitiveness with Chinese imports and their exposure to retaliation would be muted, Barclays said.

On the other hand, EU manufacturers with more notable exposure to China via exports and local production (i.e. Porsche (ETR:), Volkswagen (ETR:), Mercedes Benz (ETR:), BMW (ETR:), Aston Martin (LON:) and Ferrari (NYSE:)) face potential risk from retaliation that may well end up being more severe in terms of relative profitability impacts than what the domestic Chinese manufacturers face from the EU’s tariffs.

Discover The Top EV Stocks

Looking to assess the performance of EV stocks as part of a diversified portfolio? We have a list of the best EV Stocks on our discover page, as well as the top renewable energy ETFs, for investors who prefer diversification baked-in to their strategy.





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