The European Commission’s announcement in early September that it was opening an investigation into Chinese subsidies for electric vehicles highlights China’s dominance in this field According to the European Automobile Manufacturers Association (ACEA) China accounts for 15% of electric vehicle imports into the European Union by 2022 a figure that has increased sixfold over the last five years. Without prejudging the outcome of this investigation and the potential implementation of customs barriers, China will remain a key player in the electric vehicle value chain, particularly for Europe.
A TECHNOLOGICAL AND INDUSTRIAL LEAD FOR CHINA
While the development of an electric vehicle ecosystem is one of the priorities of the major plans to support the ecological transition in Europe (Green Deal) and the United States (IRA) it is also a major objective of China’s 14th five-year plan (2021-2025), with the priority of developing the production of electric vehicles to the highest technological standards.
Representing around 40% of a vehicle’s value, the battery is the critical element in mastering the value chain, which is why China is so essential today:
- China controls 80 of the supply chain upstream of battery assembly, with market shares of 77% for lithium refining, 99% for LFP (lithium, iron, phosphate) cathodes and 59% for NMC (nickel, manganese, cobalt) cathodes, 90% for anodes and 86% for electrolytes.
- With battery production costs 36 lower than in Europe and 16% lower than in the United States (after the positive impact of the IRA), China possesses a much greater installed and future capacity 1 000 GWh in 2022 compared with 140 GWh in Europe and 75 GWh in the United States These figures should rise to more than 3 000 GWh in 2030 for China and around 1 000 GWh for Europe and the United States.
- Finally, from a technological point of view, China dominates the production of LFP batteries, the most advanced chemistry in the race for fast recharging which is around 20% cheaper than NMC technology, key elements in the development of a mass market for electric vehicles.
As a result, with 5 million units sold by 2022 (65% of the total), China dominates the global market for electric vehicles.
Decoupling from China in the electric vehicle value chain remains a key objective of plans to support the ecological transition in the United States and Europe. Relocating production seems an achievable goal in the long term, but dependence on China for raw materials (particularly for Europe) and upstream of the value chain ( cathodes) risks limiting the move to assembly tasks.
OUR EXPOSURE TO THE ELECTRIC VEHICLE VALUE CHAIN IN CHINA
We are currently invested in BYD a group vying with Tesla for world leadership of the electric vehicle market. By producing its own batteries and the accompanying Battery Management System, BYD is following a highly vertically integrated strategy, enabling it to lower the break even point for its vehicles by around 30%. Most of its revenues are still generated in China (>55%), but the group is expanding rapidly in other Asian markets (Japan, India, Thailand) and, for the past two years, in Europe.