Key Takeways
-
China is expanding its presence in the European electric vehicle (EV) market, supported by a strong value chain and government backing. As Europe aims for a ban on new internal combustion engine vehicles by 2035 to achieve carbon neutrality by 2050, the challenge lies in whether European automakers can match the pace set by Chinese competitors.
-
The European automotive market is still heavily reliant on internal combustion engine vehicles, constituting about half of the sales in 2024. Moreover, battery electric vehicles (BEVs) currently account for only 13.5% of total sales, necessitating a growth rate of 14% to meet the EU’s goal of 100% BEV sales by 2035.
- Chinese manufacturers boast advanced technological expertise and a comprehensive value chain in the EV sector. With considerable support from the Chinese government, they have aggressively reduced production costs, making their EVs much cheaper than those in Europe, posing a significant challenge for European manufacturers striving to replicate the success of the U.S. and Japan.
China is rapidly expanding its footprint in the European electric vehicle market, leveraging a highly integrated value chain and strong government support. As Europe strives to meet its 2035 zero-ICE sales target, can its industry keep pace, or will Chinese automakers take the lead?
Europe’s 2035 challenge: a race against time
In June 2022, the European Parliament voted to ban the sale of new Internal Combustion Engine (ICE) vehicles within the European Union (EU) from 2035. The objective is to achieve carbon neutrality by 2050 by drastically reducing emissions across several sectors, including transport. The latter contributes 60% of the greenhouse gas (GHG) emissions in Europe. This deadline poses significant risks to the automotive industry on the Old Continent, particularly to European car manufacturers.
On the one hand, the European automotive market is still predominantly dominated by Internal Combustion Engine (ICE) vehicles, which account for about half of sales in 2024. In addition, hybrid (HEV) and plug-in hybrid vehicles (PHEV), which have experienced significant sales growth in Europe, represent 38% of sales in 2024. Only battery electric vehicles (BEVs) will be allowed for sale starting in 2035, but currently, more than 85% of car sales do not comply with this regulation. Furthermore, BEVs ranked only third (by powertrain) with 13.5% of total sales in the past year. Achieving the EU’s goal of 100% BEV sales would require an annual growth rate of 14% for BEV sales starting from this year—well above the -5% achieved in 2024 compared to the previous year.
China’s Strategic Advantage in the EV Sector
On the other hand, several Chinese automotive companies—both manufacturers and suppliers—have acquired considerable expertise, particularly technological, in the electric vehicle (EV) segment. Widely supported by Beijing (chart 1), Chinese battery and electric vehicle manufacturers have developed a robust value chain since the 2000s, spanning from the mining sector (upstream) to the final manufacturing of EVs (downstream).
China is a major global player in the extraction and supply of essential raw materials, owning numerous mining assets abroad and producing, for example, around 60% of the world’s refined lithium supply.
Data for the graph in .xls file
Sources: Center for Strategic and International studies (CSIS), Coface
The establishment of an extensive vertical value chain—integrating extraction, refining, and manufacturing—along with financial backing of the Chinese central government, has allowed the rise of a leading Chinese electric vehicle sector. Chinese manufacturers have developed a wide range of products, improved production capacities, and invested heavily in research and development. In response to intense domestic competition and a price war within the Chinese market, manufacturers have progressively lowered their production costs, and consequently, their selling prices. EVs sold in China are therefore two to three times cheaper than those sold in export markets.
Can Europe Replicate the US-Japan Model?
From a European perspective, there is an evident risk of domestic…
