Electric Vehicles: An Industrial Opportunity for the U.S. or China, Not the EU

A systemic revolution for an industry that is just more than one hundred years old, this is how some editorials describe what the car manufacturing sector is facing this decade, and into the next ones, switching from internal combustion engines to electricity propulsion. Great, electromobility is likely one important solution to reduce the carbon footprint of road transport, but…

Climate experts insist action to fight climate change must take place here and now, in this decade, not in some distant future, and the full environmental impact of electromobility is unlikely to materialize any time soon. Not only do heavy industries take time to change, social acceptance also takes time, especially when the new offer is not immediately a “must have”, unlike the iPhone 14! There are many reasons for motorists not rushing to replace their ICEV by an EV. A major one is the price of the electric alternative, between one quarter and one third more expensive than the equivalent thermal model on our markets.

One of the reasons: The cost of manufacturing the battery is not reducing as quickly as expected. Breakeven between ICEV and EV keeps on receding to the future, 2030 now (it was 2025 not long ago), not good news for the small models where the battery is the largest element of cost, easily one third. The blame is put on materials (metals like cobalt, but also good old copper), but technology breakthroughs, the switch to solid electrolyte, synonymous of reduced cost, reduced weight, increased autonomy, faster recharge, improved safety, is slow to emerge as well, not before the end of this decade, according to the most optimistic technology developers.

In the meantime, and it has been going on for the last twenty years, cars have become more expensive, for many reasons: enhanced on-board safety, additional comfort equipment, and the trend toward bulkier and heavier SUVs, away from the traditional sleek sedans. Taken together, car manufacturers’ profitability has also improved, the race for volumes having given way to the race for margins, higher in the top segments, with a direct consequence that new car purchasers are more and more concentrated in the wealthier and older segments of the society. This is creating a somewhat fragmentation of the market, exaggerating: new cars in the top of the range and on the other end of the pool, small ones, quietly aging the “Cuban way”, according to one Member of the European Parliament.

As the electric revolution comes to the fore, the three main car manufacturing regions clearly face diverse challenges and adopt diverse strategies and policies, in a world that seems headed for a multi-polar, more regional than global, order:

• China: China is likely to benefit from the switch of ICEV to EV, the latter being less complex to build, allowing the Chinese car industry to avoid the arduous climb to match the century-old ICEV expertise of the West. Tailwinds abound for emerging Chinese EV manufacturers: EV provides an excellent answer to air quality improvement in large urban areas, though electricity is coming from coal, not so nice for the climate; Chinese production has to serve its internal and massive market, huge volumes bringing significant economies of scale, a prime driver for the car industry from the beginning; price considerations from the government, a social decision, favor the production of small cars, which will be competitive on export markets; China has extensive control of the value chains of the materials, that are key to build EVs, and of elements, like batteries, a major cornerstone of any EV, which production is concentrated in China, Korea and Japan, and just an idea, let us say a project, for the time being in the West.

• United States: The U.S. may not be such an easy market for the Chinese exports. Not only is there a legacy car manufacturing industry, General Motors, Ford, ready to reinvent itself around electromobility and fight foreign imports, there is also a strong tradition to drive big cars. Add to that the Inflation Reduction Act, limiting EV purchase subsidies to American-built vehicles and batteries — what else do you need to make the U.S. an autonomous island for locally-built and driven EVs? And not mentioning the energy independence of North America, in fossil and bioenergy, which could justify some ICEV resilience as well.

• European Union: What about the third market, the EU, where cars were invented in the 19^th century? Alas, challenges pile up. Europe is positioned in-between the two major super-powers. It is open to any free-trade wind (which are not the trade winds of the European colonial expansion of the past centuries, rather head-winds for the European industry). The Western Europe-based legacy car industry has recently become addicted to top-of-the-range margins and to outsourcing of its production of small cars in less well-off neighboring countries. And the EU is incapable, by construction of 27 Member States with different commercial cultures, to find a decent mutual political response to the U.S. protectionism.

Last, but not least, inflation has hit, thus impoverishing even further the middle and lower classes. And the continent has steadfastly de-industrialized, an ongoing fate of the last forty years. End of globalization re-shoring could have been an opportunity, but does anyone seriously believe today the EU car manufacturing industry can be up to the electromobility task, facing cheap Chinese imports of small EVs and limited commercial possibility of export to the U.S.? More likely, the future of EU road transport will tell a sad story of dwindling sales in the top-of-the-range segments, small volumes with hefty margins, Ferrari or Aston-Martin like, and a mixed bag of ageing ICEVs and EV Chinese imports in the smaller segments.

Is it sunset for the car industry in Europe?

Philippe Marchand is a Bioenergy Steering Committee Member of the European Technology and Innovation Platform (ETIP).