Volkswagen, the world’s leading automaker, has announced a $700 million investment plan for Xpeng, a growing Chinese electric vehicle (EV) maker. The aim of this partnership is to develop two electric car models that are specially tailored to the Chinese mid-range market. The move comes in response to growing demand for electric vehicles in China, the world’s largest auto market.
China’s growth in the electric vehicle sector underscores its dominance and control over the associated supply chains and represents a major shift in the global automotive industry. Other German automakers such as Mercedes and BMW are also considering moving their European electric vehicle production to China to take advantage of the country’s advanced electric vehicle technologies and low-cost supply chains.
China has become the world’s largest market for electric vehicles. More than half of the electric vehicles are on the road in China. This has made it difficult for global automakers to enter the Chinese market. For example, Volkswagen’s market share in China has fallen from its peak of 16 percent between 2008 and 2020 to around 10 percent in 2022.
On the other hand, EVs made in China are rapidly gaining market share. In 2022, China sold nearly 7 million electric vehicles, accounting for about 26 percent of new car sales, up 54 percent year-on-year. It is estimated that China’s electric vehicle production will reach about 8.8 million units by 2023, accounting for about 37 percent of new car sales. China has also become the second largest auto exporter after Japan, exporting more than 3 million cars, most of them electric vehicles.
In the past, European car manufacturers, especially German manufacturers, dominated the automotive industry with their first-class technology and quality vehicles. However, China’s transition to electric vehicles has given the country an opportunity to increase its market share and technology. Chinese electric vehicle brands are gaining momentum both domestically and internationally due to their cost-effective and innovative intelligent driving and entertainment solutions.
In order to compete with Chinese EV manufacturers, countries like Germany and Japan, which are known for their well-established supply chains in traditional automotive manufacturing, need to transform and reorganize their production processes. However, this transition will not be easy as it means forgoing important advantages in conventional car manufacturing and could have significant economic and employment implications.
On the demand side, too, Europe has developed into the second largest market for electric vehicles after China. However, higher manufacturing costs in Europe compared to China pose a challenge for the widespread adoption of EVs. Chinese-made EVs could potentially pose a threat to European automakers due to their lower cost and advanced features, leading to significant profit losses by 2030.
In summary, China’s dominance in the electric vehicle sector has the potential to disrupt the industrial structure in countries where automobile production is a significant contributor to the manufacturing sector. As Chinese EV manufacturers excel in cost-efficiency and advanced features, global automakers must look for more cost-effective solutions to compete effectively.