Will China Continue to Dominate the Electric Vehicle Industry?

China has opened a significant lead as the world’s biggest maker of electric vehicles (EVs). Chinese EV brands account for about half of all EVs sold globally.  Chinese EV makes have succeeded in taking domestic market share from former leaders, such as Volkswagen, and China’s BYD Co (BYDDY) is challenging Tesla (TSLA) as the world’s biggest EV company. In addition to the lower cost and advanced technology of Chinese-made EVs, the country also dominates the EV supply chain in ways that will make it difficult for manufacturers elsewhere to compete.

The world’s largest EV market is China, which continues to grow.  EV sales accounted for a quarter of all new passenger car sales in China in 2022, which rose to 37% in September.  UBS predicts that China’s global EV market share will almost double to 33% by 2030, while Western carmakers will see their share fall to 58% from 81% in 2023.  UBS said China’s BYD Co had a 25% cost advantage over North American and European brands and that Western automakers could continue to lose market share because of the rise of cheaper Chinese EVs.

China's main advantage is EV batteries, the most expensive part of an EV.  China has more than an 80% share of the world’s lithium-ion battery capacity backed by a supply chain that is putting the mining and processing of component materials such as lithium, cobalt, manganese, and rare earth metals in the country’s hands.  According to BloombergNEF, China’s battery packs come in at $127 per kilowatt hour on a volume-weighted average basis, while prices in North America are 24% higher and 33% higher in Europe.  Also, Chinese manufacturers are already unveiling a new generation of EV batters that rely on sodium, which is more abundant than lithium and less prone to catching fire.

Other countries are playing catch-up to China in the race for global EV dominance.  In the U.S., President Biden’s Inflation Reduction Act announced $55.1 billion for U.S. battery manufacturing and $16.1 billion for EV factories.  In Europe, Germany, France, and Spain have announced a flurry of their own tax credits and aid packages for EV investments.  European automakers, including Volkswagen, Stellantis, and Renault, are retooling their car factories to transition to EV production and are setting up battery plants as they shift away from vehicles powered by internal combustion engines.

The stakes for the future of EV sales are enormous.  BloombergNEF forecasts the cumulative value of all forms of EV sales will climb to $8.8 trillion globally by 2030 and $57 trillion by 2050 in its base case scenario. That could jump to $88 trillion by 2050 if the world ditches internal combustion vehicles even more quickly. BloombergNEF said, “The automotive sector is a major source of manufacturing jobs, R&D investment, and innovation, but not everyone is going to make this transition smoothly. It’s all up for grabs, and nobody wants to be left behind.” 

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.