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https://www.linkedin.com/pulse/global-auto-giants-team-up-chinas-tech-providers-share-kumud-goel-r3jac/?trackingId=ZmyzSDIqv2uhizJNe%2BIr0w%3D%3D

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https://techcrisp.org/global-auto-giants-team-up-with-chinas-tech-providers-for-a-share-in-worlds-largest-car-market/

As the Paris Accord outlines, solar panels, DC to AC power inverters, lithium power storage, and electric vehicles will significantly help limit global warming to 1.5 degrees by 2050.

Chinese government and companies have been actively involved in these sectors for around fifteen years. Today, China is the largest producer of solar panels, power inverters, lithium power storage, and electric vehicles.

China has invested heavily in green energy, securing Lithium and Cobalt mining operations in Chile, Australia, and the Democratic Republic of Congo. Chinese companies like CATL and BYD have significantly invested in processing lithium, cobalt, manganese, and nickel and developed advanced lithium-ion and LFP technologies. China now dominates 80% of the global market for lithium batteries.

A dozen Chinese EV companies have emerged in the past decade, particularly after Tesla began building its EV facilities in 2017.These companies did not have any experience in the automobile sector. Nor were they saddled with existing plant and machinery. They had the benefit of starting from first principles. BYD, a significant lithium battery producer,has become the world’s largest player in the EV market in just a few years.With no history in automobiles, smartphone company Xiaomi has launched a high-end software feature-rich EV. At the Beijing Car Show in May 2024, the world was amazed to see Chinese companies unveiling a range of stylish,feature-rich EVs at affordable prices.

US, European, and Japanese automakers, with decades of experience and billions of dollars invested in Internal Combustion Engine (ICE)based cars, found themselves in an Innovator’s Dilemma. They were making record sales and profits from existing businesses. It was essential to keep selling cars with internal combustion engines (ICE) and continue investing in ICE technology and new plants. The pressure of quarter-after-quarter growth distracted them from focusing on research and development (R&D) for electric vehicles (EVs). They also lagged in AI-based Autonomous Driving, in-car entertainment, and software-based mobility platforms.

They, their partners, and even their countries should have made more effort to partner with Lithium and Cobalt mining companies and invest in processing technology and cell manufacturing.

Approximately thirty percent of the cost of an EV is attributed to Lithium batteries. Even pioneers like Tesla use lithium cells made by CATL (China), while Ford has licensed technology from CATL to make batteries.

Meanwhile, EV sales in China have surged. Although the demand for EVs in the US and European markets has been lukewarm recently, the long-term outlook favors EVs as charging infrastructure expands and countries face pressure to reduce carbon emissions.

Here is what some leaders in the automotive industry are saying.

In a recent interview with Bloomberg, José Muñoz, Hyundai’sCOO, was asked, and I quote.

“You were just in Beijing for the car show. What were your impressions?

I was already impressed six years ago, and now I’m super impressed.

I don’t think the Chinese are copying others anymore — they have their own technology, their own strategy. They may get influenced by what happens in the industry, which is normal. I was really impressed with the evolution of the brands, the designs, the quality, the technology, the amount of variants,options — wow, very serious.

There’s a huge focus on EVs. Everywhere else in the world, people are wondering, ‘Is this going to stick? Is it really going to be the reality of the future?’ I think for the Chinese, it’s a fact.

That’s a consequence of trying to bring to market not just a mechanical device that is moving people with some software, but software on wheels. For that, electric vehicles are definitely a much better platform. That was my No. 1 conclusion. There were many different brands that have different approaches to going to market, but that was the constant.

When you see the technology and what they do, I think they are now beyond. I think they’re pioneers in some domains and definitely ahead compared to European, American, and even Asian brands”.

Hyundai is the third largest auto company after Toyota and Volkswagen.

In May this year, Toyota CFO Yoichi Miyazaki said, “We’ll have to continue enduring for several years until we have more battery EVs to offer.” CEO Koji Sato said the company plans to expand AI-related investments and will focus this year on building a strong foundation for software-defined vehicles.

“We have to change our ways to compete with companies like BYD,” said Nissan’s Uchida.

“The buzz these days is software-defined vehicles,” said Bloomberg Intelligence analyst Tatsuo Yoshida, in which Chinese automakers are well ahead. ForJapanese companies, there’s “no time to lose,” he said. New EVs have often been described as “Software on Wheels.”

Western and Japanese companies must reinvent themselves. This will require investments, time, and deft political manoeuvring. For the moment, the following strategies have been adopted by different countries and companies.

FortressAmerica

President Biden announced a 100% tariff on electric vehicle (EV) imports from China to protect US auto companies. Tariffs on solar panels from China have been increased from 25% to 50%, and for EV batteries, increased from 7% to 25%. The US government is also pressing Mexico to cancel plans by Chinese company BYD to set up an EV plant primarily for exports to the USA. The US is also pushing the EU to raise EV tariffs from the present 10% to 30%.

The Inflation Reduction Act (IRA) of 2022 significantly supports electric vehicles (EVs) in the United States. The IRA extends the New Clean Vehicle Tax Credit,allowing up to $7,500 per new EV purchased through 2032. To qualify for the full credit, EVs must meet requirements related to the final assembly location,i.e., North America. There are grants and subsidies of about US$ 8 billion and tax breaks for providing EVs to the US Government, advanced research in energy,and charging infrastructure.

EU Procrastinates!

Since last year, the EU has been investigating the issue of Chinese government subsidies to EV manufacturers. On March 5th, the European Commission determined that it had enough evidence to conclude that China had unfairly subsidized its EV manufacturers, which could lead to higher tariffs.Ursula von der Leyen, the President of the Commission, cautioned China against engaging in a “race to the bottom” in the field of green technology.

The European Union imposes a 10% tariff on imported electric vehicles (EVs). China imposes a tariff of 15% on cars imported from Europe.

European leaders are extremely concerned about a potential flood of high-tech yet inexpensive Chinese EVs. Companies such as BYD have started exporting EVs to Europe, to the dismay of local companies.

There is speculation that the tariffs could be increased to between 25% and 30%.

Volkswagen and Mercedes, the largest European auto manufacturers, are against increasing tariffs. They have invested billions in manufacturing in China and entered into technology agreements with Chinese companies. China is currently the single biggest market for both these companies, especially in the ICE segment. There is fear of a backlash from China if tariffs are increased.

BMW, which has had more success selling EVs than its German rivals, warned that the EU’s plan to effectively ban new combustion-engine vehicle sales by2035 would hurt the industry. European regulators are set to review the policy in 2026.

Japanese – Smoke and Mirror.

Having realized they need to catch up in the EV and autonomous driving-AI race, Toyota, Honda, Nissan, and Mazda are promoting series hybrids and plug-in hybrids as energy-efficient, economical, and practical alternatives to electric vehicles (EVs).

Series Hybrid vehicles use conventional fossil fuels like gasoline, compressed natural gas (CNG), or ethanol. The fuel is burned in an internal combustion engine, which then powers an electricity generator that drives an electric motor to power the car. A battery stores excess energy and energy produced during regenerative braking. Hybrids are said to provide 30% better fuel efficiency than conventional cars.

Plug-in hybrids have an internal combustion engine and a larger lithium battery, which can be charged like an EV. Automakers highlight that hybrids can operate within a city with access to EV charging and can also handle longer journeys using the internal combustion engine, as gasoline stations are widely available.

The transition to battery-electric vehicles in the USand Europe is happening more slowly than expected, providing an opportunity for carmakers like Toyota and Honda, which have hybrid lineups, to accumulate funds that can be reinvested in the shift to fully electric cars. The Japanese government has set a goal of electrifying 100% of vehicles sold by 2035, encompassing hybrid cars.

US, Europe and Japan: Joint Effort.

A recent study by Influence Map, a London-based ThinkTank, published a report titled “Automakers and Climate Policy Advocacy: AGlobal Analysis” this month. The companies studied were Ford, GM, Tesla, TataMotors (Jaguar and Land Rover), Stellantis, BMW, Mercedes, Volkswagen, Renault,Hyundai, Nissan, Mazda, Toyota, Honda, and Suzuki.

They concluded that only Mercedes and BMW were working to meet Climate Policy Goals other than Tesla, which makes EVs. All other companies, especially the American and Japanese automakers, were lobbying hard in their countries and other markets to delay and weaken climate rules,including relaxation in emission norms.

European companies are lobbying that an EU resolution to ban IC engine-based automobile sales from 2035 be relaxed and Hybrid cars treated at par with EVs regarding climate goals and subsidies. Japanese companies are also pushing for the sale of Hybrids as a transition path to EVs due to a lack of charging infrastructure and cost economics.

China – Winner Take All.

Elon Musk was concerned about Tesla’s low sales and profits, especially in China. In April, during investor calls, he tried to reposition Tesla as an AI company that also manufactures electric vehicles. Following this, Musk travelled to China to seek approvals for Tesla’s Full Self-Driving (FSD) technology, which refers to Autonomous Driving. Musk met with the Chinese Premier during his visit and received an in-principal approval for FSD.

Even though it may not seem very important, Elon Musk’s visit was viewed as part of the Beijing government’s and local authorities’ broader effort to be more open to foreign investment. The Chinese government has been trying to convince foreign investors that its economy is open for business.

For the Chinese, there’s the added benefit of being seen as receptive to a prominent US business just after President Joe Biden signed into law a bill titled “Protecting Americans from Foreign Adversary Controlled Applications Act,” which requires TikTok’s parent company to sell its stake or face a ban from the USA. This move could be seen as a signal from Beijing highlighting the contrast between the Chinese government’s acceptance of foreign investors and an opposite stance in the US.

European and Japanese car manufacturers like Volkswagen, Mercedes, Stellantis, Toyota, Nissan, and others have a large customer base in China, the biggest single market for both Volkswagen and Mercedes and the second largest for Toyota. These companies have invested billions in manufacturing facilities in China and formed technology partnerships with Chinese companies.

They have realized that the EV ecosystem in China will help them be more competitive in the Chinese and export markets.

There is a growing feeling in Europe, amplified recently by French President Emmanuel Macron’s open support for the idea of “strategic autonomy” for Europe and the emergence of a “multipolar” world that is less dependent on America. Europe has significant investments in China. Germany and France alone export more than US$135 billion of goods to China.

Meanwhile,Chinese companies continue to expand their production base across global markets.

Brazil has attracted significant investments from Chinese electric vehicle (EV) manufacturers such as BYD and GWM (Great Wall Motor) to establish local production facilities. This is part of the government’s strategy to develop the domestic EV sector and position the country as a regional hub for electric vehicle manufacturing.

BYD is currently working on establishing a plant in Mexico to supply vehicles locally and in other markets in the region, including the US.

Volvo of Sweden is already owned by the Chinese automotive company Zhejiang Geely HoldingGroup (Geely Holding).

French President Emmanuel Macron is reported to have stated that France would have no objections should a Chinese EV manufacturer set up a plant in France.

BYD is setting up a plant in Hungary and scouting for putting in another plant in Europe.

Chery Automobile Co. plans to take over a former Nissan plant in Spain and use it for European production.

Turkey is currently in advanced negotiations with Chinese EV manufacturers BYD Co. and Chery Automobile Co. Ltd. for potential investments in the country. Additionally, negotiations are taking place with SAIC Motor Corp., the owner of MG, and Great Wall Motor Co.

Jetour, an associate of Chery, is establishing EV factories in Kazakhstan, Egypt, Myanmar, and Tunisia. They shall be assembling complete knockdown kits. Eight more plants are planned in the next five years.

BYD has manufacturing facilities in Thailand, and many Chinese companies are in the advanced stages of setting up plants in Indonesia, Vietnam, and the Philippines.

Adverse Impact on Globalization and Global Warming.

America’s tariffs on Chinese EVs are cause for concern.

The average worldwide tariff under the WTO is around 3-4%.  This has helped fuel a boom in international commerce. The more that countries open up, the more they flourish.

Today’s American firms fear competition from BYD’s Seagull, some versions of which cost less than $10,000 in China. Had US tariffs been reasonable, US customers would have benefited, and US automakers would have felt the pressure to reinvent themselves.

Increasing tariffs on EVs from China to 100 % will set a wrong precedent and be a blow to free trade and globalization.

Global warming is a significant issue facing humanity. USA’s actions will delay the adoption of EVs and perpetuate the use of fossil fuel-based ICE automobiles, setting a wrong example to the rest of the world.

In the global scenario,competition is fierce, and only the most resilient, adaptable, and well-positioned companies can survive and thrive. Just as natural selection dictates that organisms evolve to adapt to their environment, successful companies must evolve to stay ahead of the competition. US, European, and Japanese companies have been leaders in the automobile industry for decades and became over confident and complacent. Chinese companies were innovative, agile,and nimble. They proactively created state-of-the-art hardware and software for EVs at affordable prices. Increasing tariffs or backtracking to ICE-based hybrid cars may buy time, but it does not guarantee success.

One is reminded of Shakespeare’s play Julius Caesar, and I quote.

“There is a tide in the affairs of men, which, taken at the flood, leads on to fortune; omitted, all the voyage of their life is bound in shallows and in miseries.”