How to address the Chinese electric vehicle issue in 2021?

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For several years now, the electric vehicle has been a subject on which passion prevails and where faith too often plays a more important role than reason. In this context, there is the fear of being taken for a ride by Chinese competitors who, under the guise of decarbonisation, would have invented with their administration a war machine intended to dominate us or even to oust us. The reality is not so caricatured.

For those who fear the invasion of Chinese cars in Europe, the figures for the last two years are somewhat reassuring. They allow us to propose a slightly renewed analysis of the question: a manufacturer's presence in China is vital not only to access the volumes of the world's largest market but also to become part of a teeming ecosystem of innovation which will very probably act as an accelerator of the learning process necessary to accomplish the electric revolution which is only just beginning.

The year 2020 may have sounded to some people like the year when the discourse heard for years about the ultra-domination of China, its market and its manufacturers and battery manufacturers in terms of electric vehicles received its first denial: in 2020, global sales of EVs grew by 43%, but they only grew by 12% in China. It was Europe, with 137% growth, that had driven the growth. The result was that in 2020 more EVs were sold in Europe (1.4 million) than in China (1.34).
In total, last year, worldwide EV sales reached 3.24 million vehicles: they represented 2.5% of the market in 2019 and 4.2% in 2020, according to EV-volumes.

The same site predicts, for 2021, on the basis of the figures for the first half of the year, an acceleration in growth that would allow 4.4 million BEVs to be sold this year. Other analysts, such as IDTechEx, believe that, given what we have seen up to September, we could exceed 5 million BEVs this year (including only passenger cars).

If the forecasts are like this for 2021, it is primarily because growth in China has resumed at a much faster pace: in the first half of the year, sales of NEVs (New Energy Vehicles, i.e. BEVs + PHEVs) grew by 197% and reached 1.15 million, i.e. 19% of the market (15% for BEVs and 4% for PHEVs).
Nevertheless, Europe continues to follow China's lead: on the same basis, the electrified vehicle market grew by 157% in the first half of the year and sales would have reached 1.06 million. The US remains far behind with 297,000 units but growth is similar (+166%).

Since the Chinese market is clearly larger than the European and American markets, China will retain an advantage in terms of volume, but over the last two years this advantage has not been so overwhelming and the spectre of the European, Japanese or American car industry being jeopardised by Chinese-dominated electrification is not necessarily receding, but merits a little closer examination.

Indeed, as we know, Chinese manufacturers only control a part of their market and let certain large global manufacturers capture a fairly large part of it. Conversely, for the time being, Chinese manufacturers' access to the European or American markets is theoretically possible but de facto very limited. In this context, as far as EVs are concerned, the volume argument seems likely to play at least as much of a role for GM or Volkswagen if they are able to sell these vehicles in China as it does for local manufacturers such as BYD, Great Wall, SAIC or Changan, which are also very (too?) numerous: if VW's ID.3 or ID.4 If VW's ID.3 or ID.4 manage to find as many customers in China as they do in Europe, then, just as we have seen the European market catch up with the Chinese market, we will see many more EVs from the major European, Japanese, Korean or American brands in the world's Top 10 or Top 20, and the analyses developed up to now will seem outdated

In a way, it can be argued that VW's strategy over the past six years (the revelation of the rigged tests in the US dates back to September 2015) has been precisely to preserve its chances of succeeding with a "global" organisation by promoting technology that would be seen as desirable in both China and Europe.

Indeed, by succeeding in obtaining this sort of alignment from Brussels to Beijing, the manufacturer could value the same R&D efforts and continue to sell the same products here and there. For the moment, in 2021, if we look at the top 10 EV sales in China from January to August, it is not fully conclusive. Indeed, the first three places are certainly occupied by Americans with, in first place, GM's Wuling Hong Guang MINI EV (which forms the SGMW JV with SAIC and Wuling) which totals 253,704 sales and, in second and third, the Tesla Model 3 and Model Y (92,755 and 59,900 sales). But the next seven places are occupied only by Chinese models of six different brands with sales over eight months ranging from 37,000 to 50,000.

Globally, over the same period, VW's strategy since the launch of its two flagship battery electric models seems to be paying off: the ID.4 is in 4th place (behind the Wuling and the two Teslas) and the ID.3 is 8th. With respectively 60,000 and 45,000 sales over 8 months, VW is still far from reaching the scales of the Passat or Golf but surpassing Tesla and BYD, SAIC or Li Xiang does not seem out of reach: the die is not cast and, in terms of brands, if Tesla, SGMW and BYD are ahead, VW, BMW, Mercedes, Audi, Volvo, Kia and Hyundai follow. SAIC is certainly in the middle, but we cannot seriously claim, in view of the figures for October 2021, that the story being written is one of unshared Chinese domination: it is very difficult to detect the equivalent of a Huawei in the world of telecom equipment in the EV world.

In this perspective, we must nevertheless dwell on the case of SGMW and its famous Hong Guang MINI EV. Indeed, if this model allows us to affirm that, in spite of everything, GM manages to place itself very well in the electric race, it is obvious that it is with a very different (even opposite) strategy to that of VW.

VW is global and tries to make sure that what is designed in Germany and aimed primarily at European markets can be adapted as best as possible to other regional contexts. GM is not - and never has been - betting on internationalisation that what is true in North America will also be true in Brazil, Europe, Korea or China. In order to be in phase with the local markets and social and industrial conditions, GM is buying up local players such as Opel, Vauxhall, Saab or Daewoo and, in China, is developing with SAIC not only the production of models from the European, American or Korean catalogues of its different brands but also 'Chinese' brands and models such as those sold with great success under the Wuling or Baojun brands or like the best-selling electric car, the Hong Guang MINI EV. In academic articles, it is said that GM is not "global" but "multi-domestic": GM tries to appear - and behave - as a "local of the stage" in different regions.

This strategy can lead us to consider that there are ways of seeing and doing things in terms of EVs, products, services, batteries and their control software that are, in China, abundant and adapted to the creativity that will be needed for several years to come in order to succeed in this "electric revolution" that has barely begun.

Even if in China, as in Europe and now in the United States, it has now been decided that this revolution will take place, it is not possible to say today, at the technological level as well as at the level of products or services, which of the paths tested will stabilise in the different social, geographical or energy contexts.

VW is betting that the key question remains that of volumes and the least that can be said in view of the history of the automobile is that there are very serious reasons to make this hypothesis and to do everything to maintain its presence in China in this perspective. In fact, GM is playing China as a kind of electric innovation ecosystem where we manage to do things on a very large scale that would not be possible elsewhere.

The Hong Guang MINI EV is an illustration of the relevance of this other way of looking at things: if the model's journey to Europe or elsewhere goes well (as that of the Dacia Spring seems to be going well), then, without invalidating the global strategies, we can say that the second way of approaching the Chinese issue is at least as virtuous as the first.

18/10/2021

The weekly column by Bernard Jullien is also on www.autoactu.com.

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