Comparison of the Chinese, European and American regulatory frameworks for the transition to a decarbonized road mobility

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Type de publication:

Report

Auteurs:

Marc Alochet

Source:

X Institut Polytechnique de Paris / CNRS I3 (2023)

Résumé:

The electrification of mobility goes far beyond the mere conversion of thermal to electric powertrains and covers the entire lifecycle of a Plug-in Electric Vehicle (PEV). This is a very complex transition and a systemic innovation which involves the automotive industry and related sectors such as mining, chemicals, electric powertrain and battery pack manufacturing, energy, battery waste collection and recycling.
It is challenging the traditional balance of the global automotive industry. By the end of 2022, China accounted for 57% of the global share of sales, 60% of the global electric vehicle fleet, and 75% of global battery production capacity. Global players, who largely dominate ICEV technology, are now forced to catch up with Chinese electric vehicle manufacturers.
China's virtually unchallenged dominance to date is the result of a longstanding effort that began with the development of a rare earths value chain in the 1960s and the New Energy Vehicle (NEV) industry in the 1990s. It was fueled by:

  • The Chinese government's strategic determination to transform the world's leading auto manufacturer into the country that dominates the global auto industry (Made in China 2025).

  • A focus on BEVs since 2012.

  • The promulgation of regulations to force vehicle performance improvements and increased sales

    year after year and the implementation of a “Administered Darwinism”1 to select the national

    (and future global) champions who will lead the industry.

  • Large and simultaneous investments (at least €110-160 billion by 2022) in all the industries

    involved in the PEV lifecycle, from raw material mining to battery recycling.

  • Use of protectionism whenever it was necessary to help Chinese companies to overtake foreign competitors.
    In the US, the current momentum, if not abruptly halted following the 2024 election results, could lead to the creation of a very active manufacturing hub for the PEV value chain before the end of this decade thanks to:

    • The ambitious BEV and PHEV sales targets set at the federal level and in California2.

    • The high level of funding provided by the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) to all stages of the PEV value chain (around €10 billion per million vehicles sold per year for production and clean vehicle credits alone between 2023 and 2032).

    • The IRA and IIJA direct and immediate incentives to locally produce the components of the battery value chain and PEVs. The IRA, which combines tax relief with domestic content, confirms the protectionist tendency of the US, mainly to the potential detriment of Europe.

At a time when European automakers are heavily dependent on the Chinese battery value chain, Europe, the target of Chinese exports of high-value PEVs, has gaps in its regulatory framework to achieve the highly ambitious goal of 100% ZEV by 2035:

  • The forthcoming application of Euro 7, as originally proposed by the Commission, would divert funds from PEV development and could lead to the premature disappearance of ICEVs. The lack of compromise so far between the European institutions on future emission limits and testing procedures creates uncertainty for the industry and could jeopardise its future.

  • The lack of a systemic and coordinated approach to the regulatory framework leading to vehicle electrification. Most of the key regulations affecting the PEV value chain, have been proposed or entered into force only in 2023 while “Fit for 55” was first proposed in 2021. By setting a goal without defining how to achieve it, the Commission has put the cart before the horse.

  • The benchmarks used to develop and localise the battery value are not ambitious enough to compete with other regions (e.g.: at least 40% raw material processing capacity by 2030, while the IRA requires 50% in 2024 to qualify for the tax credit).

    From an industry perspective, we observe that:

  • All European automakers are now present at every stage of the PEV value chain and are implementing the complicated ZEV scale-up that lies ahead.

  • The impetus given to the production of battery cells by European champions could be bearing fruit as we estimate a production capacity of 1.1 TWh by 2030, with European, Korean and Chinese battery manufacturers taking 44%, 27.5% and 26.8% of the market share respectively.

  • The current pace of development in the European upstream battery value (materials processing and components production) chain is not sufficient to quickly reduce dependence on China.

    In the very short term, the European Commission should consider developing ad hoc regulatory and financial frameworks to ensure a level playing field between different regions and to give more impetus to the electric car industry. At the same time, member states must be prepared to continue supporting market uptake through financial and/or non-financial incentives while European automakers will need to show organizational ambidexterity3 to both continue to sell profitable ICEVs and rapidly develop high-value BEVs’ to compete with Chinese automakers.

    1 The innovation odyssey, lessons from an impossible project. Midler, C, Alochet, M, de Charentenay C, Taylor & Francis (2023)
    2 The state of California has the authority to enforce its own regulations on emissions from ICEVs and each U.S. state can choose to follow federal or California regulations. 17 states accounting for about 40% of new LDV sales plan to adopt Californian regulations
    3 Organizational ambidexterity refers to an organization's ability to compete in mature technologies and markets where efficiency, control, and incremental improvement are valued, and also to compete in new technologies and markets where flexibility, autonomy, and experimentation are required. O'Reilly III, C. A., & Tushman, M. L. (2013). Organizational ambidexterity: Past, present, and future. Academy of management Perspectives, 27(4), 324-338.

This report builds on previous (*) or forthcoming (**) work and expands the scope of the study. It considers regulations in China, the U.S., and Europe, and looks at the life cycle of plug-in electric vehicles from raw material extraction to battery recycling.

(*) Alochet, M., & Midler, C. (2021). A comparison of Chinese and European public policies on electric vehicles. Le journal de l'ecole de Paris du management152(6), 16-23.
(**) Midler, C., & Alochet, M (Forthcoming). When regulations shape the future of an industry, the case of the high voltage battery. IJATM special issue " From oil to electricity, are HV batteries changing the game for the automotive industry?"

Report official page:  https://portail.polytechnique.edu/i3_crg/en/publication-report-comparison-chinese-european-and-american-regulatory-frameworks-transition

ACEA press release on the report: https://www.acea.auto/press-release/eu-electric-vehicle-industry-risks-losing-ground-without-a-robust-eu-industrial-strategy-new-report-finds/

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