Shortage of charging stations in European electric vehicle industry
The European Union, China, and the United States are all promoting electric vehicles. Starting from 2035, all new passenger cars and light commercial vehicles sold in the European Union must be zero-emission. In August 2022, the United States launched the Inflation Reduction Act (IRA), which includes tax incentives for electric vehicles. China has been supporting electric vehicle manufacturers for over a decade.
In Europe, electric vehicles have enjoyed strong growth momentum, with a pure electric vehicle and plug-in vehicle market share of 22.9% in 2022. The market share of newly registered electric vehicles is highest in Northern Europe. However, electric vehicles still have a relatively low market share in Eastern and Southern Europe. High purchase prices, low incomes, and underdeveloped charging infrastructure are contributing factors to this situation.
In China, electric vehicles accounted for nearly 28% of total vehicle sales in 2022 (pure electric vehicles and plug-in vehicles). German brands have a relatively low market share in electric vehicles in China (just 5% in 2022).Chinese manufacturers have a larger presence in the Chinese market. German automakers may continue to strive to protect or expand their market share in the high-end automotive sector in China. Intensifying competition in the mass production segment may not make much sense for German automakers, as China is already ahead in terms of economies of scale and consumer acceptance may already be high.
Electric vehicles are still a niche market in the United States, but the regulatory framework has improved. German brands have a significant market share in the U.S. electric vehicle market, accounting for 11% in 2022.
In many low-income countries, electric vehicles still do not play a major role. Power shortages or abundant local supply of biofuels reduce the potential for a rapid transition to electric vehicles.
Policy support in the electric vehicle industry
In many key automotive markets, policy support aims to increase the share of electric vehicles. In the European Union, starting from 2035, all new passenger cars and light commercial vehicles must be zero-emission. Meanwhile, many EU countries are promoting the purchase of electric vehicles or expanding charging infrastructure.
In the United States and China, the roadmap for electric vehicles is also being formulated. As part of the Inflation Reduction Act in August 2022, tax incentives for electric vehicles will be extended until 2032.
In China, electric vehicle manufacturers have benefited from policy support for many years. As a result, the proportion of electric vehicles in total sales in China is high. Electric vehicle manufacturers used to receive subsidies. Additionally, in China, consumers have various tax incentives or direct subsidies when purchasing electric vehicles, both in the past and present. China's subsidy policy is primarily driven by industrial objectives. It aims to strengthen the competitiveness of domestic manufacturers in the emerging electric vehicle market and compete with competitors from Europe, the United States, Japan, and South Korea.
Meanwhile, electric transportation contributes to reducing air pollution within cities. Overall, governments worldwide are committed to helping reduce CO2 emissions in the transportation sector by electrifying the transportation sector.
Europe: supply chain disruption due to outbreak
Since reaching its peak in 2019, new passenger car registrations in Europe have steadily and significantly declined. While there were 15.8 million new passenger car registrations at that time, by 2022, this number had dropped to 11.3 million, a decrease of nearly 29% This decline can be attributed to multiple factors on both the demand and supply sides.
On the demand side, European consumer purchasing sentiment was initially suppressed by the pandemic. Since 2022, rising energy prices, inflation concerns, and increasing interest rates have also had a negative impact on car consumption in Europe. Additionally, global supply chain disruptions have hindered global passenger car production.
From the past to the present, the pandemic and its subsequent effects, geopolitical issues, and other external shocks have been major challenges faced by the industry. In the automotive industry, supply bottlenecks for intermediate products have not been fully resolved. The most notable example is the semiconductor shortage. At the onset of the pandemic, the industry canceled existing orders due to anticipated demand decline. With increasing global automotive demand and rising demand in the consumer electronics sector, the semiconductor industry's capacity has been highly utilized. To cope with material shortages, the automotive industry has focused on producing high-profit vehicles while significantly reducing production in more competitive segments.
Despite the overall decline in total new car registrations in Europe in recent years, the number of new registrations for electric vehicles has been steadily increasing. In 2022, there were less than 2.6 million new registered electric vehicles in Europe, representing a 14.6% year-on-year growth. This includes nearly 1.6 million pure electric vehicles (BEVs) and 1 million plug-in hybrid electric vehicles (PHEVs). This has also increased the market share of electric vehicles in total new passenger car registrations to 22.9% in 2022, compared to 19.2% in 2021.
In 2022, the market share of pure electric vehicles in Europe reached close to 14%, up from 10.3% in 2021.
In addition, the charging infrastructure in most European countries is still incomplete. According to a news release by ACEA in the summer of 2022, the Netherlands and Germany together account for almost half of all public charging points in the European Union. However, the electric vehicle market growth in Eastern and Southern European regions has been slow. In Eastern and Southern Europe, the situation is unlikely to improve rapidly without subsidies for electric vehicles and expansion of charging infrastructure. The highest share of electric vehicles is found in Northern Europe, where residents' income is also higher than the average level.
Over the past year, many countries have focused government support on pure electric vehicles, while subsidies for plug-in hybrids have been reduced, and hybrid new energy vehicles are now seen as the mainstay of sales in some countries.
For electric vehicle production in Europe, the supply of batteries or raw materials for battery production is important in the medium to long term. So far, China has been the main supplier in this field.
China is the largest producer of raw materials for clean energy technologies and, in addition, dominates the market for battery components and batteries (according to the International Energy Agency, China's market share is around 75%). According to the German Federal Statistical Office, in the first quarter of 2023, 39% of lithium-ion batteries imported into Germany came from China, and 28% of electric vehicle imports came from China.
Many car and battery manufacturers have announced that they will invest in battery plants in Germany and other European countries to reduce their dependence on Asia, especially China. However, German automakers have announced that they will specialize in producing certain electric vehicles in China and exporting them from there to Europe.
China's Passenger Car Market Continues to Recover
In 2022, China's automobile sales exceeded the previous two years. Compared to 2021, China's passenger car sales increased by 9.5% in 2022. In absolute terms, China's passenger car sales grew from 21.5 million units in 2021 to 23.5 million units. As a result, China further expands its position as the world's largest automotive market. It is noteworthy that despite the previous impact of the epidemic, China achieved growth in production in 2022 and 2021, which had an impact on production and demand.
Conclusion: Subsidies and institutions remain important and competition has become more intense
Electric vehicles continued to expand their market share in China last year. The share of pure electric vehicles in total passenger car sales expanded from 12.7% in 2021 to 21.3% in 2022, while the market share of plug-in hybrids more than doubled from 2.8% to 6.4%.
Over the years, policies introduced by the Chinese government have played an important role in the development of the electric vehicle market. For example, direct subsidies for EVs have been in place for many years and are now accompanied by related tax breaks. At the same time, the "point system" provides incentives for the production of new energy vehicles.
However, the market share for electric vehicles in China is rather low for German brands, which for many years had a fairly high market share of around 23 percent of passenger car sales in China. However, this falls to 20.5% and 19% by 2021 and 2022, respectively. This may be due to the fact that German manufacturers are more severely affected by upstream product shortages than their local competitors, while Chinese manufacturers dominate the volume segment to a greater extent.
German manufacturers are even more underpenetrated in the fast-growing electric vehicle segment compared to the market as a whole. One reason for the low market share is the higher average price of new electric vehicles produced by German manufacturers, whereas electric vehicles from Chinese manufacturers are much cheaper and more affordable. In the new energy vehicle segment, the lead of Chinese manufacturers in terms of economies of scale and customer acceptance may already be too great. In addition, competition from U.S. automaker Tesla cannot be ignored.
It is important that German automakers may continue their efforts to protect or expand their market share in China for high-priced models. To this end, German automakers may expand their partnerships with Chinese suppliers and further localize in the Chinese market. There is a long tradition of cooperation between German and Chinese automakers. The establishment of new collaborations and the strengthening of existing research and development should help to better realize product development and meet the needs of customers in the various sub-markets.