China’s Battery EV Prowess Disrupts US & EU Car Makers
The European electric vehicle (EV) industry faces significant challenges, including slowing demand and intense competition from Chinese EV and battery manufacturers. Chinese manufacturers produce more than 60 percent of the world’s EVs and 70 percent of its EV batteries.
New data from the European Automobile Manufacturers’ Association (ACEA) reveals a 4.9 percent year-to-date decline in battery-electric vehicle sales across the European Union. While overall car registrations in the EU have remained stable in 2024, this downturn in the EV sector suggests a potential shift in consumer sentiment, prompting questions about the long-term trajectory of electric mobility.
In the U.S., EV sales reached a record high in Q3 2024. EV sales were up 11 percent year-over-year, totaling 346,309 sales in the third quarter, according to CarEdge.com. At the same time, the U.S. wants to reduce its reliance on goods and materials from China, and a new administration could help or hinder EV sales in that nation.
Due to lagging demand and other challenges, European automakers are facing severe downturns. Ford has announced plans to reduce its workforce by 4,000 jobs in Europe and to scale back production of its electric SUVs, citing decreasing demand and intensified competition from companies based in China.
Dave Johnston, Ford’s European vice president for transformation and partnerships, said:
It is critical to take difficult but decisive action to ensure Ford’s future competitiveness in Europe.
Like other European automakers, Volkswagen faces growing competition from Chinese companies in the EV market. The company is experiencing financial difficulties, reporting a 42 percent drop in profit in the third quarter of 2024. These difficulties have led the company to consider drastic measures, including shutting down as many as three auto factories in Germany, which would be unprecedented in the company’s 87-year history.
Northvolt’s collapse
The recent bankruptcy of Northvolt, once hailed as Europe’s battery champion, further complicates the situation. The company, founded in 2016 by Peter Carlsson, a former Tesla executive, filed for bankruptcy protection in the U.S. after struggling to ramp up production at its sole factory in Sweden. Despite securing over $15 billion in funding from investors and governments, including a €5 billion loan from the European Union, Northvolt ultimately succumbed to mismanagement, overspending, and an over-reliance on Chinese machinery, components, and materials. One such component, graphite, critical for lithium battery production, has been under strict control by the Chinese government, blocking exports to Sweden.
Northvolt CEO Carlsson admitted to overspending and challenges in ramping up production. He stated,
The Chapter 11 filing allows a period during which the company can be reorganized, ramp up operations while honoring customer and supplier commitments, and ultimately position itself for the long term.
Carlsson resigned a day after the bankruptcy filing.
The company’s collapse has left European automakers heavily reliant on a shrinking pool of battery suppliers, particularly Chinese companies like CATL and BYD. This reliance could lead to higher prices for electric vehicles in Europe.
Gene Berdichevsky, CEO of Sila, a company that makes advanced battery materials, observed,
The world grossly underestimated how hard it is to make batteries. We are going to shake out to fewer players.
China’s dominance of supply chain and critical minerals
China’s EV battery supply chain dominance is a significant concern for European automakers. China produces over 70 percent of the world’s lithium-ion batteries and holds a similar share in refining, processing, and manufacturing. The country also controls crucial minerals such as cobalt and graphite. This dominance has made Western manufacturers reliant on Chinese-sourced components, leaving them vulnerable to supply chain disruptions, price fluctuations, and potential political tensions.
Ouyang Minggao, a leading figure in China’s EV battery industry, predicts a massive expansion of this sector despite current overcapacity. He believes the industry could be worth 10 trillion yuan ($138 billion) in the future. Ouyang attributes the potential for growth to the wide range of battery applications:
Batteries are used in vehicles, energy storage, and consumer electronics. Around 94 percent of novel energy storage solutions rely on batteries.
In 2015, when electric vehicles were considered “hopeless and could only rely on subsidies,” Ouyang anticipated that pure electric vehicles would be able to compete with fuel-powered vehicles by 2020, even without subsidies.
He cautions, however, that Chinese companies should prioritize profitability and avoid excessive investment in technologies that have yet to prove mainstream. Ouyang also acknowledges the intense competition in the battery industry, noting that overcapacity arises quickly in any sector perceived as “hot” in China.
Furthermore, China’s control over critical raw materials and advanced technologies restricts Western manufacturers’ ability to compete effectively. Some analysts believe China’s export restrictions on minerals like gallium and germanium are an attempt to negotiate with the U.S., Europe, and Japan to lift the export ban of semiconductor manufacturing equipment to China.
The threat of the second Trump administration
The upcoming second Trump administration, with Elon Musk playing a pivotal role, could further complicate the landscape for European automakers. Zheng Yongnian, a Chinese policy advisor, suggests that the second Trump administration, with Musk’s influence, could lead to a more efficient and competitive U.S. system.
Musk’s role could pressure China and Europe in the global EV market, Zheng warned. Musk has already outlined plans to cut government spending and staffing as Trump’s “efficiency tsar.”
Zheng said,
A more efficient U.S. political system would put huge pressure on China’s current system,
“Of course, the pressure is not exclusive to China but also others, especially Europe.”
At the same time, Trump’s threat to aggressively increase tariffs on Chinese exports to the U.S. would increase the cost of batteries, components and materials widely used in EV manufacturing in the U.S. and Mexico. He’s also threatened to impose tariffs on goods from Mexico, which exports cars to the United States.
To address the European EV industry’s challenges, automakers and policymakers must invest in research and development to create differentiated battery technologies, explore alternative battery chemistries, and reduce reliance on costly materials.
Additionally, strengthening domestic supply chains by fostering partnerships with countries rich in resources like lithium and cobalt while investing in recycling and sustainable sourcing practices is crucial for any nation seeking to reduce its reliance on Chinese goods. Diversifying supply chains to other regions, such as South America and Australia, can further mitigate supply risks.
Finally, the EU must navigate trade tensions with China through diplomacy, strategic partnerships, and fair trade practices while protecting domestic industries.
The future of Europe’s electric vehicle ambitions depends on addressing these complex challenges. If not addressed, there is a risk of relinquishing control of a vital industry to China and jeopardizing the continent’s objectives for a clean energy transition.
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China’s Battery EV Prowess Disrupts US & EU Car Makers, source
