Europe under the wheels of Chinese electric vehicles

Relations aggravated the EU policy to "reduce risks" in economic relations with the PRC and overcome the deficit in trade, the correspondent of The Moscow Post reports.

The trade imbalance between the PRC and the EU countries is about $200 billion a year. According to Chinese customs, China's exports to the EU in the first 11 months of 2023 amounted to $458.5 billion, imports - $257.8 billion.

One of the reasons for this situation is that Europe is leading among other regions of the world in the import of Chinese-made electric vehicles. The EU accounts for more than a third of all Chinese exports of electric vehicles. The "contribution" of this category to the trade imbalance is tens of billions of dollars.

Not sure, don't buy

Tesla, MG Motor and BYD are the largest suppliers of electric vehicles from China and this business is growing very quickly. China exported 3.1 million vehicles in 2022, increasing volumes year-on-year by 54.4%, according to the China Association of Automobile Manufacturers.

In particular, 679 thousand cars were exported on new energy sources, which is 120% higher than in 2021. According to the General Administration of Customs of the People's Republic of China, in November 2022 alone, China exported $3.2 billion worth of electric vehicles to the EU, which was 165% higher than in November 2021.

In January 2023, China exported about 40 thousand electric vehicles to the EU, in October - already 60 thousand electric vehicles. For seven months of 2023, China delivered 2.8 million cars abroad, including 1.8 million cars with an internal combustion engine. Of the one million cars on new energy sources, 400 thousand units settled in the EU. Among the biggest buyers were Belgium and the UK, accounting for almost 70% of shipments.

In September 2023, the European Commission began investigating the provision of state subsidies for Chinese companies, including BYD, SAIC and Geely. "Punitive" duties on electric vehicles can be introduced in 2024, will be added to the import duty of 10%.

Electric car race

The West is annoyed that China is leading in the field of electric vehicles. Since the beginning of 2017, more than 18 million electric vehicles have been sold there, which amounted to half of global sales and four times higher than sales of electric vehicles in the United States.

According to Bloomberg, in 2022, 5.67 million electric vehicles were produced in the PRC - more than half of the global volume. It is expected that this figure will be up to 7 million electric vehicles, or about half of all cars sold in China in 2023.

According to the European Commission, the share of sales of Chinese electric vehicles in Europe has grown to 8% and may reach 15% as early as 2025. Prices for Chinese models are 20% lower than for European ones. By 2035, one in two electric cars on European roads are expected to be produced in China or other countries, but by companies with Chinese involvement.

The European Union initiated an anti-dumping investigation, but did not take into account that without Chinese graphite and rare earth metals, Europe, as well as America, cannot go far. Companies such as Volkswagen, BMW and Mercedes depend on Chinese partners. Chinese batteries are equipped with Tesla Model 3, Renault Dacia Spring, BMW iX3, Volvo and other models.

Do not spoil the relationship

By 2026, electric vehicles will account for more than half of new passenger car sales in the PRC. Exports are not lagging behind. It is estimated that in 2030 China will export 5.5 million cars annually, including about 3 million electric vehicles.

How many of them will "settle" in Europe, which promises to be a premium market?

The European Union plans to register only electric vehicles from 2035, as they say, there will be no exceptions for other drives.

But not so simple. The United States decided to slow down the development of the PRC technological sector, imposed restrictions on the export of semiconductors. Washington also restricted the export of semiconductor manufacturing equipment to the PRC and forced its allies to join the boycott. ASML (Netherlands) limited sales of advanced lithographic equipment needed to produce modern microchips.

Answers followed. In August, China imposed restrictions on the export of gallium and germany, used to produce electronic components and semiconductors. Exports of both metals fell sharply. In November, China restricted exports of other rare earth metals.

The third retaliatory step can be considered restrictions on the export of natural plate and pure artificial graphite, as well as products from them. Beijing said the restrictions are aimed at protecting national security and announced the move after the U.S. administration tightened controls on exports of artificial intelligence technology.

China's export control law and other laws will tighten the regime of transactions with strategic goods, complicate the procedure for verification and obtaining permits. These materials include synthetic graphite of high purity and hardness, some products from natural graphite.

According to the consulting company Mysteel, the synthetic form accounts for up to 70% of the production of graphite in the PRC. It is argued that if Beijing stops exporting graphite, battery factories outside China, especially in Japan and South Korea, will stand up.

Want a green move?

According to the US Geological Survey in 2022, global graphite production increased by 15% to 1.3 million tons. Basically, this material is produced in China, where about 70% of natural graphite is mined and almost all high-quality graphite is produced for electric vehicles.

Chinese companies control more than 80% of the global market for graphite anodes for batteries and are switching to the production of anodes and batteries abroad. But from December 1, 2023, exporters must receive a special permit to export some types of graphite and products from them. The Ministry of Commerce of the People's Republic of China said that all this is for the sake of "stability of supplies and production, as well as better protection of national security interests."

Earlier, Chinese authorities have already imposed temporary restrictions on the export of some types of graphite. The largest importers of graphite are Japan, the United States, India and South Korea. More than 80% of the natural graphite used in Japan is supplied by China. Mitsubishi Chemical, Nissan Motor, Panasonic Energy are considering options to reduce this dependency, planning projects in Australia, Canada, Mozambique, Tanzania, Madagascar and Norway. But there aren't many options. New projects take time and are expensive.

Japan's Ministry of Economy, Trade and Industry will provide about $2 billion to support battery production. One option is to invite Chinese investors. Such plans have already been announced by two dozen companies that plan to open more than 20 factories outside the PRC, investing about $14 billion in projects.

Ningbo Shanshan said it would invest $1.4 billion to build an anode plant in Finland. Shanghai Putailai New Energy Technology has announced plans to build a plant worth up to $1.5 billion in Sweden. CATL has already launched a plant in Germany.

For Competitive Advantage

Beijing will use its competitive advantages to maintain leadership in the production of electric vehicles. In November, the PRC Ministry of Commerce added rare earth elements, their compounds and alloys, to the list of goods requiring disclosure of information on the type of material and export directions. These measures are aimed primarily at the United States, Japan and the EU countries. The restrictions will be in effect until the end of October 2025.

The PRC accounts for up to 70% of the world production of rare trucks used in the production of both electric vehicles and some types of weapons. Companies in Europe get 71% gallium and 45% germany from China.

Only a very few enterprises outside China are able to produce gallium of proper purity, one of them is located in Europe (Belgian concern Umicore), the other in Japan.

The situation is similar with germanium. Analysts at the British financial group Hargreaves Landsdown call export restrictions on gallium and germanium an "act of retaliation." China also produces about 99% of dysprosium, which is used in permanent magnets for electric motors. This rare earth metal is difficult to obtain and is more expensive than other rare earth metals. Permanent magnets made of dysprosium alloys are used in electric vehicle engines and wind turbine generators.

"The US and the EU are united that they don't want the transition to electric vehicles to be a transition to Chinese electric vehicles," observed Brad Setser, a senior fellow at the Council on Foreign Relations. He seemed to be heard not only in Washington, but also in Brussels. And it is possible that the conflict in this area may become protracted.

The Economist agrees that the initiator of this conflict is the United States, Beijing is only responding to challenges. And the European Union will have to rake graphite anodes for electric vehicle batteries on European roads from this political "brazier." The history of the isolation of the Old World from Russia will continue in the Chinese direction.

Photo: Eenergy.Media