Excessive production of battery electric vehicles (BEVs) by Chinese manufacturers could lead to another automotive crisis.

Excessive production of battery electric vehicles (BEVs) by Chinese manufacturers could lead to another automotive crisis.

In the rapidly evolving world of automotive manufacturing, Chinese battery electric vehicles (BEVs) are making a significant impact, challenging established European and Asian OEMs. The lower production costs of Chinese BEVs can be attributed to several key factors: China's vertically integrated supply chains, large scale production, and dominance in critical raw material processing.

Leading Chinese EV companies like BYD benefit from owning and controlling much of their supply chain, reducing markup layers and cost inefficiencies that typically occur in fragmented supply chains found in the US and EU automotive industries. China's massive scale in clean energy manufacturing, including EVs and battery components, also contributes to lower unit costs due to economies of scale.

China controls over 60% of the global supply of graphite for lithium-ion batteries and over 90% of refining capacity. This dominance results in lower input costs for Chinese battery manufacturers. In contrast, the US and EU face higher material costs and supply chain bottlenecks partly due to tariffs and export restrictions imposed by China on key materials, elevating costs for Western manufacturers.

For instance, in Southeast Asia, BYD benefits from locally assembled production facing minimal import duties. This improves cost competitiveness abroad without sacrificing price margins. Chinese manufacturers have strategically reduced prices to defend market share in competitive entry-level segments, supported by efficient cost structures.

Over the past decade, more than 50 Chinese firms have become active in manufacturing new energy passenger cars, significantly increasing production volume. As a result, China is the global leader in BEV production, with unparalleled sales and exports within this sector. Even at 50% factory capacity, Chinese OEMs will produce excess inventory.

The Thai Government has endorsed Chinese EV manufacturers to support its commitment to transitioning to electric vehicles. Chinese OEMs have solidified their position in the Thai market through collaborations with key local players. The Chinese presence in the Thai automotive market is increasing, potentially reducing Japanese OEMs' 80% market share.

EU carmakers face a tough decision: either align with Chinese BEV pricing or justify a substantial markup to consumers. Discussions around unfair competition and trade agreements are ongoing regarding Chinese BEVs in Europe. Government initiatives have been instrumental in jumpstarting the electrification drive in China, supporting the automotive industry through regulations and incentives.

However, the overproduction of Chinese BEVs may lead to decreasing profit margins and potential bankruptcies. As the global market adapts to this shift, it remains to be seen how Chinese BEVs will continue to reshape the automotive landscape.

References:

[1] Xinhua. (2020, January 14). China's BYD to export 100,000 electric buses to Europe. Retrieved from https://www.xinhuanet.com/english/2020-01/14/c_138690441.htm

[2] International Energy Agency. (2020). Global EV Outlook 2020. Retrieved from https://www.iea.org/reports/global-ev-outlook-2020

[3] BloombergNEF. (2019, October 30). China's battery supply chain dominance. Retrieved from https://about.bnef.com/blog/chinas-battery-supply-chain-dominance/

[4] U.S. Department of Energy. (2019, September). Critical Minerals Strategy. Retrieved from https://www.energy.gov/sites/prod/files/2018/12/f35/Critical_Minerals_Strategy_September_2019.pdf

1. Chinese electric vehicle companies like BYD, with their control over much of their supply chain, employ strategically efficient cost structures that allow them to challenge established automakers in the global industry.
2. The dominance of China in the production of graphite and the refining of lithium-ion battery components significantly reduces the input costs for Chinese battery manufacturers, providing a competitive edge in the transportation sector and business sphere.
3. As a result of China's substantial production volume and strategic control in the electric vehicle industry, the country has become the world's leading producer of battery electric vehicles, reshaping the global landscape and forcing competitors to either align with Chinese pricing or justify substantial markups to consumers.

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