China threatens to sideline U.S. automakers in booming EV tech
The U.S. auto industry risks becoming an isolated technical backwater while China surges into the global lead in a technology its government has targeted as a key to leadership for the 21st Century.
China accounted for 60 percent of global electric vehicle sales and production at around 876,000 last year, when just 361,307 EVs were sold in the United States.
China’s lead is only likely to grow, thanks to a range of financial incentives and regulations that encourage buyers to choose EVs.
The investments to build new EVs that GM and Ford just announced — $300 million for GM, $900 million for Ford — are a drop in the bucket compared with the investment likely headed to China. GM and Ford each promised to add production of a single EV at a metro Detroit plant, but their Chinese plants are likely to build a couple of dozen different EVs to meet soaring demand there.
GM and Ford's EV plans aren't likely to have a major effect on the U.S.-China balance of trade. As they usually do, the companies plan to build most of the EVs close to where they sell them. Add the image benefits of being seen to build EVs in U.S. plants, and it's a safe bet most EVs the companies sell in the U.S. will be built here for the foreseeable future.
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At the same time, the Trump administration wants to eliminate federal tax credits for U.S. drivers who buy EVs. The administration also wants to undo emissions standards that encourage automakers to sell EVs in the United States. On top of that, it has threatened to sue California to end emission standards that make EVs popular there and in nine states that share its regulations.
China encourages EVs many ways:
- You can’t buy a car without a $12,000 permit in Shanghai, a car-filled megacity of 21 million. Shanghai waives the fee for EVs.
- The central government and other localities offer incentives that can hit $10,000 to $15,000.
- China has 330,000 public charging points, compared with 67,500 in the U.S., according to an MIT study. The countries have roughly the same land area.
- Cities are racing to go 100 percent EV. Shenzhen, a city of 12.5 million, has a 100 percent electric fleet of 16,000 buses and is switching its 22,000 taxis to EVs. The resort island of Hainan plans to eliminate fossil fuel vehicles by 2030.
China's EV goal: World leadership
“The subsidies are highly successful, but expensive” said Michael Dunne, CEO of ZoZo Go, a consulting firm specializing in Chinese mobility and autos. “China has spent $100 billion on subsidies alone in the last three or four years.” U.S. and Chinese statistics for EVs frequently combine fully-electric vehicles and plug-in hybrids, because both use many of the same technologies and require charging from a plug to be most effective.
China calls them NEVs, or “new energy vehicles.” The U.S. shorthand is PEV or "plug-in electric vehicles," which is unfortunately similar to PHEV, the abbreviation for plug-in hybrids, which have a gasoline engine as well as battery power.
Battery-only EVs account for 60 percent to 70 percent of the total NEV/PEV sales in both countries.
Chinese sales of NEVs will hit 2.5 million next year and 5 million in 2025, according to a study by JP Morgan. North American sales and production are expected to grow much more slowly.
“In terms of production and sales of electric cars, no other nation comes close to China,” according to the study, "Driving into 2025: The Future of Electric Vehicles."
China’s isn’t doing this just for the moral satisfaction of reducing greenhouse emissions, although air quality in many Chinese cities is atrocious. The Chinese government singled out EVs, self-driving cars and 5G connectivity as three strategic industries it plans to dominate in this century.
“China played catch up” as it developed other industries, Dunne said. “This is its opportunity to lead.”
European automakers are gearing up for more production of plug-in vehicles, but China will still account for half of global sales production in 2025, Dunne predicts.
Automakers won’t stop developing, building and selling EVs, but all of them — including U.S.-based companies — are likely to build and engineer the vehicles where they sell them: China.
'The party is in China'
China’s increasing stature in EVs will draw vehicle development and engineering there from traditional automaking hubs like Detroit, said Brett Smith, director of propulsion technologies at the Center for Automotive Research.
“GM, Ford and Fiat Chrysler can see the Chinese market developing much faster than the U.S.,” he said. “They have to at least consider moving EV development to China. It won’t be led by their U.S. operations.
“U.S.-based vehicles will arguably become less advanced than in other parts of the world.”
“GM and Ford won’t stop engineering and developing EVs. They’ll do it where the market is.”
That will likely have ramifications on the American auto suppliers, which employ more people than the automakers.
Consultant IHS Markit, which advises suppliers where to build factories to supply automakers, predicts EVs will account for 13 percent of Chinese sales in 2025, compared with 6 percent in the U.S., 12 percent in Europe and 6 percent in Japan and Korea. By 2030, it forecasts 19 percent of global EV development will take place in China, compared with just 9 percent in the U.S.
“China is forcing the creation of an electrified future and vehicle market through incredibly tough regulations,” said Andrew Fullbrook, head of IHS Markit’s global powertrain team.
In the U.S., “the current regulatory and fuel economy landscape does not create a market for EVs,” he added.
He predicts Chinese plants will produce 8 to 9 million fully electric vehicles and 3 million plug-in hybrids annually by 2030, still more than half the projected global total of just over 15 million.
“North America is increasingly an island,” Fullbrook said. “The party is in China. Ford and GM’s volume EVs will be in China.”
Numbers tell the tale
Vehicle sales in China topped 28 million in 2018, compared with 17.3 million in the U.S. Combine those figures with China’s committed government support and higher market share for NEVs and the business case is obvious: China’s driving the EV bus.
GM has pledged to introduce 20 electric vehicles by 2023, including a dramatic Cadillac to begin the brand's evolution to all-EVs, but the company studiously avoids saying where it will build and sell them. Virtually all observers expect the answer is China for the overwhelming majority, with a handful also built in the U.S.
Despite that, Larry Burns, scientist, author and business adviser, thinks there’s still room for U.S. automakers.
“Congestion is a huge problem in Chinese cities,” he said. “I think (minicars and subcompacts) will be most common in China. Tiny cars that are a step between a car and bicycle.
“The auto industry has reached the tipping point on EVs, but nobody’s on track to dominate” if industrial nations like the U.S. realize the importance of having their own domestic auto industries to promote innovation, engineering and manufacturing, he said
Contact Mark Phelan: 313-222-6731 or email@example.com. Follow him on Twitter @mark_phelan. Read more on autos and sign up for our autos newsletter.