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Electromobility in the Middle of the Tug-Of-War between Globalization and De-Fossilization

03.12.24 | Blog | By:

Electromobility is one of the solutions to de-fossilize our planet, by reducing the carbon footprint of road transport, one of the main sources of anthropic greenhouse gas (GHG) emissions, of course providing electricity and batteries can be manufactured with a carbon footprint close to zero.

Globalization, an offspring of neoliberalism, reinforced by the collapse of the Soviet Union around 1990, has transformed China. In some 30 years, it has transformed into the industrial zone of the planet, “the motor that drives the world’s economies” (Shannon K. O’Neil), at the expense of traditional industries in the West.

China has now become the top GHG emitter, spewing CO2 at more than twice the rate of the U.S. and EU combined, thanks to coal. And CO2 emissions in India are on the rise, closing on those of the EU, thanks to coal as well and to the supply diversification strategy that is becoming one of the geopolitical consequences of the U.S.-China opposition, possibly the 21st century version of the Cold War.

So, on one hand, we have the West, U.S. and EU, leading the de-fossilization of the economy to allow the reduction of man-made GHG emissions. On the other hand, we have the East, supplier of the West, with rising GHG emissions. Just to hammer home this point about China: In 2022 and 2023, 218 GW of coal-based electricity production capacity were added, helping emissions from power generation to increase by 5% in 2023 (for the sake of comparison, the wind-based power generation capacity in the EU is 272 GW).

China may be the global leader in the installation of renewable energy capacity, but the growth in energy usage is still relying on fossil sources for 70%, 46% from coal. Meanwhile, local demand for industrial products is waning inside China, thus pushing exports, in a context of structural industrial over-capacity.

Among the Chinese exports are electric vehicles (EV) and batteries for the electric ecosystem. Cheap labor and cheap energy help make these exports competitive, as does past and present state aid. The accusations of unfair public support are nevertheless difficult to prove in a country where the limit between public and private sectors does fluctuate for access to real estate, to financing, to energy.

Still, the Chinese leadership on EV and batteries, as on solar- and wind-based renewable energy technologies, is also possible on this grand scale because a state strategy has been put in place 15 years ago. In the case of electromobility, a strategy intended to clean the air in Chinese megalopolises, and also rightly targeted as a game changer in car manufacturing, when the car makers in the West, Japan and Korea were mostly sticking to their historical, century-old, technological leadership and commercial success with the internal combustion engine (ICE) technology with a bit of hybridization for some manufacturers and biofuels to reduce the carbon footprint. For all the buzz about Tesla, the mass market for cars has remained so far thermal. So far.

The risk is that China could swamp the climate-conscious West with mature and cheap EVs. Unless political or cultural barriers prevent this much-hyped industrial catastrophe, for Western car makers, at least:

Carbon Border Adjustment (CBA), a modern tool for protectionism, comes first to mind. Whichever reason is given for this sort of custom barrier, the argument that imports should be placed on a level-playing field with locally produced goods and services makes sense, all the more as supply security, also called re-shoring, is high on the political agenda, since the pandemic and the war in Ukraine.

On top of that, the carbon intensity of the value chains is obviously a politically sensitive subject for regions considering climate change as an existential threat and implementing regulations to fight it. Such tariffs have been used in the past, like the one imposed on Brazilian ethanol imported in the EU, which has seriously helped the European ethanol industry to stay in the market. CBA, good for the balance of payments, may be complex to administrate when supply chains are transnational, but EVs, materials and batteries, are nearly 100% made in China, which should help. Moreover, activists in favor of unlimited free trade have less of a case to advocate about when China is in play (for instance, no such thing as North-South redistribution).

Carbon footprint threshold for eligibility to public support is another tool of protectionism. When the CBA directly increases the market price of imported goods, setting a maximum limit for the carbon intensity of manufactured products in terms of eligibility to a public support adds a second notch to artificially raise this market price for the imported goods that do not qualify. Like EVs and batteries manufactured with an electricity that is far from being zero-emission.

As an example, France has implemented this eligibility hurdle for EVs to qualify for the “social leasing” program, a public support mechanism allowing modest households to access electromobility at a cost of 100 € per month. No Chinese EV was in the list in 2024, even a popular Renault-Dacia model built in China. Chinese car makers will have to assemble EVs in Europe, possibly with “made in the EU” batteries, to access this much needed support for vehicles that remain much more expensive than their equivalent ICEV.

Regulatory instability comes next. In the EU, a severe pushback is taking place these days against the Green Deal, qualified by right-wing and populist parties as punitive ecology, unfair for the middle classes, the mass market for cars. The ban of ICEV in 2035 could then be revisited after the next European elections in June 2024.

Car size. Popular EVs in China are small and Chinese car makers have an edge today on this segment, in offer diversity and low price (possibly 30% cheaper than European counterparts). But half of new car sales in the EU are SUVs. No surprise here, as buyers are getting older every year and favor large, comfortable and high visibility models. European car manufacturers have understood the message, improved their profitability (large car, high margin) and reduced their offer in the small car segments, which are rather relegated to the second-hand market.

Chinese car makers offer large and luxury models as well, but will well-off European customers, happy to spend beyond 50,000 € for a new car, fall for them? As for the second-hand EV market, it may take a few years to materialize, which could give time to European car makers to get back, and competitive, on the small car segments, where they are rather lagging behind today.

Last, but not least, appetite for EV for the average motorist is not clear, polls showing a growing reluctance to abandon thermal for electric cars, recharge anxiety (limited autonomy) and affordability (purchase price) remaining high on the criticism list. Batteries can offer a better autonomy, but at a cost, until new generations appear, which may take a few years.

As for affordability, in the absence of public support, likely if mass adoption is considered, Chinese EVs can be one solution, even against European thermal equivalent models, but for the two first obstacles hurdles described above, CBA and eligibility.

The switch to electromobility is not a done deal yet, especially if EVs are sourced from China.

Philippe Marchand is a Bioenergy Steering Committee Member of the European Technology and  Innovation Platform (ETIP).

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