The European Union’s efforts to ban the sale of internal combustion engine vehicles by 2035 and to completely remove them from the roads by 2050 will also mean a significant change for the European automotive industry, according to a report by the insurance company Allianz titled ‘The Chinese Challenge to the European Automotive Industry’.
In 2022, sales of battery electric vehicles (BEVs) reached a record 4.4 million, representing 47 percent of all new vehicle registrations in Europe. Battery electric vehicles lead the way, with a sales increase of 28 percent, accounting for 12 percent of all new vehicle registrations.
– As the gradual phase-out of internal combustion engines approaches in 2035, the automotive sector is on the brink of a complete upheaval, facing a transformation of its supplier base, changing customer needs, competition from new entrants, and the reality of a less car-centric society – writes Allianz in the report.
However, China has been identified as the biggest risk to the European automotive industry.
Recognizing the potential of electric vehicles 15 years ago, China invested enormous resources in building a competitive electric vehicle ecosystem. As a result, China is a leader in the global electric vehicle landscape, selling twice as many electric models in 2022 compared to Europe and the U.S. combined. China also has a competitive advantage in almost all aspects of the electric vehicle value chain, as it accounts for over 80 percent of EV sales in the domestic Chinese market.
– Chinese brands have seen their market shares rise from 40 percent to nearly 50 percent in 2022, while the trade balance of the automotive industry in the country shifted from a deficit of -31 billion dollars to a surplus of seven billion dollars during the same period – the report states.
At the same time, in 2022, the three best-selling ‘electric vehicles’ in Europe were imported from China, meaning that cars produced in Europe are likely to be replaced by those produced in China – regardless of whether they are made by Chinese, American, or European companies.
Growing Competitiveness
Growing competitiveness will help Chinese manufacturers gain a larger share in their domestic markets, threatening the sales and profits of foreign companies operating in China, either through reduced exports or lower sales from their Chinese subsidiaries. As evidenced by the 80 percent market share controlled by Chinese brands in Chinese electric vehicle registrations, most international competitors have been too slow to embrace the transition to electric vehicles in China. Therefore, Allianz believes that more international manufacturers will withdraw from China in the future, a trend that has already begun to unfold.
