By Dr Andrew Jones Centre for Business in Society

Whilst recent sales data in the UK reported an encouraging growth in the sales of electric vehicles, significant headwinds are creating a highly uncertain trajectory for the transition towards EVs. Globally, demand for EVs has largely stalled due to enduring concerns surrounding price, range, and charging infrastructure, with consumers shifting in the short-term towards hybrids, particularly in the US market. Whilst many countries, including the UK, have mandated EV sales targets for manufacturers, these interventions are forcing OEMs to discount prices in order to avoid costly financial penalties, ramping up the pressure on the industry. With Donald Trump likely to revoke the the Biden administration’s EV Mandate, eliminate vehicle emission standards, as well as threatening steeper tariffs on all vehicles manufactured overseas, there are a variety of uncertainties for manufacturers. Despite many western firms shifting resources towards EV development, the uncertainties in the marketplace, and geopolitically, mean that the future shape of the industry is not guaranteed, as events in China, EU and USA collide to create a volatile environment for OEMs.

Leading the pack

Almost overnight China has become a world leader in manufacturing and purchasing electric vehicles, with sales in the country reaching 6.8 million in 2022 compared to around 800,000 in the USA. In 2022 EV sales accounted for 22% of all new vehicle sales in China compared to 12% in the EU and 6% in the USA. Furthermore, evidence suggests that Chinese consumers are more likely to consider a switch to an EV in the near future, particularly compared to those in the EU and North American markets. Critically, a key advantage for the Chinese market is cost, as local producers are able to build an EV for some €10,000 less than their European competitors, which filters through to consumers in terms of lower prices.

Alongside a thriving domestic market, Chinese firms are seeking global dominance in the market, with firms such as BYD, Nio, Geely and SAIC seeking to become worldwide players. Crucially, the Chinese government has heavily subsidised the production and demand of EVs through the provision of grants, tax breaks and procurement contracts. This support has also driven an increase in quality, with these vehicles now attractive to both domestic and overseas buyers. For China, supporting the push towards electrification was logical given that it was unlikely to overcome the technical advantages held by ‘legacy automakers’ in internal combustion engine technologies. These firms do not face the same level of sunk costs as those which have been leading the pack in terms of internal combustion engine technology, creating further scope for innovation and investment.

China crisis

The expansion of Chinese firms in the sector has evoked similarities with the growth of Korean and Japanese manufacturers previously, but for major North American and European producers this most recent threat comes at a time of significant technological upheaval. In recent weeks, Volkswagen, struggling with sluggish sales growth in EVs amid the rise of Chinese producers, has announced plans to shut three factories and cut pay by 10%. For firms like VW, this has created a near-perfect storm, with billions in investment required to convert existing facilities and develop new products, whilst demand in a critical market has declined due to a mix of macroeconomic and competitive forces. As a result, other manufacturers, such as Ford, Volvo, and Mercedes-Benz, have hit the brakes on expanding their EV offering by switching focus to hybrid vehicle production.

However, the concerns of OEMs do not solely relate to challenges in the Chinese market. Given the growth of Chinese manufacturers, the EU is to introduce additional tariffs on the import of these vehicles which go well beyond the standard 10% import duty levied on cars. This could reach an effective rate of 45.3% on some SAIC models, as they are not willing to cooperate with the Commission’s anti-subsidy investigation. Indeed, the Commission has stated that these tariffs are needed in order to counter what are viewed as being “unfair” subsidies and grants being directed towards the development of the Chinese industry.

Where next?

The action from the EU has already led to a retaliation from China, who started their own investigation into the import of brandy, diary and pork products earlier in 2024. In addition, immediately after the new tariff regime from the EU came into force, China told its automotive players to cease any large investments planned in those countries supporting the decision to introduce these levies. Although the European market, at least at a political level, is not proving receptive to Chinese produced EVs, China is stealing a march in other regions typically favoured by western producers for export purposes.

Set against this landscape, the impact of the Trump Presidency provides another curve-ball for the sector, but it has been speculated that the “big three” of GM, Ford and Stellantis will be the main winners, if the deregulation of US market does occur. In the midst of the election result being announced, the share prices of German manufacturers declined between 5% and 7%, and whilst some EV-only producers are expected to be negatively impacted, the price of stock in Tesla continued to rise.  However, President Trump threatening punitive tariffs is not new, as he did so in 2017, and the concerns surrounding China are foremost to European manufacturers. Finally, for Chinese producers, interventions by both the first Trump administration and the outgoing Biden regime have effectively closed off the USA as a market, and this is unlikely to change in the near future given the election outcome.

Is the UK stuck in the middle?

In the UK, there are suggestions that the new Labour Government could take an alternative approach, potentially encouraging the widespread import of Chinese EVs, but whether this holds given the twin pressures of a Trump Presidency and the existing decisions made by the EU remains to be seen. The UK industry itself is fragile, with data from the first half of 2024 indicating a 7.6% decline in the number of vehicles produced at UK plants, with volumes tracking at around 50% of 2018 levels. Crucially, these data illustrate how critical exports are to sustain the UK industry. Hence an open global market is vital to ensure a vibrant UK sector. Therefore, the UK does not only face a threat from potentially cheaper Chinese alternatives being advantaged against domestically produced vehicles, but it is also highly exposed to the threat of a broader ‘trade war’ with possibly limited power to avoid such circumstances occurring. Only time will tell how the current ‘perfect storm’ will impact the transition to an electric future, but it is evident that there will be many bumps in the road over the coming years as political and economic tensions come to the surface.

Through understanding the impact of organisations’ activities, behaviours and policies, the Centre for Business in Society at Coventry University seeks to promote responsibility, to change behaviours, and to achieve better outcomes for economies, societies and the individual.

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