European Demand for NEVs Remains High

ZHOU MI

China and Europe have extensive common interests andhuge space for common development in the field of NEVs.

THIS year， the InternationalEnergy Agency （IEA） publishedits Global EV Outlookreport under the title “MovingTowards Increased Affordability.”It noted， “A rapid transition to EVs（electric vehicles） will require bringingto the market more affordablemodels.” Last year， the global sales of EVs approached 14 million， anincrease of 35 percent from 2022， accountingfor 20 percent of sales of allautomobiles. The top three marketswere China （60 percent）， Europe（less than 25 percent）， and the U.S.（10 percent）. One in three cars sold inChina last year was an EV， comparedwith one in five in Europe， and one in10 in the U.S. As a conventional leadingauto market in the world， Europe has huge space for growth in the EV sector.

A Driver of Green Transition

Development in the field of EVsremained stagnant until recent yearsdue to rapid growth of the petroleumindustry and slow progress in batterytechnology. After the internationalcommunity reached a consensus tocombat climate change， reduction incarbon emissions has become a focalpoint of global attention and action.The EU has set ambitious goals forgreen transition， declaring to reducenet greenhouse gas emissions by at least 55 percent by 2030. This entailssweeping efforts across all social andeconomic spheres， with the auto industrybeing of significant importance.

Being a leader in the productionof petrol vehicles， Europe has been asupply-dominated car market wherethe development of hybrid and electricvehicles is sluggish. With their preponderancein the auto market， establishedcarmakers in the region have dedicatedtheir efforts primarily to upgradingthe engine performance of petrol cars，improving their exterior designs， andreducing manufacturing costs. Little interest was shown in developing newenergyvehicles （NEVs） to competewith their existing lines of petrol models.The transition to green cars hencecalls for change on the supply side.

In contrast， Chinas NEV industryhas made strong headway during recentyears. On the back of a completemanufacturing system and soaringdemand among domestic buyers， a cohortof Chinese carmakers have carvedout a niche on the domestic marketand gone on to gain reputation on theinternational market. Compared withinternal-combustion engine cars， NEVshave the advantages of a less complexproduction process， closer interactionbetween manufacturers and consumers，and faster product upgrades. Theirdevelopment is， however， also decided by the cost and national conditions. Thefast growth in China is the result of itsadvanced infrastructure and supportivepolicies. The proliferation of chargingfacilities across the country， for example，has substantively brought down the costof owning a NEV and significantly improvedconsumer experience.

The high-quality productioncapacity that Chinasnew-energy industry continuesto provide will makeimportant contributions toglobal green development.

Steady and sustainable developmentof the new-energy sector is onlypossible when a country has a strongcapacity for technological innovationand production and supportingservices. As a key player in the internationalauto industry， China has builta complete auto manufacturing eco-system covering car batteries， energystorage， and Internet of Vehicles， layinga solid foundation for the manufacturingof NEVs. This situation allows forclose cooperation between domesticcompanies at different points of theautomobile industrial chains to meetthe diverse needs of consumers. It hasalso attracted foreign carmakers to setup R&D centers and factories in China.

A Supply-Demand Issue，Not an Overcapacity Issue

Recently， some politicians and mediaoutlets in Europe and the United Stateshave played up the so-called “Chinasovercapacity” issue. They claim that theChinese government's subsidies have resultedin overcapacity in the new-energyindustry including EVs， which China isdumping overseas at low prices， leadingto market distortions and harming othereconomies. Last year， the EU launchedan “anti-subsidy investigation” into electricvehicles coming from China.

The issue of production capacity wasalso raised during talks between ChinesePremier Li Qiang and Federal Chancellorof Germany Olaf Scholz in April. Li toldScholz that Chinas new-energy industryhas made progress through self-improvementand sufficient market competition，rather than by government subsidies.The high-quality production capacitythat Chinas new-energy industry continuesto provide will make important contributionsto global green development，he added.

The development of the NEV industryis still at an early stage and requirescontinuous investment in innovation.In business activities， innovators oftenface higher risks， so it is reasonablefor them to expect higher returns andrewards as compensation. China's NEVmakers are brave innovators who haveembraced new development concepts and continued to improve the performanceand comfort features of theircars， especially in terms of endurancemileage and ability to cope with varioustypes of road and weather conditions.These innovations have won therecognition of European dealers andconsumers. Their feedback in turn hasfurther accelerated the innovation inthe NEV sector. As Chinas NEVs entermore foreign markets， consumers wieldgreater sway over the supply-demandrelationship， prompting these carmakersto better adapt to consumer needs.

In Europe， due to the income factorand consumer experience， EV purchasesare not particularly high. The developmentgap between different countries inthe region also requires modification ofEV performance for different markets，which is a challenging task for carmakers.At the same time， out of concernsabout supply chain disruptions， manyEuropean countries have made deriskinga policy priority. To reduce therisk of supply chain disruptions， manycompanies have changed their inventory strategy from zero inventory to appropriateexcess stock and sustainable supply.For the NEV sector， efforts are needed tomaintain a stable supply.

Chinese automakers meetingthese stringent requirementsand entering the Europeanmarket fully demonstratesthe strength of Chinesecompanies and creates a bondof mutual interest betweenEuropean importersand Chinese exporters.

To meet market demands， a viableapproach is to diversify supply channels，and Chinese NEV companies can belooked to in this regard. The EuropeanUnion has higher standards for environmentalprotection， privacy protection，chemical content， and other issues. Chineseautomakers meeting these stringentrequirements and entering the European market fully demonstrates the strengthof Chinese companies and creates a bondof mutual interest between European importersand Chinese exporters.

To facilitate development of the NEVindustry， European countries shouldcreate a more favorable environmentfor all NEV companies， including thosefrom China. In a market economy， businesseshave to balance returns andrisks in their operations and arrange forraw material purchase and productionbased on forecast of supply and demandon a fully competitive market. AlthoughNEV manufacturers can respond fasterto market developments and adjust productionswiftly due to technological advancesand their experience， the abilityto adapt to demand is a decisive factorfor profitability.

European countries have a long traditionof advocating openness and compliancewith international rules. If all partiesconcerned along the NEV industrialchain can enhance collaboration to effectivelyalign market supply with demandand reduce the delay or miscomprehensionin information transmission， the riskof market miscalculation can be greatlyreduced. According to their respectiveconditions， European countries shouldrespond appropriately to build up theNEV industrial chain， encourage and protectinnovation， promote reasonable andeffective allocation of relevant resourcesbetween China and Europe， reduce governmentalinterference in corporate investmentand activities， and create morecooperation opportunities for small andmedium-sized enterprises. China andEurope have extensive common interestsand a huge space for common developmentin the field of NEVs.

ZHOU MI is a researcher with the ChineseAcademy of International Trade and EconomicCooperation.