With Batteries Replacing Engines, Western Carmakers Struggle to Adapt
Europe’s automotive industry is at a critical juncture, grappling with job losses, factory closures, and existential challenges. Once leaders in car manufacturing, traditional hubs like Germany and Japan are witnessing China’s rapid ascent to global dominance in the electric vehicle (EV) market. This dramatic shift is reshaping the car industry worldwide.
A Profound Transformation in Car Manufacturing
For decades, internal combustion engines were the crown jewel of automotive innovation. These intricate machines accounted for 21% of a car’s value and supported millions of skilled jobs across Europe and America. However, EVs eliminate this core component, replacing it with batteries—products that require entirely different expertise in chemical rather than mechanical engineering.
China’s strategic investments in EV technology, particularly batteries, have placed it far ahead of Western competitors. Over the years, China has not only refined battery production but also built an extensive supply chain, securing control over critical resources like lithium and cobalt. By contrast, European and American automakers have lagged in establishing robust battery manufacturing infrastructure.
How China Gained the Edge
Chinese EV production benefits from government subsidies, low energy costs, and an early focus on battery technology. A study comparing Germany’s VW ID3 to China’s BYD Seal revealed that Chinese cars are cheaper to manufacture across every component. This cost advantage allows Chinese automakers to offer their EVs at significantly lower prices in global markets.
China’s dominance extends beyond EVs themselves. It leads in producing battery cells, anodes, cathodes, and even the chemicals essential for their creation. This comprehensive control of the supply chain ensures that even non-Chinese batteries rely on some Chinese technology or materials.
The Global Response: Tariffs and Trade Barriers
To counteract China’s overwhelming market share, countries like the US, Canada, and India have introduced steep tariffs on Chinese EV imports, while Europe has implemented sliding tariffs. Surprisingly, the UK has yet to follow suit, making it one of the cheapest markets for Chinese EVs but posing serious challenges for domestic manufacturers.
A Tough Road Ahead
The slow transition to EV production in Europe and America has left these regions playing catch-up. With the 2035 deadline for banning petrol and diesel vehicles looming, the struggle to compete in an increasingly China-dominated market grows more intense.
This moment represents a textbook example of “disruptive innovation,” where new technologies upend established industries. China’s head start in batteries—akin to the disruption caused by digital photography or smartphones—leaves little room for traditional automakers to reclaim their leadership. For Europe, the road ahead will demand not only innovation but also policy shifts to revitalise its faltering auto industry.
