Car Wars: E-dvantage China

What’s James Bond without his Aston Martin? Or agent Ethan ‘Mission Impossible’ Hunt without his BMWs?

Of all that Europe has given the world, a set of fancy wheels is perhaps its most glamorous contribution. Long associated with power and wealth, European car brands have been the neighbor’s envy and the owner’s pride for more than a century.

But times, they are a-changing. 

As younger generations get more planet-conscious, the status symbolism of the car is moving from engine power and aesthetics to environmental efficiency. Don’t be surprised then if bragging rights shift to electric cars. 

The big surprise – an unpleasant one at that – could be for Europe, though. The region, which has dominated the global car industry, now faces the risk of falling behind in the run for electric vehicles (EVs). Who’s leading the race? Interestingly, China, according to a study by Allianz Economic Research

With its powerful policy mix, subsidies for manufacturers and ambitious plans to increase EV charging points, China tops six of the nine indicators ranking regions on the most important aspects of any electrification drive.

Europe trails behind not just China but also the United States and Japan, especially in terms of policy, infrastructure and critical components.

Can Europe maintain its supremacy over the auto industry? Or will China be the next auto-cracy? Allianz Economic Research takes stock. 

Electric moves

In the years to come, the survival of a country’s auto industry could hinge on its ability to adapt to electrification.

Several aspects have to be considered for an electrification drive: policy; infrastructure; availability of critical components; scale; market presence; innovation and financial strength; changing vehicle fleet; readiness and competitiveness and evolution of the electricity system; and raw materials.

Gauged on these nine parameters, China leads in six, topping the overall ranking in electrification. “Chinese policy clearly stands out as the most powerful due to the combination of financial support, imposed mandatory norms and end-consumer action,” writes Allianz economist Catharina Hillenbrand-Saponar in the report. The country is planning as many as 500,000 charging stations by 2020, fixing the main infrastructure required for the effective adoption of such cars.

When talk turns to the cost of electric cars, much of the debate revolves around how expensive batteries are. China’s big advantage here is its manufacturing capacity. By making subsidies for EV manufacturers conditional on the use of approved battery manufacturers, China has encouraged the expansion of the latter.

Even in terms of scale, China leads with a global market share of 17 percent, followed by the U.S., where Tesla dominates the market. For European manufacturers to snatch back leadership in terms of volumes, they have to grow not just in their own markets but also in the U.S. and China. And that’s no mean feat.

China’s level of EV penetration is rather remarkable too. In this large market, EVs account for 4.2 percent of new car sales versus 2.5 percent in Europe.

allianz economic research green mobility ranking
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Europe: Way forward?

Which new EV models succeed and which don’t, is a question that will be answered as the launches unfold. But automakers with a busy launch calendar stand greater chances of success. In this, Europe leads with 130 of a total of 350 global upcoming EV launches. The numbers, however, must be seen in context - some of this can be attributed to a late start and a subsequent ‘catch-up’ effort on the part of European automakers.

Europe may be late to the EV party but there’s no reason it can’t grab the audience’s attention.

“For starters, Europe must develop a stronger policy framework,“ says Hillenbrand-Saponar. “Financial incentives have proven to be the most effective tool in this and other sectors in various regions.”

Without roads, there would be no cars. Without enough charging stations, it’s unrealistic to expect roads full of EVs. Europe needs to move to develop its green mobility infrastructure...and fast! Other than investment support, the ease of planning and getting permissions for charging stations could boost infrastructure.

It’s true that Europe lacks the component-production might of China. However, it’s nothing that cross-national partnerships cannot fix. Add to that financial incentives for setting up capacity - particularly for batteries - and higher levels of recycling and the availability of components might not be a question anymore.

In the end, however, it’s the ultimate user of any mobility concept that decides whether it becomes daily life or not. From benefits such as free parking, priority areas and city access to remuneration models that allow owners to benefit from energy market opportunities, much can be done to incentivize EV adoption. 

 

From mean machines to green machines, the winds of change are blowing in the auto sector. Whether the winds will go east or stay in the west, remains to be seen. 

The Allianz Group is one of the world's leading insurers and asset managers with more than 92 million retail and corporate customers. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing around 673 billion euros on behalf of its insurance customers. Furthermore our asset managers PIMCO and Allianz Global Investors manage more than 1.4 trillion euros of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we hold the leading position for insurers in the Dow Jones Sustainability Index. In 2018, over 142,000 employees in more than 70 countries achieved total revenues of 131 billion euros and an operating profit of 11.5 billion euros for the group.

These assessments are, as always, subject to the disclaimer provided below.

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Lorenz Weimann
Allianz SE
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