Navigating the intersection of geopolitics and EV production

News Article

In the heart of the global cleantech arena, tensions are simmering between the European Union, the United States, and China over the race for dominance in electric vehicle (EV) production. Understanding and comparing the strategies, policies and perspectives of these global players on e-mobility is essential for propelling Europe’s green transition in Europe. We tried to explore them at our e-mobility event EVision 2024.

Today, the European continent sits relatively comfortably in global rankings of e-mobility.

“We are by far the second place for global market in EVs, we have all the enabling framework in place, we are in a leading position” – explains Marc Niklas, from the European Commission.

Yet, China is storming on ahead, with every fifth electric car sold last year having been built in the country according to Schmidt data and with an achieved 27% EV adoption as seen in our joint Eurelectric-EY report. The US, while in third place, is not lagging far behind.

“Acceleration will be very, very fast” – affirms Marc Coltelli of EY Global.

Supply Chain Vulnerabilities

China’s dominance in clean energy supply chains, has sparked significant geopolitical tensions in the shift towards EV adoption. A study by IRENA shows that China produces 75% of lithium-ion batteries, firmly establishing its lead over competitors. But the competition doesn’t stop there.

While the US is responsible for only 10% of EV production, states the IEA, the global superpower has also adopted a more competitive approach in the e-mobility transition. The Inflation Reduction Act (IRA) is bolstering this effort by offering tax credits for EVs, making half of these credits available only if battery components are made or assembled in North America. In striking contrast, Europe falls significantly behind on this front.

“When it comes to EV batteries, we are completely lagging behind; on cost, on technology, as well as supply chain preparedness” – states Julia Poliscanova from Transport & Environment.

The issue deepens with critical raw materials, a subject Poliscanova describes as ‘a little more bleak and a little more complicated’. Today, China totally dominates this arena, housing 70% of cathode and 85% of anode production capacity, as per IRENA. It’s clear that Europe must focus on bolstering its raw material capabilities while also making the use of such materials sustainable and limiting waste with recycling.

“We need to exploit the reserves we have in Europe in a sustainable manner, and we need to do the processing in Europe” - stresses Niklas. – “The next step is at the Member State level, where we need them to make the investments to realise this”.

It comes as no surprise, that without robust and effective regulation and trade policies, these challenges in supply chain and manufacturing won’t naturally resolve themselves.

Navigating the intricacies of Trade and Regulation

Examining global trade and regulation challenges has and is proving to be paramount in driving Europe forward in the competition for EV dominance. Each economic superpower faces unique hurdles in this domain. Looking at our continent, the policy landscape appears fragmented.

As stressed by Poliscanova to attract investments in EVs, there must be a business case in Europe. To this end, a regulatory pool  should be established with policies  focused on incentivising to localise EV and battery manufacturing in Europe. Maintaining a strong belief in the permanence of e-mobility is crucial to attracting private investments. Incentivising domestic production of battery cells and cars manufacturing while also holding an open attitude towards external partners on essential services is one such example.

Presently, China’s low-cost labour and technological prowess make the region a very competitive manufacturing destination. This highlights the need for a regulatory pull to shift this movement towards European soil.

Moreover, the new implications of the US IRA, which ties subsidies to local-component requirements, suggests that Europe’s Western ally could swiftly narrow the gap and emerge as a formidable competitor. Consequently, the EU is left in the difficult spot of formulating the most effective policy response to both the US and China to protect its own competitiveness.

Empowering Europe’s E-Mobility Competitiveness

The key challenge in navigating pressures from both China and the US today lies in crafting a response that effectively balances these competing influences.

Consensus agrees, the EU should strengthen its manufacturing, starting with reducing reliance on foreign exports of raw materials. To do so, Europe should explore the political and economic advantages of promoting a local supply chain and integrating a single market.

Finally, it’s important to remember that, despite geopolitical tensions, the European car industry has proven to be extremely resilient so far. While progress may have been slower than ideal, ongoing efforts and adaptation demonstrate our ability to endure and thrive. The key now lies in effective implementation of the Green Deal