China’s identity as the world’s premier manufacturing powerhouse is no secret. Over a quarter of global manufacturing output comes from China, and over the last decade, it has leveraged its industrial dominance to expand its auto industry, especially its electric vehicle production. Consequently, due to generous government subsidies and near-total control of key supply chains, the country has rapidly taken a massive lead in global EV production and sales.
Due in large part to the economic support described above, Chinese EV manufacturers can sell cars at a dramatically lower cost than manufacturers anywhere else in the world. As a result, the price of an EV in China continues to drop, currently only costing consumers an average of $33,000, meanwhile European and U.S. manufacturers’ EV cost $70,700 and $72,000, respectively, in late 2023. This staggering difference explains why EV sales in the West continue to lag behind those of combustion engines. Combustion car manufacturing in the West is so cheap for much the same reason EV manufacturing is cheap in China, namely well-established supporting infrastructure, a vast supply of components and a wide array of manufacturers producing affordable combustion cars for the masses.
The West’s current strategy of starting a tariff arms race with China has limited its ability to leverage these assets toward EVs, widening the cost gap and making Chinese EVs even more competitive, which, in turn harms domestic manufacturing and weakens the demand for Western EVs. If the United States and Europe wish to accelerate their automakers’ efforts and be on par with China, it must begin by narrowing the cost gap. Only by exchanging futile tariffs with competitive subsidies, making great strides in battery manufacturing and enhancing supporting infrastructure does the West stand a chance in making electrification attractive to the median car buyer
While the tariff-focused strategy makes sense in theory, this limited strategy has, in reality, only worsened the cost gap between Western and Chinese EVs. High cost is the greatest barrier to EV ownership according to two-thirds of Americans. Although prices of EVs in the U.S. have fallen substantially over the past several months, the price of a Western EV is still far higher than a Chinese EV, even considering the hefty tariffs the U.S. has implemented. Greater costs in the West further harm efforts towards electrification, which are necessary to move towards a carbon-neutral future.
The lack of strides toward electrification hits young people hardest, who — for obvious reasons — tend to be the strongest proponents of environmentally-friendly living yet frequently have the least amount of capital to realize these ambitions. By keeping EV prices out of reach for most consumers, the auto industry reserves EVs for those who want it least: older, wealthier people who won’t necessarily bear the brunt of the consequences of humanity’s contribution to climate change.
The more the West invests in EVs, expands its access to renewable energy and phases out fossil fuels, the more we can minimize the progression of climate change and ensure the future is driven by renewable energy sources. The production of EVs, according to Volvo, produces around 70% more CO2 than the production of a combustion engine car, yet an EV is substantially more carbon-neutral than a gas-powered car over their respective lifetimes. For nations that simultaneously invest heavily in renewable energy to power their nation, these benefits are further increased.
Such a transition would also better facilitate the growth of the EV market in the West by establishing infrastructure ripe for exploitation by vehicles with the potential to be carbon neutral.
Perplexingly, the U.S. government has done alarmingly little to encourage the widespread adoption of EVs through construction of charging stations and other supporting infrastructure. Even with EVs making up just under 1% of all cars on the road in the U.S., the density of EV charging stations throughout the nation is still far too low, especially when compared to gas stations. In the U.S., if every driver suddenly transitioned to EVs, our power grid would at best be seriously challenged.
Thus far, the U.S. government’s efforts to reinvigorate the nation’s EV charging infrastructure have been painfully lackluster, and consumer demand for EVs has followed suit. Currently, adoption rates are so low that EVs only made up 6.8% of all car sales in May 2024. Without sufficient efforts to make EV ownership a more viable alternative to a combustion vehicle, adoption rates in the United States will stay low. The U.S. government can do a lot more to accelerate America’s transition to a greener relationship by increasing subsidies for EV infrastructure, which are bound to make owning an EV far more convenient and therefore more attractive to American consumers.
Apart from environmental and infrastructure subsidies, the U.S. must expand its manufacturing subsidies to combat China’s head start. A major reason why China is able to sell its EVs so cheaply is due to its stranglehold on the world’s lithium-ion battery manufacturing market, a lead which has developed since the early 2000s due to hundreds of billions in investments and subsidies by the Chinese government.
Despite Western governments’ efforts to bring battery production to their home countries, Western battery manufacturers continue to import their lithium cells from China due to their affordability. While costs for these batteries continue to fall as manufacturing grows increasingly efficient, Chinese EV manufacturers benefit first and foremost from these innovations due to China’s 80% market share of cell production. Batteries make up around 40% of an EV’s manufacturing cost, escalating western manufacturers’ battery-powered dilemma. To cut into China’s lead, subsidization of domestic lithium cell production as well as battery manufacturing must be an even greater priority for Western governments.
Beyond these factors, China is absolutely bolstered by its massive workforce and abundance of cheap labor. Over the past few decades since China’s opening to western manufacturers, this is the main reason why China has pulled so rapidly ahead of former manufacturing powerhouses in the West. China is an extremely productive nation, and the consequences of Western companies moving their hubs of production to China may be irreversible. Nevertheless, it doesn’t mean the West should capitulate to its unproductive commitment to excessive tariffs.
If the United States and Europe wish to reclaim their legacy as drivers of technological innovation in the automotive sector, its governments must shift from self-sabotaging tariffs and prioritize subsidizing existing and budding manufacturers while rapidly expanding supporting infrastructure. Together, these efforts will ensure a brighter future for manufacturing in the West while also pushing the planet into a greener existence.
Maximilian Schenke is an Opinion Columnist who writes about whatever is on his mind, but typically focuses on politics. He loves receiving criticism or otherwise at maxsch@umich.edu.
The post The West must change its EV strategy to compete with China appeared first on The Michigan Daily.
Leave a Reply