There is turmoil in the European electric vehicles market. To become less dependent on China for lithium, an essential element for batteries powering EVs, European governments are making strides to increase lithium mining and battery manufacturing. Meanwhile, European governments also fear the rise of Chinese EV manufacturers, who produce cheaper EVs that are gaining popularity among European consumers, spelling trouble for the future of the European industry.
Lithium is a crucial material for the batteries powering electric vehicles. The material is in short supply because of the speed of the electric transition. At the same time, Chinese players heavily dominate the lithium market, as well as the manufacturing of batteries. As a result, European governments are taking action to secure access to both lithium and batteries. Some are simplifying permitting processes for mining, with several mines already receiving approval. Aside from mining their own territories, governments are seeking deals abroad. Last February, German chancellor Olaf Scholz met with leaders of Argentina, Chile and Brazil to broker lithium deals. In addition, European governments aim to attract battery manufacturers, for instance by offering subsidies. While it commonly takes many years for mines and factories to start production, the recent build-out of LNG terminals in Europe in response to the shutdown of Russian gas shows that countries may be able to act faster during uncertain times. Considering all the efforts described here, the development of European EV ecosystems could accelerate significantly.
While European governments are trying to accelerate the development of their EV ecosystems, Chinese EVs are becoming more popular among European consumers. Most importantly, European producers are still struggling with the transition to electric cars as they mainly produce EVs in the higher segment and their prices are not falling fast enough to make them more competitive with combustion engine cars. This has created an opportunity in European markets for Chinese producers to sell smaller, cheaper EVs (e.g. BYD, Xpeng, Hongqi). In response, European producers are calling on the EU for import protection measures. The question, however, is whether these would be effective, as European consumers are taking a liking to Chinese EVs. This is similar to the 1980s, when the American government decided to limit the amount of Japanese cars that could be exported to the US, but American consumers still chose to buy Japanese cars because they were more affordable. It is highly likely the same dynamic will unfold when it comes to the rise of China.
.png)
