The global NEV (New Energy Vehicle) landscape may experience an important transformation

The Chinese government has announced clear plans to raise NEV sales to 20% of the automotive market by 2025, and 50% by 2035, and as time goes on, these look more and more achievable. If Chinese EV manufacturers are successful in marketing their products overseas, this would have tremendous implications for commodity demand. As NEVs become a larger fraction of global automotive sales, this would accelerate the demand shift of key automotive materials like steel, aluminum, and copper from Europe to Asia.

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China, the country leading global sales of new energy vehicles (NEVs), not only will maintain its market position accounting for half of all expected global NEV during the next decade, but it may also do a grand entrance into western markets.

This is according to London-based market analyst CRU, whose recent EV report states that local sales will be driven in part by government policy – such as mandating a minimum quota of NEV sales for automakers -, but also by increased consumer demand as NEV prices continue to decline and the availability of high-quality models increases.

“The Chinese government has announced clear plans to raise NEV sales to 20% of the automotive market by 2025, and 50% by 2035, and as time goes on, these look more and more achievable,” the document reads.

In addition to this, the analyst believes that the Asian giant may start to target international buyers in the coming years, given that it already has a head-start on manufacturing scale over the west and that government subsidies to the industry are starting to decline.

CRU points out that, although feasible, exporting electric vehicles may not be an easy thing for Chinese manufacturers because, at least in Europe and the US, there isn’t a single widely accepted Chinese car brand marketed and sold and even in China, western automotive sales are higher than Chinese brands.

“But if Chinese EVs were price-competitive, widely available and marketed appropriately, we believe that there is no reason why they could not be successful globally in the coming decade,” the report states. “And there is certainly a historical precedent for this from other countries. Although now a powerhouse of the global automotive industry, Japanese cars were extremely rare outside of Japan until the late-1960s, but this changed rapidly after the launch of the Toyota Corolla took the market by storm. This happened again to a lesser extent with Korea in the 1990s.”

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Some initial steps have been taken with Tesla and Dacia manufacturing cheap low-range EVs in China and marketing them overseas. In CRU’s view, this means that if one more Chinese EV manufacturer is successful in scaling up the production of affordable NEVs that are accepted by the European market, then the global NEV landscape may experience an important transformation.

The impact on commodities

“If Chinese EV manufacturers are successful in marketing their products overseas, this would have tremendous implications for commodity demand,” the analysis states. “As NEVs become a larger fraction of global automotive sales, this would accelerate the demand shift of key automotive materials like steel, aluminum, and copper from Europe to Asia.”

Since Chinese EVs are far more likely to use cheaper, lower-range LFP battery chemistries than their western counterparts, CRU predicts that an increase in sales from Chinese NEV manufacturers worldwide would have strong implications for long-term nickel and cobalt demand.

The market researcher also says there is a big “but” in this hypothesis, which is that there is no guarantee that consumers in the west will accept Chinese EVs. In addition to this, geopolitical issues have to be considered as they may lead to western countries implementing changes in tariffs to protect domestic production.

“It should be remembered that EV leadership is not only a matter of production capacity, low prices, or vehicle quality. When reaching new markets, cultural barriers and brand loyalty play a decisive role for buyers to shift from one brand to another one, which is a significant challenge that Chinese manufacturers will face in Europe and North America,” the report points out.

Also, CRU experts say it is important to take into account the fact that the Old Continent is catching up with 2020 showing a 144% year-on-year increase in European EV sales, even if supported by growing subsidies.

Yet, China could also take advantage of the large demand seen in Europe, which is outpacing the region’s NEV manufacturing capacity as it is supported by consumers’ rush to benefit from higher availability of better-quality models and higher subsidies.

About E. J. McKay

E.J.McKay is a Shanghai-headquartered investment bank with a special focus on mergers & acquisitions. We are one of the most long standing independent investment banks in China, with core business of mergers & acquisitions and financing advisory.