[China's Electric Vehicle Invasion] US and Europe Raise High Barriers for Dual Containment... Is China's Rise Shaking?

[why&next] Global Auto Industry Landscape Shifts Amid China's Electric Vehicle Rise
US Inflation Reduction Act and EU Policy Support Curb China's Growth
Potential Sales Disruptions for Korean Electric Vehicles
Advanced Countries Also Move to Protect Domestic Industries

[Editor's Note] "Internal combustion engines couldn't be caught up with, but electric vehicles will be different." vs "Chinese-made vehicles have yet to be proven on the global stage."

Perspectives on China's rise in electric vehicles (EVs) are sharply divided. While some view China as having shifted early to EVs and built solid capabilities, others assess that there are still many shortcomings beneath the surface. China's EV industry has grown substantially, backed by its massive domestic market, and is now preparing to expand globally. The global competition for leadership in the future mobility industry is also showing a different pattern than in the past. This article examines the background behind China's EV success and explores future prospects.

Cadillac electric vehicle Lyriq exhibited at last year's Shanghai Auto Show

[Asia Economy Reporter Choi Dae-yeol] The Inflation Reduction Act (IRA), recently implemented in the United States, sends a clear signal to the EV market. Given the increasing importance of electric vehicles and batteries in future mobility, the act reflects an intention to enrich the domestic EV and battery ecosystem.

This is a result of the economic security-driven industrial policy emphasized openly since the Trump administration, combined with anxiety over the nearly century-long global automotive industry leadership shifting to external players such as China. Shortly after taking office, U.S. President Joe Biden ordered an investigation into battery supply chains, which concluded that dependence on raw materials from specific countries, namely China, was excessively high and posed a security threat.

Europe's stance is also complex. Having taken a proactive lead in EV development and adoption to address climate change, recent trends have shifted. Germany plans to eliminate subsidies for plug-in hybrid vehicles by the end of this year and will only provide EV subsidies through next year and the year after.

The UK recently abolished EV subsidies, and Norway, a leader in EV adoption, is gradually reducing various benefits previously granted to EVs. Like the U.S., these moves stem from the judgment that the expansion of EV adoption has created an environment favorable to Asian companies centered on China. The revelation that global supply chains can become vulnerable instantly due to wars and other factors, along with a sudden surge in demand driving up EV production costs, has also been burdensome. In Germany, a traditional stronghold of internal combustion engine vehicles, employment insecurity issues have emerged due to rapid industrial transformation.

Model 3 manufactured at Tesla factory in Shanghai, China

Chinese and Korean EVs have enjoyed considerable success in rapidly growing markets. According to trade association statistics, from January to May this year, China was the largest non-European country exporting EVs to Europe, with 1.888 billion euros, an increase of about 180% compared to the same period last year. South Korea followed with 956 million euros, a 37% increase year-on-year. China and South Korea accounted for over 75% of Europe's non-EU EV imports. Last year, their combined share was about 62%, so their share has grown further this year.

In the U.S., Korean EVs showed the steepest growth. In the first half of this year, the U.S. imported $1.333 billion worth of EVs from South Korea, the largest both in scale and growth rate among major import countries. This success is attributed to Hyundai Motor Company and Kia's dedicated EVs and eco-friendly models, which have been widely sold due to competitive pricing and product appeal.

The industry expects that Chinese and Korean EVs will be most directly affected by the U.S. Inflation Reduction Act and subsidy reductions in Europe. Both China and Korea have focused on small to mid-sized affordable or mid-tier models, but U.S. and European manufacturers are expected to introduce similar vehicle classes or join the market soon.

Hyundai Ioniq 5 exhibited at the Indonesia International Motor Show held in April this year

Lee Hang-gu, a research fellow at the Korea Automotive Technology Institute, said, "Due to the Inflation Reduction Act, Korean EVs are likely to be restricted in the U.S. market for two years, and competition in Europe is intensifying. Chinese EVs may have price competitiveness strong enough to offset various national policies, so Korea also needs to strengthen subsidy policies to protect its domestic industry."

There is also a forecast that leadership will be determined not only by the shift to electric powertrains but also by software capabilities such as autonomous driving and connected cars. Support from governments or local authorities that hold vehicle management authority, and collaboration with IT or platform companies, are important factors. Experts also point out the need to diversify supply chains for key components such as battery raw materials.

Professor Lee Ho-geun of Daeduk University stated, "Considering that the Chinese government has provided various supports such as tax benefits for EVs exported overseas, we also need to boldly implement policy support. Although the domestic market is small, a sophisticated strategy, such as forming a joint front with Europe regarding the Inflation Reduction Act, is necessary."