Posted on - 18 Mar 2024
Dear European Union,
It’s been a long time since we’ve spoken. Just to remind you, we previously corresponded after I warned about the dangers of underinvesting in the raw materials supply chain in 2020, and about the inflationary impacts of the Energy Transition in 2021, but I guess it has been a while since then.
You introduced the Critical Raw Materials Act but, for me, it’s not really worth the paper it’s written on because it doesn’t go far enough. It also seems to rely rather more on the stick approach than the carrot.
And, talking about sticks, the reason I’m writing is that I wanted to talk to you about the investigation you’ve initiated into Chinese-manufactured EVs selling into Europe.
So I can understand that you want to protect the European car industry. It’s a major employer, after all. But there’s a real issue with the European EV offering that I don’t think you really understand.
You see, the median car price in Europe is about €15,000 – that’s where the mass market is. But the median price of EVs in Europe is currently c.€30,000. That’s a long way away from the mass market. And currently no European carmaker that manufactures vehicles in Europe is selling EVs with over 150km range below €25,000. In fact, the cheapest cars available in Europe are almost all manufactured in China.
Now I’m sure that you, like me, are keen for Europe to decarbonise and hit our decarbonisation targets. But that’s unlikely to happen unless we have affordable EVs. And it’s even more unlikely to happen in the current high interest rate environment when the consumer is under pressure. And, by the way, for an explanation on the reasons behind the high interest rate environment, please see our previous correspondence about the inflationary impact of the Energy Transition…
So, given the level of (over-)regulation in Europe it’s highly unlikely that European car producers will produce any sort of EV with reasonable range any time soon that can sell profitably in the €15,000 price bracket. But Chinese companies can. Indeed, BYD is currently selling the Seagull, a crossover SUV, for sub-US$10,000 in the Chinese market and sundry other producers are selling reasonable to high quality vehicles for less than US$15-20,000.
So my big question to you, dear EU, is do you really want the Energy Transition to succeed? For that to happen we need to be able to sell mass market EVs in Europe, but we can’t at the moment. Now, I understand your wish to protect domestic industries and jobs, but the fact is that no European OEMs are currently producing low-cost EVs.
So my solution is this – why don’t you adopt a two-tier tariff structure? For Chinese EVs that retail at less than €20,000 I propose that you don’t impose a tariff at all, and for Chinese EVs that retail above that level, you can go ahead and propose an increased tariff. That ticks all our boxes – we have the potential to build a mass EV market in Europe, which is what we need in order to achieve our decarbonisation goals, but we also get to protect European manufacturers in the more premium parts of the market, which I understand is an important political imperative for you.
Please bear my proposal in mind. It would be tragic if you went all bull-in-a-china-shop like your recent rhetoric suggests that you might, and end up robbing Europe of the potential to hit its decarbonisation targets in the near-term.
Yours faithfully
Matt Fernley
Editor, Battery Materials Review