Let’s begin with the business risk.
Just a couple of years ago, it was probably near impossible to predict where China’s electric vehicle market was going to end up in the future. Where in Europe, the story was essentially the same. Like China, Europe launched an ambitious program to electrify its fleets with more efficient vehicles, spending billions of euros on the process and implementing a mix of subsidies and tax incentives. But once that launched, the result in Europe was clearly disappointing.
In the U.S., the Electric Vehicle Action Plan could be more aptly renamed the Road to Insanity Action Plan, as well, with a list of 70 targets for charging infrastructure or electric vehicle brands in the U.S. by 2020.
What is the point of all this? Developing new technologies and markets is good for all of us. Companies with new products and businesses create jobs, create value, increase competitiveness and stimulate competition. The idea is simply that if companies do not do the work, someone else will.
But when that is too strong of a logic to accept, you have got a problem. It is a problem that the electric vehicle ecosystem in Europe has revealed. As sales of electric vehicles continued to lag, the variety of subsidies and incentives to buy these vehicles suffered. The companies with the best electric vehicles still weren’t able to sell them.
In Asia, as tariffs on lithium-ion batteries came into effect, the Japanese major automakers cut back production and the Korean Hyundai-Kia consortium announced a slowdown. The Chinese are not immune to the same problem: While their sales of electric vehicles went up at an even faster rate than Europe’s, they continue to suffer from low demand, with a combination of importers and government subsidies to lower costs. And in a grand scheme of things, electric vehicles make sense for China, just as they make sense for Europe, but they have to find a viable means to make that happen.
Which brings us to another set of challenges.
This year, in an effort to lower its trade deficit with the United States, the Chinese government introduced a dozen measures that opened markets, cut tariffs, allowed foreign investment in insurance, financial, telecoms and transport, and removed restrictions on foreign ownership of foreign firms operating in China. It also appointed its first vice-premier to run the economy.
The European Union’s best hope in turning around its car and car part industries is to emulate the Chinese approach. But to keep costs down and build capacity, China will continue to be a critical part of the picture, with Chinese buyers or foreign investors filling the demand gap that European carmakers are clearly now unable to do for themselves.
Regardless of the supply-side changes Europe may try to take, the short-term focus is on driving a change in consumer demand. Take the new incentivized programs announced by the U.K. government this week. In the last quarter, 11 different electric vehicle incentives were introduced by the U.K. government, including a £2,500 (about $3,110) discount to buyers of plug-in electric vehicles (PEVs) who buy their new car at or near the end of July. The latest round of incentives is part of the government’s strategy to clear the threat of a second car-sector recession.
It is likely that the second big stimulus program for carmakers will be announced next week. With free parking spaces also set to be introduced, and caravans being allowed to drive with no restrictions from November, this is likely to be another dip into the Gulf Stream. What does it tell us? Is it really as difficult as it looks to design a competitive car? We may not know that until 2019.
In the meantime, China is likely to continue to be a key market. What about France, Italy, Spain and Germany? The U.S.’s just another market. What does that mean for a competitor like Toyota or a company like Daimler or BMW? It means that significant models have to be invented with products that will win over consumers. And that for those that do, the odds of success are extremely slim.