Welcome back. For a sobering take on the EU’s green push, take a look at this FT interview with Frans Timmermans, the former European Commission vice-president who spearheaded its ambitious “Green Deal” programme from 2019 to 2023.
Timmermans said the low-carbon transition “will be stopped by European voters” unless it was organised in a more progressive way, with the rich bearing more of the cost. He also warned against the temptation to slow down the shift towards electric vehicles in order to shield European carmakers who were “sleeping for 10 years”, while their Chinese rivals forged ahead.
Two new sets of numbers in the past few days have underscored the extent to which China is pulling ahead of other major economies in electric cars, as I highlight below. And even Tesla — a company that can hardly be accused of being sleepy — is feeling the effects.
Electric vehicles
Taking stock of the global EV sector
For those trying to gauge the health of the global electric vehicle sector, this year has begun with two sharply conflicting signals from the world’s two biggest EV producers. On January 1, China’s BYD announced that it had sold 4.3mn cars in 2024, nearly 20 per cent above its stated target. A day later, Elon Musk’s Tesla reported its first full-year sales decline for more than a decade.
The contrasting announcements highlight some key trends in a sector that has played a totemic role in the drive to decarbonise the world economy, and which is increasingly important in the global contest for industrial power.
China goes gangbusters
In late 2020, President Xi Jinping approved a strategy under which sales of “new energy vehicles” — including plug-in hybrid as well as pure electric cars — would reach a fifth of Chinese passenger car sales by 2025. China has far exceeded that target: in the second half of last year, NEV sales overtook those of combustion-engine cars.
The single biggest reason for this is the rapid advances that Chinese carmakers have made in reducing the cost of their vehicles. BYD, which now controls over a third of the domestic electric and hybrid car market, has been perhaps the most impressive performer on this front. Its lowest-cost electric car sells for less than $10,000.
Analysts at Bernstein estimated that BYD’s cost of production for EVs was 50 per cent lower than that of European rivals, thanks to economies of scale, vertical integration (it makes its own batteries and other parts) and robust local supply chains (China is dominant in many key commodities and components for the EV sector).
Tesla is a major player in China too, and it achieved a 9 per cent increase in sales in the country last year. But that was far behind the wider growth rate of nearly 40 per cent in the Chinese electric and plug-in hybrid market.
Western market growth has slowed
As a disruptive early mover in the US electric car market, it’s unsurprising that Tesla has been losing share as other carmakers got on the electric bandwagon. Tesla’s US market share in electric vehicles slipped below 50 per cent for the first time in the second quarter of last year.
A further headache for Tesla is that while EV sales are still growing in the US, the pace of growth has slowed significantly in its most important market. The proportion of EVs in new US car sales shot up from 3.4 per cent in late 2021 to nearly 8 per cent in late 2023 — but then dipped below that level for the next two quarters. Affordability has been a key challenge: carmakers have struggled to close the price gap between electric and petrol-powered cars, and higher interest rates have made consumers less willing to shoulder the extra cost.
The share is higher in Europe. EVs accounted for nearly a fifth of car sales last year in the UK, and roughly an eighth of sales in the EU. But EV sales in the EU fell by 6 per cent in the first nine months of last year, hit by a weakening of government subsidies. That effect was particularly stark in Germany, where sales fell by more than a quarter in the year to October.
Hybrid hype
Once widely seen as a pointless halfway measure, hybrid cars are enjoying something of a second wind, due in part to concerns about the speed of expansion of electric charging infrastructure.
The US in particular has seen a surge in sales of non-plug-in hybrids, which have a small battery that is charged by the petrol engine and by the friction from braking. Sales of these cars reached 10.6 per cent of the US light vehicle market in the third quarter of 2024.
In China, momentum has gathered behind plug-in hybrids, which have larger batteries that enable them to operate without using their petrol engine at all on shorter journeys. Sales of these vehicles rose by 70 per cent year on year in the first half of 2024, to reach a 42 per cent share of China’s NEV market.
As the world’s biggest producer of plug-in hybrids, BYD is perfectly placed to benefit from this trend. Last year it sold 2.5mn of these vehicles — a 73 per cent annual rise, comfortably outstripping the 1.8mn pure electrics that it sold. Tesla, with its firm commitment to battery power, receives no benefit from the growth in hybrid sales.
How much the planet benefits is another question. The International Council on Clean Transportation estimated last year that lifecycle emissions (from manufacturing as well as driving) for battery-powered cars were about 66 per cent lower than for conventional cars, or 83 per cent lower if they’re powered only by renewables. Meanwhile, the net emissions benefit for plug-in hybrids was about 40 per cent, and for non-plug-ins, about a quarter.
What next?
Tesla shares took only a modest hit from the disappointing numbers and had made back those gains by the weekend, to trade over 70 per cent higher than where they started 2024. This is in large part because Tesla is not valued like a normal car company, whether because of its cult following, its aggressive investments into other areas of technology, or its chief executive’s bromance with the incoming US president.
But there are more straightforward reasons to suspect that Tesla’s downbeat recent numbers may prove a prelude to stronger results in coming quarters. The company plans to start to production of “more affordable models” in the first half of this year. Tesla will also gain a competitive advantage against its rivals if Donald Trump, as expected, axes EV tax incentives created by Joe Biden’s Inflation Reduction Act.
BYD, meanwhile, looked set to benefit from a shakeout in the Chinese EV market, as weaker players failed amid intense price competition, said Yale Zhang, head of Shanghai-based consultancy Automotive Foresight. But the export prospects for it and other Chinese car companies look more difficult.
The EU, anxious to protect its own automotive industry, has imposed tough new tariffs on Chinese-made electric cars, arguing that the industry has received unfair state support. BYD is still hoping to crack into the European market with a new factory in Hungary (though it could face scrutiny after allegations that a subcontractor in Brazil subjected workers to “slavery”-like conditions). The US has in effect closed its market to Chinese EVs, with tariffs of 100 per cent.
Policymakers in the west hope these measures will pay off by giving their carmakers time to catch up with their Chinese rivals. In the meantime, warned automotive consultant Michael Dunne of Dunne Insights, “the pace of the transition is night and day between China and the rest of the world”.
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