A major shift in the global electric vehicles (EV) market is underway, led by cheaper Chinese electric cars equipped with smart tech features. China already accounts for nearly 60 per cent of the global EV market share, and Bloomberg projects world sales to surge 21pc to 16.7 million units in 2024 — one out of every five cars sold globally last year was an EV.

Chinese automakers have not only developed surplus capacity in the country but are also building factories in other countries to tap the huge market growth potential. BYD Auto Co, which specialises in plug-in hybrids and fully electric vehicles, sold three million units last year, leaving Tesla far behind to become the world’s largest EV manufacturer. Its mainland Chinese manufacturing facilities can make 4m units a year.

BYD is also building factories in Thailand, Brazil, Hungary and Uzbekistan to produce even more cars, and it may soon add Indonesia and Mexico to that list.

The EV revolution is helped by the recent evolution in battery technology, which Chinese companies have mastered. Chinese automakers have become global car companies capable of manufacturing electric cars that compete with gas-burning cars in cost. This signals that China has moved away from being a country that once produced toys for the rest of the world and into producing cars and aeroplanes.

‘Chinese companies are looking to set up factories in other countries to tap the US and European markets, which makes Pakistan a natural candidate in the region for investments’

Consumers worldwide are eager to buy Chinese EVs because of their higher quality and cheaper price. For example, China sold 0.5pc of EVs in Europe in 2019, but they’re already over 9pc as of last year.

Watching the astronomical growth in Chinese automakers’ market share in Europe and elsewhere, American politicians have swung into action to prevent China from taking over the US EV market at the cost of their own three big carmakers: General Motors, Ford, and Stellantis.

In recent weeks, Chinese EVs have entered the centre stage of the US presidential race of 2024 as both Biden and Trump woo voters from Michigan and Ohio, two states with the most auto industry jobs, where auto workers can easily influence electoral outcome.

Last week, Trump predicted a “bloodbath” for the US auto industry at an election rally in Ohio, as he spoke about the potential loss of auto manufacturing jobs due to prospective Chinese EV imports. He vowed to impose a 100pc tariff on Chinese cars imported directly from the mainland and indirectly from intermediaries like Mexico.

Earlier last month, President Biden ordered an investigation into whether Chinese vehicles posed “national security risks”. This investigation may potentially lead to the imposition of restrictions against EV imports from China due to concerns about connected car technology. The inquiry will also address concerns about dependence on foreign supply chains, particularly in critical industries like automotive manufacturing.

The White House said the probe was needed because vehicles collect sensitive data on drivers, passengers, and infrastructure. “China’s policies could flood our market with its vehicles, posing risks to our national security,” Mr Biden stated. “I’m not going to let that happen on my watch.”

Currently, few Chinese electric cars are running on American roads. And manufacturers, like BYD, say they don’t intend to sell their cars in the US— at least not right away.

In an attempt to provide a rationale for Biden’s decision, the US Commerce Secretary, Gina Raimondo, recently noted how Beijing had banned the passage of vehicles made by the US EV giant Tesla, citing national security concerns as China strengthened its oversight over data management within the country in recent years.

In May, Chinese authorities tightened data rules for the auto industry, proposing to ban smart vehicles from transferring data directly abroad, pushing them to use domestic cloud services instead.

Commenting on the situation, Reuters reported China’s foreign ministry spokesperson as saying, “Chinese cars are popular globally not because of ‘so-called unfair practices’, but because they have emerged out of fierce market competition and are technologically innovative.

“China urges the US to respect market economy rules and principles of fair competition and stop overstretching the concept of national security to suppress Chinese companies to uphold a non-discriminatory and fair business environment,” spokesperson Mao Ning continued.

Technology has been at the centre of political and economic tensions between Washington and Beijing for quite some time. Previously, the US barred Chinese telecom companies from its market, citing concerns about data, and designated Huawei and ZTE as threats.

In a year-long war with China over who controls technology — from computer chips to artificial intelligence (AI) — the US Congress approved legislation a week ago meant to force ByteDance, a Chinese internet company, to sell its popular social media app TikTok after concerns that its Chinese ownership posed a national security risk.

Former Engineering Development Board chairman Almas Hyder believes that Mr Biden is acting against a potential EV offensive from China to protect millions of its auto jobs. “But the cost of these protectionist policies will be quite prohibitive for Americans since the average price of EVs being produced by its own carmakers is twice that of the ones imported from China, which includes a 25pc punitive tax imposed by Trump in his first term.

“Such policies also go against the spirit of globalisation. Politicians everywhere tend to make short-sighted policies to protect the economic interests of their own constituents and lobby groups rather than ordinary consumers,” he argued.

Robinson Meyer, a contributing editor for The New York Times, points out that potential restrictions on prospective EV imports from China are meant to protect American automakers that have recently missed their EV sale goals and are facing the prospect of new affordable, electrified foreign cars ready to flood the global market.

Chinese manufacturers benefit from their home country’s lower labour costs, but this explains only some of its success. Mr Meyer recently wrote, “The fact is that Chinese automakers are very good at making cars. They have leveraged China’s dominance of the battery industry and automated production lines to create a juggernaut.

“That is a good thing. Electric cars need to get cheaper and more abundant if we are to have any hope of meeting our global climate goals. But it poses some immediate and thorny problems for American policymakers the flood of cheap Chinese EVs could wash away Ford and GM’s bridge before they have finished building it. Perhaps the big three deserve destruction. However, letting them die is not a tenable political option for President Biden.

“Chinese carmakers are the first real competition that the global car industry has faced in decades, and American companies must be exposed to some of that threat for their own good,” he explained.

If the US actively impedes Chinese companies to protect its automakers, China may find it difficult to expand its global market share.

“Chinese companies are looking to set up their factories in other countries to tap the US and European markets to avoid potential restrictions on direct imports from mainland China. That makes Pakistan a natural candidate in the region for investments by Chinese automakers. Pakistan is strategically located just next to China to attract EV makers,” argues a senior executive of MG Motors Pakistan, who requested anonymity.

So far, three Chinese carmakers plan to start assembling EVs in Pakistan in collaboration with their local partners for both the domestic and export markets. However, none has yet begun work on their plans. Despite the national EV policy announced in 2020, which gave generous incentives for the local assembly of electric cars, Pakistan has only a few hundred imported EVs running on its roads.

“It’s a misnomer that Chinese investors would prefer Pakistan over South East Asian and other countries to produce EVs and export from here,” Mr Hyder says. “Pakistan is a long way from becoming an attractive market for electric cars due to lack of charging infrastructure and concerns over affordability and shorter ranges.

“At present, electric vehicles are viable in Pakistan only for fixed city routes. Unless we have a strong domestic demand for EVs and charging infrastructure, how can we expect any EV manufacturer to venture here? It doesn’t make sense to invest in or export from a place where a domestic market doesn’t exist at all.”

Published in Dawn, The Business and Finance Weekly, March 25th, 2024

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