Regional rivalries, good and bad

Today’s global auto industry neatly illustrates the axiom (attributed to William Gibson) that the future is already here, but unevenly distributed. In places such as Norway, Holland and California, the electric future has more or less arrived. In much of the developing world (and parts of the US) it remains a vague rumor.

Of course, this probably isn’t news to you, dear readers. Plenty of pundits have ponti cated on the relative prospects of the planet’s auto-producing polities, and you may be tired of reading about the “lunch” that China’s poised to eat, “eulogies” for the UK auto industry, and the “tsunami” that’s headed for Japan.

A glance at 2022’s sales gures shows that the trends these metaphors describe are very real—and they’re worrisome for those who want to see a speedy global transition to e-mobility (and to those who hate to see their own regions falling behind). On the streets, however, the situation is far more complex than on the metaphorical racetrack. Just as pro-EV and anti-EV factions exist in the executive suites of every major automaker (save one), progressive and regressive forces are at work in all the world’s auto markets, and they interact with economic and political trends in complex ways. Contradictions and ironies abound.

Chinese automakers hope to use EVs a lever to pry their way into the global auto market, and this strategy is beginning to show results—China-made EVs from BYD, Xpeng, Polestar and other brands are roaming the streets of Europe, and they’re headed for the US. BYD has been producing electric buses and trucks in California for some time, and Polestar hopes to establish US production in 2024.

Domestic automakers fear the dragon—Stellantis CEO Carlos Tavares (among others) recently warned that European OEMs need to increase the pace of innovation or risk ceding the low-priced EV market to the Chinese. Since Mr. Tavares spoke, the future of the trade situation with China has become even more unpredictable. He opined that anti-China protectionism would be a non-starter, because German automakers are making bank from their Chinese JVs. However, if geopolitical tensions continue to grow, new trade restrictions could be in store.

Meanwhile, China’s domination of the mining and (especially) processing of key raw materials is a pressing problem for the global EV industry. In the US and Europe, governments are pushing automakers to develop domestic supply chains.

ere’s a growing (and refreshing) sense of urgency about “onshoring” battery production. e European Battery Alliance recently warned that the Continent’s battery industry is in “crisis,” and called for billions in “emergency” investments.

Almost every press release we see these days mentions the Biden Administration’s IRA and BIL, both of which include strong incentives for automakers to source raw materials and components from the US and trade partners. It’s working— Atlas Public Policy estimates that $73 billion of investment in US battery plants was announced in 2022. e EU’s Battery Law has turbocharged a similar wave of gigafactory construction.

By Charles Morris

Some European players seem intent on starting a pointless ght between the US and Europe over the Buy American provisions of the IRA/BIL, but the bills’ authors never meant to disinvite Europe from the party—they meant to snub China. As the details of the new rules are worked out, they’ll surely be brought into harmony with existing free-trade agreements. American and European companies will continue working together.

Subsidies are a hot topic everywhere. Australian rm Recharge Industries has bought defunct battery maker Britishvolt and hopes to resurrect it, but the rm’s collapse set back hopes of UK battery production by several years at least. Many place the blame for the debacle on the UK government, which turned o the subsidy tap in the name of free market ideology. As one commenter put it, ideology may work when other countries play the same game, but they don’t, and won’t—China has generously supported its EV industry, and now the US and EU are following suit.

Some economists believe that economic competition among nations is a myth, perpetuated by populist politicians, and the auto industry provides some evidence to support that view. German, Japanese and Chinese OEMs are building EVs in the US, and their factories and dealerships support thousands of American jobs. Meanwhile (for now) Western brands are still busy in China, and Chinese suppliers are participating in the global coopetition—CATL’s plans to build new battery plants in Europe (for Mercedes et al) and the US (Ford) are just a couple of the many pending transcontinental partnerships.

Political theories may be important to pundits and politicians, but businesspeople (and voters) are more interested in doing business and creating jobs. Decisions about subsidies, tari s and tax policy need to be made on a case-by-case basis with an eye on real-world results rather than rigid ideologies.

It’s critical for Western automakers to build up domestic supply chains, for both geopolitical and sustainability reasons, and that’s going to require government support. Subsidies may be distasteful in theory, but in the real, rapidly warming world, we can’t wait for some theoretical free market to bring everyone together in a Kumbaya circle.

If the threat of competition from other regions (realistic or exaggerated) is what it takes to convince governments to support electri cation, then so be it. However, scal conservatives correctly point out that subsidy programs can create perverse incentives (see PHEVs). ey should be narrowly aimed at promoting innovation, not at preserving politically powerful industries (see hydrogen).

ere’s also an elephant in the room, poised to stomp on politicians’ dreams of job creation: electri cation is going to cause not just layo s in some areas, but the extinction of entire industry segments. Policies should ultimately be aimed at helping humans, not corporations. Decision-makers need to help displaced workers to nd new places in the clean energy economy, and the auto industry needs to start making EVs accessible to lower-income drivers.