Why Germany Is Lagging, and Why China Will Lead the World with EVs

A battle is underway, to determine which country will lead in the transition to zero-emission cars. The Electric Vehicle (EV) sector is expected to be a major pillar of the new green economy. Surprisingly, Germany, where the petrol-guzzling car was invented, is lagging. Meanwhile, China, where bicycles out-numbered cars just one generation ago, has become the world leader in EVs.

On a recent visit to Germany, I was struck by how much Germans love their cars. They are rightly proud of their brands, from BMW to VW, for their quality and superior road handling. You don’t see many Japanese cars on the autobahns, let alone Chinese cars. It would be a little like selling ice to Eskimos.

So, when hawks in Brussels evoke a “China threat” to launch anti-subsidy probe on Chinese EV imports, it draws mostly yawns from consumers. That China has subsidised its industry is hardly surprising to Europeans who have long subsidised priority industries. German buyers aren’t particularly warming to EVs anyway. At least not yet.

After subsidies designed to support the switch to EVs were withdrawn by Germany’s government late last year, sales have nosedived 14 percent. EVs account for only 2 percent of cars on German roads. Consumers I spoke with pointed to the scarcity of charging stations, the government’s ambitious plans to invest in infrastructure for EVs seemingly out of reach. For some, EVs are just not taken seriously, rather like “toys” according to one observer.

With a sluggish German economy, the ongoing energy crisis as a result of the war in Ukraine, and rising populism fuelling the extremist Alliance for Germany, EVs may not be on the top of the agenda. Yet failure to keep its leading position as an auto innovator may be a major misstep for Germany, a nation that became rich based on its leadership in manufacturing.

China has its own economic problems, but its automotive sector is breaking records. In 2023, China became the world’s biggest exporter of cars, overtaking both Japan and Germany. In the final months of 2023, China’s BYD overtook Tesla to become the world’s leader in Electric Vehicles (EVs) production.

This is good news for my home country, Australia, which supplies China with iron ore, which is turned into steel for car production among other things, and lithium, a critical input for EV batteries. Prices are surging for both. For Australian consumers, feature-packed and competitively priced Chinese-produced EVs have already won a majority share of the Australian car market. Tesla remains the biggest-selling EV in Australia, with both Model Y and Model 3 manufactured at its giant factory in Shanghai, and BYD is in second place.

It’s no surprise today’s China has become the world’s largest market for cars. Despite its current economic slowdown, China has enjoyed decades of strong growth and boasts a giant middle class. The scale of the China market explains why Japanese, German and other foreign carmakers have long manufactured there and why in previous years they were willing to enter into joint ventures that entailed transferring technology to China. The automotive sector in China now allows 100 percent ownership of enterprises by foreign investors, such as Tesla.

In the heyday of globalization, from the 1990s to the pre-Trump era, closer economic interdependence with China worked for everyone. China manufactured low-cost and low-value goods and imported higher-value components from Europe and the United States. China also reinvested its huge U.S. dollar surpluses in U.S. treasury bonds. In the last decade, however, China has begun to challenge the supremacy of Europe and the U.S. at the high-value end of the market.

From 5G digital networks and solar panels, to EVs, China is now a leading source of innovation. For the U.S., Chinese supremacy in the technology of the future is a national security threat. For Europeans, it’s a threat to the manufacturing champions of their economies. For both the U.S. and Europe, then, China’s tech edge is somewhat like an existential challenge. We can expect more blurring of the lines between geopolitical and economic competition, more restrictions on trade and higher tariffs.

Regardless of trade wars or a new cold war, EVs are the way of the future and nothing can stop the future. In an ideal world, everyone benefits from innovation and the transition to green transport. Some might get there sooner than others, and will reap greater rewards.

The article reflects the author’s opinions, and not necessarily the views of China Focus.