The biggest issue facing European automakers today is whether the Euro 7 passenger car emissions regulations will be implemented as scheduled in 2025. In late May, eight countries—France, Italy, the Czech Republic, Bulgaria, Hungary, Poland, Romania, and Slovakia—signed a document opposing "any new emissions regulations" and any new vehicle testing requirements. The main reason for this opposition is that the European Union (EU) has already confirmed a total ban on the sale of new petroleum fuel cars by 2035. As a result, many European countries believe that it is no longer necessary to invest in further refinements to fuel consumption and emissions for gasoline and diesel cars, which will soon be phased out. Instead, they argue that resources should be prioritized for the development and production of electric cars.
VAG and Stellantis even pointed out from the perspective of automakers that the cost of developing engines that meet Euro 7 emissions standards will be passed on to consumers in the form of higher prices. They believe that this will make it difficult for small cars to compete in the market, as consumers are already struggling with the rising cost of living. The market share of BEVs in major Western European countries has been increasing rapidly. In the first quarter of this year, the market share of BEVs in Germany, France, and the U.K. exceeded 14%. In Norway, the market share of BEVs even came close to 85%, and in Sweden, it exceeded 36%. Given these market conditions, the EU should focus its efforts and resources on encouraging the production and adoption of BEVs, rather than pushing for stricter Euro 7 emissions standards. Of course, if the EU's intention is to have the majority of gasoline and diesel vehicles discontinued by 2025 (because they will not be able to meet the stringent requirements of Euro 7), as the European Automobile Manufacturers Association has speculated, then there could be a different story.
We can also get a glimpse of how traditional automakers are actually reacting to the rise of EVs by looking at their recent decisions. For example, Ford announced in 2022 that it would be discontinuing the Focus, a signature model that has been in the global market for nearly 30 years.
In another shocking development, the EU and Germany reached a preliminary agreement in late March to allow Germany to sell new synthetic fuel vehicles that run on e-fuels. E-fuels are produced using renewable energy to generate hydrogen through electrolysis, which is then combined with carbon dioxide captured from the atmosphere to create a liquid fuel that can be used in internal combustion engines. Theoretically, the carbon dioxide released from the combustion of synthetic fuels can be recaptured and stored through carbon capture technology, and then reused to achieve carbon neutrality. The EU has agreed to continue to allow the sale of internal combustion engines after 2035 as long as the current conditions for carbon neutrality can be met. Although e-fuels are currently more than 10 times more expensive than regular fuel, due to the current technology and actual manufacturing costs, many European premium sports car brands seem to have found a potential lifeline for internal combustion engines.
What will be the actual evolution of the European car market? I believe that this topic will be further discussed along with the implementation of Euro 7 emissions standards. However, if European traditional automakers place too much reliance on Euro 7 emissions standards and fail to accelerate the deployment of zero-emission products, it will pose a tremendous threat to the future survival of their own brands in the market. The situation is similar to the one mentioned in the previous article, where traditional automakers use the original petroleum fuel car platform to produce electric cars.
As for China, the world's largest EV market in terms of sales ratio and volume, the market for new energy vehicles (NEVs) has been booming since the end of last year. The government ended its 13-year-long subsidy program for NEVs at the end of 2022, but in a bid to boost domestic demand, the government extended the purchase tax exemption for NEVs until the end of 2023. In an effort to maintain its leading position in the EV market, Tesla launched a major price cut earlier this year. This move prompted many other EV brands to follow suit. Since then, almost all traditional brands that produce petroleum fuel vehicles have also entered into a price war to avoid being marginalized. One of the most notable examples is Wuhan-based Dongfeng Motor Corporation.
With the support of the Hubei Provincial Government, Dongfeng Motor Corporation and its brands, including Dongfeng Honda, Dongfeng Nissan, Dongfeng Fengshen (Aeolus), Dongfeng Peugeot, and Dongfeng Citroën, are offering high subsidies of up to tens of thousands of yuan for the purchase of a car. Of all the brands, Dongfeng Citroën has the most generous discount. The Dongfeng Citroën C6, which has an original price of RMB 210,000, can be subsidized up to RMB 90,000, bringing the final price down to RMB 120,000. This is almost half of the proposed price and even lower than the price of a used car. As a result, the subsidy policy has caused a nationwide stir and a rush to buy. The policy in Hubei was immediately imitated by another major auto-producing province, Jilin, which has implemented a similar policy to protect its local China FAW Group.
But paradoxically, despite the price cuts, the Chinese car market did not see an increase in sales volume. Passenger cars underwent a year-over-year decline of 7.3% in sales in the first quarter of 2023. However, new energy vehicle production and sales increased by 27.7% and 26.2% year-over-year respectively, reporting 1.65 million and 1.586 million units respectively, with the market penetration rate reaching 26.1%. These figures suggest that consumers are increasingly interested in NEVs, and that no car manufacturers should take this market trend lightly.
In the face of the rise of Chinese domestic brands, which is causing Korean brands to lose market share, Kia China's COO Yang Honghai said at the 15th China Automotive Blue Book Forum, "I earned 2.1 billion US dollars globally in the first quarter of this year, and I can afford to subsidize the Chinese market. Do your local companies have the capital strength to play? You burn yourselves out first, and I can wait to come in later to grab the market." This statement illustrates the competitive nature of the Chinese market. Brands that do not have sufficient sales share, fundraising capacity, or capital backing will eventually be forced to exit the market. We can get a sense of this by looking at the fortunes of several Chinese auto startups. Byton, a Chinese EV startup founded in 2016 with a promising reputation, recently filed for bankruptcy after burning through 8.4 billion RMB. On the other hand, NIO, which went public in 2018 and has been in the red for five consecutive years, announced on June 20 that it had received 1.1 billion USD in investment from the Abu Dhabi Investment Authority, a sovereign wealth fund. This investment will allow NIO to continue to compete with other brands. It is difficult for brands to survive in a competitive environment without sufficient market share and fundraising ability, whether in China or in other markets.
Finally, I would like to share with you that in the midst of the new generation of electric car craze, China already surpassed Germany to become the second largest auto exporter in 2022. In the first quarter of 2023, China's auto exports even surpassed Japan's 954,000 units for the first time, recording 1.069 million units, an increase of 54% year-on-year. Specifically, the export of 248,000 units of new energy vehicles, an annual increase of 1.1 times, became the main reason for overtaking Japan. BYD's success in sales in global markets has made the greatest contributions. BYD has already established itself as the top seller of electric vehicles in Israel, Thailand, New Zealand, Singapore, and other markets. In 2021, BYD entered the Norwegian market, and this year, it has officially entered the Japanese market. BYD even set a target of opening 100 stores in Japan by 2025.
With China's own brands making inroads in markets around the world, do you think the global auto landscape will look the same in five years?
Editor's Note: Shortly after the author wrote this article, China's Ministry of Finance announced that new energy vehicles purchased between January 1, 2024 and December 31, 2025 will be exempt from vehicle purchase tax, with a maximum tax exemption of RMB 30,000 per new energy passenger vehicle. For example, a $200,000 new energy vehicle would save the buyer $17,700 under the purchase tax exemption policy. In addition, new energy vehicles purchased between January 1, 2026 and December 31, 2027 will be eligible for a 50% reduction in vehicle purchase tax, with a maximum tax reduction of RMB 15,000 per new energy passenger vehicle.
About the author - Kenny Liu
Graduated from Dept. of Aeronautics and Astronautics, Cheng Kung University in 1988, started his auto industry career since July 1990 after two year military service. Starting as a service engineer and a temp technician, product marketing specialist in Peugeot/ Daihatsu, marketing and dealer channel specialist in VW LCV from March 1992, then field manager in GM Taiwan from Feb. 1994, sales and service / parts head in Ford Lio-Ho from Sep. 1998 till retirement in May 2019. Kenny then started to work for JLR Taiwan as sales/service head and consultant/ lecturer. After that, he was invited to work at a Suzuki dealer of Taipei as the general manager until April 2022.