China's EV domination at tipping point
Mercedes reported softer than expected earnings yesterday with its chief financial officer, Harald Wilhelm, describing the EV market as a “pretty brutal space”. That caught my eye as I’ve been watching China’s EV dominance since mid-last year.
“I can hardly imagine the current status quo is fully sustainable for everybody” said Wilhelm. He explained the pricing predicament: In order to compete with Tesla’s and Chinese competitors’ stunningly low prices, traditional automakers are selling their EVs for less than regular combustion-engine cars, even though EVs are more expensive to produce.
I see this as the new reality. China is here to dominate, and many traditional automakers will probably be shaking in their boots.
In just the past two years, the number of EVs sold annually in China grew from 1.3 million to a whopping 6.8 million, making 2022 the eighth consecutive year in which China was the world’s largest market for EVs.
In comparison, the US only sold about 800,000 EVs in 2022. As EV adoption grows, China’s manufacturers will only grow in significance. It will also add upside pressure to commodity components used in EVs, including those produced by heavyweights like Australia’s BHP.
EVs can use as much as 80 kgs (176 pounds) of copper, four times the amount used in a typical combustion engine vehicle. This is where I’m most excited as an Australian based investor.
Late last year I wrote “There are around 1.4 billion vehicles in the world currently powered by fossil fuels. In comparison, we estimate 6-7 million electric vehicles in the world and the number is expected to rise to 150-200 million by 2030. The adoption curve is enormous.”
Why is China’s EV dominance so important? Because it has the ability to offset the downturn in property and construction. China is so far ahead that many European and American giants are finding it hard to keep up. Mercedes’ admission yesterday reaffirms this view.
Ford announced it will slow production of its electric F-150 Lightning pickup, and GM has delayed the introduction of the Chevy Silverado EV by a whole year and just scrapped plans to codevelop “affordable” EVs with Honda.
Editor’s Note: I want to share a great podcast I had with one of my friends and fellow entrepreneurs Dr George Marano this week. George has a background in Leadership and Strategic Management. We touched on a range of topics including burnout, delegation and finding balance in business and corporate life. Something for the weekend.
Peter Esho is an economist and Founder of Esho Group. He has 20 years of experience in investments and markets.