beijingwalker
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European EV Supply Chains Continue to Depend on Batteries from China
Mon 23 Oct, 2023 - 10:33 ETFitch Ratings-London-23 October 2023: European electric vehicle (EV) makers’ supply chains will continue to depend on batteries procured mostly from China (and South Korea) until they successfully establish sourcing from other regions, which will likely take place around 2030, Fitch Ratings says.
Moreover, luxury EV brands, including those of Mercedes, BMW and Volkswagen, sell about a third of their EVs in China. This dependence may expose European automakers to possible retaliatory measures over the EU probe into Chinese production subsidies or other potential protectionist measures.
EV imports from China into Europe have been growing rapidly over the past year, although China-produced EVs are still a small portion of new EV sales. Tesla-branded EVs produced in China have the largest share of the European market (Tesla’s total share in Europe more than doubled in August 2023 yoy), while Chinese brands are less than 1% of the market each. The EU has launched the probe into the fairness of Chinese EV production-side subsidies, which may spur EU trade protectionist actions and retaliatory measures by China. Furthermore, the probe is not limited to Chinese brands and can affect European EV brands produced in China.
European automakers are leaders in battery capacity that is announced, being built or secured for their EV pipelines, in our view. But currently most EV battery supply comes from China (and South Korea), and European automakers will not be self-sufficient in batteries until about 2030 as new production capacity is being built and ramped up.
High EV penetration in China makes it the largest market for European automakers, accounting for about a third of their high-end brand sales. This share will gradually decline as EV penetration in other markets grows, but, in the short to medium term, Europe’s luxury EV makers will remain dependent on sales in China.
EVs are still a minor share in the total global sales of the largest European producers, ranging from 8% for Volkswagen, about 10% for Renault and Stellantis, 11%-12% for Mercedes and BMW to 17% for Volvo in 1H23. Therefore, any short-term geopolitical pressure on sourcing and sales in China is unlikely to affect European automakers’ credit profiles. However, EVs are the major growth area and the focus of automakers’ investments. The share of EVs exceeded 20% of all new car registrations in Europe in August, an increase of 21% in new EV registrations yoy. Therefore, any uncertainty over long-term supplies may affect automakers’ production plans and investment strategies.
