European Automotive Industry in the Century of Asia

European Automotive Industry in the Century of Asia

Stanislav Šaroch Tereza Hrtúsová Michal Hrubý Tomáš Kozelský Radek Novák

2023

Authors: Stanislav Šaroch Tereza Hrtúsová Michal Hrubý Tomáš Kozelský Radek Novák

Editor: Stanislav Šaroch

© Škoda Auto University 2023

Published by Škoda Auto Vysoká škola o.p.s, Na Karmeli 1457, 293 01 Mladá Boleslav In Eva Rozkotová Publishing, Beroun.

1 st edition

ISBN 978-80-7654-068-2 ISBN (online) 978-80-7654-069-9

TABLE OF CONTENTS

IINTRODUCTION

5

1 GLOBAL AUTOMOTIVE INDUSTRY 1.1 Global Development of the Automotive Industry

6 6 7 8

1.1.1 Global Motor Vehicle Production 1.1.2 Passenger Car Production by Country 1.1.3 Foreign Trade in Passenger Cars by Country 1.1.4 Global Car Sales by Manufacturer 1.1.5 China: Global Leader in Production

10 11 13

1.2 Development and Outlook for the Global EV Industry

2 AUTOMOTIVE INDUSTRY IN THE EU 2.1 Motor Vehicle Production in the EU 2.2 Foreign Trade in Motor Vehicles in the EU 2.3 New Passenger Car Registrations in the EU

17 20 23 26 28

2.4 New Passenger Car Registrations by Manufacturer in the EU

2.5 Development of Electromobility in the EU

3 EUROPEAN, CHINESE AND AMERICAN INSTRUMENTS PROMOTING ELECTROMOBILITY 3.1 Regulation and Promotion of Electromobility in the EU 3.2 Regulation and Promotion of Electromobility in China 3.3 Regulation and Promotion of Electromobility in the US

35 36 38

SOURCES

40

3

INTRODUCTION The automotive industry constitutes a long-established and significant sector of the world economy. Indeed, experts in international economic relations recognise that the automotive sector is highly concentrated, involves significant international investment and links different industries. Car trade represents an important part of international trade in terms of its volume. Hundreds of technical inventions and innovative production processes have been or are being developed or applied in the sector, with the potential for use in other areas of human activities. The industry is undergoing a major technological transformation driven, on the one hand, by the development of digital technologies, which have partly transformed cars into “wheeled computers and data collectors” and, on the other hand, by regulations which, through various economic and administrative policy instruments, promote the substitution of combustion engines by electric motors or other alternative propulsion methods, particularly hydrogen-based technologies. The sector has changed its geographical focus, size, and importance since its inception. The current leaders in production volumes and the development of new technologies, especially in the field of electric mobility, are either Asia or China, which have outpaced the former traditional centres such as the US and Europe. The present study intends to offer an overview of the current state and development of the global automotive industry along the abovementioned lines, based on a relatively broad approach using quantitative data and policy analyses to determine how the different centres of the global automotive industry are shaping technological change towards electromobility. Chapter 1 introduces the global automotive industry and analyses the growing importance of and shift towards electromobility. The study focuses on the position of the European automotive industry within the global context, and this topic is discussed in detail in Chapter 2. Chapter 3 presents a comparison between the US, the EU and China, focusing on the regulation of technology development and the promotion of electromobility. Even though the present study is essentially an overview, its contents can contribute to the development of research on processes and phenomena in the automotive industry. We hope you enjoy reading it!

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1 GLOBAL AUTOMOTIVE INDUSTRY

1.1 Global Development of the Automotive Industry

1.1.1 Global Motor Vehicle Production The global production of motor vehicles has been declining since 2018. The COVID-19 pandemic did not change this trend. In 2020, global motor vehicle production reached the level of 2010. In 2021, motor vehicle production increased slightly to 80.2 million units. In 2022, production grew again, reaching 85 million units, i.e., a year-on-year increase of 6%. In general, however, production growth was still 8% lower than in the pre-COVID year 2019. Fig. 1.1: Global motor vehicle production (million units)

Source: International Organization of Motor Vehicle Manufacturers (OICA). Note: Other motor vehicles include light commercial vehicles, trucks, and buses Motor vehicle production is dominated by passenger cars, with 61.6 million units produced in 2022 (representing 72% of total motor vehicle production), an increase of 8% compared to 2021. Nevertheless, the production of passenger cars in 2022 was still about 8% lower than in 2019, i.e., before the COVID-19 pandemic. The Asian region has traditionally dominated the passenger car industry, with 42.3 million units produced in 2022, accounting for approximately 69% of the market share. China produced 39% of the global passenger cars, while Europe, with 13.7 million passenger cars, had a 22% share. The US produced 1.8 million passenger cars in 2022, accounting for about 3% of global production (mainly due to increased demand for light trucks in the US). Compared to the same period in 2012, the Asian region increased its production by 20% over the long term. China boosted production by 53% compared with 2012.

6

On the other hand, Europe saw a 21% drop in production compared to 2012 (passenger car production in Germany fell by 35%). In the Americas, passenger car production fell by 53% (57% in the US). Fig. 1.2: Global passenger car production (2022 and 2012, million units; the caption indicates year-on-year change compared to 2012)

Source: OICA; the Americas region includes North, Central and South America; the Asia region includes Oceania and the Middle East 1.1.2 Passenger Car Production by Country China has long dominated passenger car production, with 23.8 million cars produced in 2022. Compared to 2021, the increase in passenger car production amounts to 11%. At the same time, passenger car production in China exceeds the pre-pandemic year of 2019 by 11%. Japan ranks second, with 6.6 million passenger cars produced in 2022, a decrease of 1% compared to 2021 (a 19% decrease compared to 2019). India follows with 4.4 million passenger cars, accounting for a 22% increase compared to 2021. With 1.2 million units, Czechia ranks as the world’s ninth-largest producer of passenger cars. Even though the production increased by 10% compared to 2021, it is still down 15% compared to the pre-COVID-19 pandemic year of 2019. In terms of the production of passenger cars in these countries per capita, Slovakia ranks first with 177 passenger cars per 1,000 inhabitants. In China, the world’s largest producer of passenger cars by volume, it equals to 17 per 1,000 inhabitants; 53 passenger cars per 1,000 inhabitants in Japan; and only three passenger cars per 1,000 inhabitants in India. Czechia is the second largest producer, with 116 cars per 1,000 inhabitants.

7

Fig. 1.3: The world’s largest passenger car manufacturers (2022)

Source: OICA, UN (2022); ranked by number of passenger cars produced

1.1.3 Foreign Trade in Passenger Cars by Country Considering the largest passenger car producers in terms of trade volume, countries such as China, the UK, France, the US and Iran are in deficit, i.e., they import more cars than they export, based on the UN Comtrade database. Japan (USD 146 billion) and Germany (USD 88 billion) recorded the highest surplus of passenger car exports over imports in 2022. Czechia achieved a positive balance of USD 20.3 billion.

8

Fig. 1.4: Trade balance of passenger motor vehicle trade in selected countries (2022 and 2021, USD billion)

Source: UN Comtrade Database; these are the leading passenger car manufacturers; SITC 7812; * data for 2021, ** data for 2018 Table 1.1: Foreign trade in motor vehicles for passenger transport in selected countries (2021, USD billion)

2022 Japan

Export

Import

Balance

156.5 156.5

10.6 68.6 12.9 10.0

145.9

Germany

87.9 31.4 28.7 23.4 20.3 15.5

South Korea*

44.3 38.8 26.3 25.4 32.9

Mexico Slovakia Czechia

2.9 5.1

Spain India

17.4

6.6 3.4 4.6 0.0

0.4 0.7 3.7 0.4

6.2 2.6 0.9

Indonesia*

Brazil Iran** China

-0.4 -9.8

42.5 29.4 20.8 57.2

52.3 44.1 37.4

UK

-14.8 -16.5

France

USA -108.5 Source: UN Comtrade Database; these are the leading passenger car manufacturers; SITC 7812; * data for 2021, ** data for 2018 165.7

9

1.1.4 Global Car Sales by Manufacturer In terms of sales, the world’s leading car manufacturer in 2022 was Japan’s Toyota, with total sales of 10.5 million units (the same as in 2021), as reported by the MarkLines platform. The Volkswagen Group ranked second (as in 2021), with 8.3 million vehicles sold in 2022 (-7% compared to 2021). The Hyundai-Kia brand occupied the third position (6.8 million units). Fig. 1.5: Global vehicle sales by selected car manufacturers in 2022, 2021 (million units)

Source: MarkLines

European car manufacturers consider Europe and Asia to be the dominant world regions in terms of car sales (by number of units sold or turnover), as shown in the companies’ annual reports. The Asian region accounts for approximately 43% of Volkswagen’s sales, while Europe contributes 41%.

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Table 1.2: Relevance of the individual regions for the selected car companies (share of sales) Asia (%) Americas (%) Europe (%) Volkswagen 43.0 1 16.0 41.0 BMW 38.3 23.6 36.1 Mercedes-Benz 2 39.0 23.0 33.0 Renault 15.0 3 20.0 4 59.0 Stellantis 3.5 45.0 45.0 Volvo 14.0 39.0 41.0 Source: Annual reports of the companies 1.1.5 China: Global Leader in Production China, the world’s longest-standing leading motor vehicle producer, experienced its first year-on-year decline in production in 2018. Factors responsible for the decline included the deteriorating political climate, the general economic slowdown, and then, towards the end of 2019, the global outbreak of the COVID-19 pandemic. Year-on year production continued to decline until 2020, with a return to growth in 2021. In 2022, China’s motor vehicle production grew again, with total production increasing by 3.4%. Passenger car production in China increased by 11% year-on-year.

Passenger cars accounted for 88% of the total production. Fig. 1.6: Motor vehicle production in China (million units)

Source: OICA

North America

1

Asia-Pacific and Eurasia

2

Latin America

3

11

Table 1.3: Motor vehicle production in China in 2022 (million units, %) Million units Share (%) Year-on-year change (%) Passenger cars 23.8 88.0 11.0 Commercial vehicles 3.2 12.0 -32.0 Total 27.0 100 3.4 Source: China Association of Automobile Manufacturers (CAAM) In 2022, motor vehicle sales in China grew by 2.1% to a total of 26.9 million units. Passenger car sales in 2022 totalled 23.6 million units, an increase of 9.5% compared to the previous year.

Table 1.4: Motor vehicle sales in China in 2022 (million units, %)

Million units

Share (%)

Year-on-year change (%)

Passenger cars

23.6

88.0 12.0 100

9.5

Commercial vehicles

3.3

-31.2

Total

26.9

2.1

Source: CAAM Local manufacturers currently dominate the Chinese market. By 2022, Chinese manufacturers gained over 50% of the domestic market share. German automakers

ranked second (19%), and Japanese automakers third (18%). Table 1.5: Car sales in China by manufacturers (2022) Share (%)

Year-on-year change (%)

Chinese brands German brands Japanese brands

50.7 18.9 18.3

22.9

3.3

-4.7

US brands

9.4 1.6 0.8

1.2

Korean brands French brands

-27.3 36.6

Source: MarkLines

The export figures confirm the Chinese intention to expand into global markets in the automotive industry. For a long time, car production was thought to be for the local market. The export share amounted to only 2-3 %. However, the situation has changed since 2021, when the export share of automotive production began to rise. In 2021, the share reached almost 8%, peaking at 13% in 2022. In 2022, a total of 3.1 million motor vehicles were produced, including 2.5 million passenger cars.

12

Fig. 1.7: Total passenger car production in China (million units) and export share in production (%)

Source: CAAM

1.2 Development and Outlook for the Global EV Industry The statistics on EVs in global use include both full-electric battery vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). The impetus to reduce emissions from transport has and will continue to affect the development of the numbers and the promotion of the transition to electric mobility. Electromobility will be one of the main methods to achieve the limits. Norway leads the world in the share of electric cars in total passenger car use, reaching 27% in 2022. Iceland (16%) and Sweden (8.8%) follow. In China, the share of EVs in total passenger car use nearly reached 5.0% in 2022. The European share is 2.4%, and the world share is 2.1%.

13

Fig. 1.8: Share of EVs in total passenger car use (%, 2022)

Source: International Energy Agency (IEA); BEVs and PHEVs. Top ten countries with the highest share; Europe and the world Norway also leads in terms of the share of EVs in passenger car sales, with an EV share of 88% in 2022. Iceland (70%) and Sweden (54%) follow. In 2022, the EV share of new passenger car sales in Europe and China is 21% and 29%, respectively, while the global share is 14%. Fig. 1.9: Share of EVs in total passenger car sales (%, 2022)

Source: IEA; BEVs and PHEVs. Top ten countries with the highest share; Europe and the world

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The IEA predicts that by 2030, EVs will account for 15% of the global passenger car fleet, rising to 18% in Europe and 25% in China. Fig. 1.10: Projected share of EVs in passenger cars by 2030

Source: IEA; BEVs and PHEVs; according to the Stated Policies Scenario (STEP), i.e., the policy settings for EVs in each country By 2030, the share of EVs in new passenger car sales is expected to reach 36% globally, 58% in Europe, and 62% in China. While the 2020 projection assumed that Europe would achieve a higher EV sales share than China, current figures suggest that China will dominate by 2030. Fig. 1.11: Projected EV share of passenger car sales to 2030

Source: IEA; BEVs and PHEVs; according to the Stated Policies Scenario (STEP), i.e., the policy settings for EVs in each country

15

Electromobility in China The production of electric vehicles in China has been growing significantly since 2021. That year, 3.5 million EVs were produced (160% growth compared to the previous year). In 2022, the total EV production in China reached 7.1 million cars (97% growth compared to the previous year), including 6.7 million passenger EVs. Fig. 1.12: EV production in China (million units)

Source: CAAM China’s EV sales in 2022 totalled 6.5 million units, an increase of 94% compared to the previous year. China’s share of global EV sales has long been around 50%. In 2022, China’s share of global EV sales reached 64%. Fig. 1.13: Global EV sales and China’s share (million units, China’s share in %)

Source: IEA, CAAM

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2 AUTOMOTIVE INDUSTRY IN THE EU

2.1 Motor Vehicle Production in the EU After the downturn caused by the economic crisis, which peaked in 2009, motor vehicle production in the European Union managed to resume growth in the following years. However, the sector then began to stagnate or even decline in the leading economies in 2018 and 2019. With the onset of the COVID-19 pandemic, the automotive industry, like several other sectors, faced major challenges. Government imposed restrictions and measures slowed or outright halted production in the seven months of 2020. In 2020, passenger car production in the EU27 fell by 23.5% compared to the previous year. Although EU Member States’ economies managed to recover and start growing in 2021 (EU economic growth in 2021 was 5.4% of GDP), the decline in production continued to deepen. In 2021, passenger car production in the EU fell by 6.7% compared to the previous year, amounting to 10,055,833 units. There were significant differences in passenger car production between EU Member States, reflecting, among other things, the measures taken to combat the epidemic. In 2022, passenger car production in the EU started to recover, increasing by 7.1% compared to the previous year to reach 10,769,893 units. Fig. 2.1: Development of passenger car production in the EU27 (million units)

Source: European Automobile Manufacturers Association (ACEA), S&P GLOBAL MOBILITY The total number of vehicles produced in the European Union declined by 5.7% year-on-year to 12.13 million units in 2021. In 2021, passenger cars constituted 82% of all motor vehicles produced in the European Union.

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The automotive industry’s growth has varied from one EU country to another. France, for example, started to lose its position as a world automotive power after 2008. The production of passenger cars in France in the pre-COVID year of 2009 amounted to about two-thirds of the pre-crisis year of 2007, i.e., a fall of less than one million passenger cars. Italy, Belgium, Sweden, and Poland also experienced substantial decreases. On the contrary, the automotive sector flourished in some former Eastern bloc countries, such as Slovakia and the Czech Republic. With 1.4 million vehicles produced in 2019, Czechia ranked fifth among EU Member States and fourth in terms of passenger car production (Czechia outpaced the UK, which experienced a significant year-on-year decline due to Brexit, among other factors). Hungary and Romania managed to entice automotive companies with a skilled and cheap workforce (both countries also benefited from a low corporate tax rate), making them the figurative winners in terms of production growth. The relative importance of the automotive industry in Slovakia and the Czech Republic becomes even more apparent when looking at the number of vehicles produced per 1,000 inhabitants. Both countries are among the world leaders in this indicator, with Slovakia producing 175 cars in 2021 and Czechia 104. When calculating the indicator for the number of motor vehicles produced per 1,000 inhabitants in the world economies and the largest producing countries (for example, China produced almost 14 million more cars than the EU in 2021), it becomes clear that China has only 19 motor vehicles per 1,000 inhabitants and the US 28. Table 2.1: Motor vehicle production in the EU and selected economies in 2021

Passenger cars (thous.)

Motor vehicles produced per 1,000 inhabitants

Change 2021/2020

Total (thous.)

Change 2021/2020

Country

Germany

2,889 1,618

-15% 3,272

-14%

39.4 45.2 20.5

Spain France

-8%

2,141

-5%

841

-3% 1,388 -2% 1,113 1% 957 -5% 732 -5% 415 -7% 407 -11% 393 5% 293 5% 279 -4% 260 -26% 154 15% 139 -32% 96

3%

Czechia Slovakia

1,107

-2%

104.0 175.3

957 433 414 407 195 258 201 228

1%

Italy

-6% -4% -7%

12.4 42.6 21.2 10.4 28.2 27.1 22.5

Hungary Romania Poland Sweden Portugal Belgium

-13% 56%

5%

-1%

Netherlands

93

-20% 13% -32%

8.8

Austria Slovenia

124

15.6 45.4

96

18

Passenger cars (thous.)

Motor vehicles produced per 1,000 inhabitants

Change 2021/2020

Total (thous.)

Change 2021/2020

Country

Finland

85

-1% 85 -8% 12,125 7% 26,082 -19% 9,167 -5% 7,847 -2% 3,462 27% 4,399 2% 80,146

-1% -6%

15.4 27.1 18.5 27.6 62.4 66.9

EU27 China

9,947 21,408

3% 4%

US

1,563 6,619 3,163 3,631

Japan

-3% -1% 30%

South Korea

India

3.2

World

57,054

3%

10.2

Source: ACEA; OICA; Eurostat; world and non-EU population data by the World Bank The trend in production, and even (in simplified terms) some shift in production between countries in recent years, can also be identified in the change in the share of passenger car production in total production in the EU Member States. Slovakia and Czechia have significantly increased their production capacities, thus ranking among the leading producers. The traditional automotive superpowers have stagnated or declined. Germany has retained its leading share of total passenger car production (31.1% in 2021), followed by Spain (16.7%), Czechia (10.2%) and Slovakia (9.6%). Fig. 2.2: Share of passenger car production in EU Member States (%)

Source: ACEA, share of total passenger car units

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2.2 Foreign Trade in Motor Vehicles in the EU Manufactured vehicles constitute a significant item of foreign trade virtually worldwide. However, in 2020, imports and exports of passenger cars from non EU countries dropped significantly in value and number of passenger cars due to the ongoing pandemic. The COVID-19 pandemic has impacted very negatively on international trade, disrupting communications, and affecting the distribution system. Global demand experienced a sharp decline, especially in the first half of 2020. Despite a lower comparative base and a recovery in international trade, 2021 marked a recovery for the automotive trade. In 2021, passenger cars worth EUR 126.9 billion (equivalent to 0.88% of the EU’s GDP) were exported from the EU, EUR 5.7 billion more than in the previous year (when passenger car exports accounted for 0.9% of GDP). The value of passenger cars imported in 2021 reached EUR 53.3 billion, an annual increase of 3.4%. The balance, therefore, remained positive at EUR 73.5 billion. Table 2.2: EU vehicle trade (in value; 2021) Passenger cars Other motor vehicles Motor vehicles – total EUR million Change 2021/20 EUR million Change 2021/20 EUR million Change 2021/20 Imports 53,344 3.4% 7,170 11.9% 60,514 4.3% Exports 126,854 4.7% 13,127 2.2% 139,981 4.5% Balance 73,511 5.7% 5,956 -7.5% 79,467 4.6% Share of exports in GDP 0.88% 0.09% 0.97% Source: ACEA; Eurostat The COVID-19 crisis has led to a relatively significant drop in the number of passenger cars imported into the EU between 2019 and 2020 (by approximately one third). Passenger car exports from the EU27 fell by almost 16% to 5.19 million cars over the same period. Regarding all vehicles, the exports amounted to 5.8 million cars, representing an annual decrease of 17%. The figures improved in 2021, when passenger car imports into the EU increased by 1.3% year-on-year to 3.1 million units, while motor vehicles saw a slight decrease of 4.1% to 3.6 million units. In 2021, 5.7 million motor vehicles were exported (an increase of 0.6% compared to the previous year), with 5.1 million passenger cars (a decrease of 0.5% compared to the previous year).

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Table 2.3: EU vehicle trade (in volume; 2021) Passenger cars

Other motor vehicles

Motor vehicles – total

thousand units

Change 2021/20

thousand units

Change 2021/20

thousand units

Change 2021/20

Imports Exports

3,098 5,079

1.3% 467 -0.5% 668

-29% 3,565 9.7% 5,747

-4.1% 0.6%

Source: ACEA Due to the adopted anti-pandemic measures, the production of passenger cars was limited or even temporarily suspended in many countries in spring 2020. As a result, the number of passenger cars exported this year decreased. While the economic recovery in 2021 helped the industry, the automotive sector faced shortages of certain components and supply chain bottlenecks. One-fifth of the total passenger cars exported from the EU (5,078,894) were intended for the UK. The US (12.8%) and China (8.1%) followed closely behind. In fact, the UK experienced the highest year-on-year decline in passenger car exports of all the major exporting countries, falling by 25% to 327,700 units. Another country experiencing a significant year-on-year decline in passenger car exports in 2021 was Turkey, which saw a decrease of 62.8 thousand cars (-16.5%). On the other hand, exports to China increased by 3.9%, while Ukraine (7.4%), Japan (3.8%) and Norway (24.5%) recorded even higher growth (among the most prominent EU passenger car purchasers). Table 2.4: Passenger car exports from the EU27 (in units)

2020

2021

Change -25.1%

United Kingdom

1,308,089

980,362 648,127 410,917 317,128 204,444 209,733 177,224 146,515 122,860 122,001

US

684,393 395,340 379,956 205,643 195,353 170,777 187,698 98,677 122,482

-5.3% 3.9%

China Turkey

-16.5%

Switzerland

-0.6% 7.4% 3.8%

Ukraine

Japan

South Korea

-21.9% 24.5%

Norway

Serbia

-0.4%

Source: ACEA, Eurostat In 2021, the US was the leading destination for exported passenger cars (worth a total of EUR 126.9 billion), with a share of 20.1% (worth EUR 25.5 billion), followed by the United Kingdom (17.1%) and China (16.7%). The pandemic led to a decline in the value of EU passenger car exports to virtually all major destinations in 2020.

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In 2021, however, the situation reversed, and EU passenger car exports increased to EUR 126.8 billion (+4.7% compared to the previous year). Table 2.5: Passenger car exports from the EU27 (by value; in EUR million)

2020

2021

Change +9.1% -22.7% +16.5% +2.1% -7.0% +8.2% -21.8% +38.4% +41.3% +25.9%

US

23,372 28,106 18,178

25,508 21,727 21,172 6,408 6,350 6,091 4,655 4,307 3,026 2,610

United Kingdom

China

Switzerland South Korea

6,278 6,829 5,630 5,953 3,112 2,145 2,074

Japan

Turkey Norway

Russia

Australia

Source: ACEA, Eurostat The share of imported passenger cars (3,097,550 units in total) is remarkably balanced among the principal EU importers, the share of six countries being between 12% and 15%. The top importer by number of cars is Turkey, followed by China and Japan. China, ranked second, imported “only” 170,000 cars into the EU in 2020, compared to 435,000 in 2021, an increase of 156%! Japan (-17.2%), the UK (-22.5%) and the US (-20.4%) saw double-digit declines. Table 2.6: Passenger car imports into the EU27 (in units) 2020 2021 Change Turkey 494,081 458,769 -7.1% China 169,803 435,080 156.2% Japan 483,358 401,276 -17.2% United Kingdom 507,383 393,410 -22.5% South Korea 318,493 377,404 18.5% US 387,720 308,506 -20.4% Morocco 240,488 270,977 12.7% Mexico 170,600 178,267 4.5% South Africa 124,892 93,483 -25.1% Switzerland 48,052 53,966 12.3% Source: ACEA, Eurostat

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The total value of cars imported into the EU fell by less than a fifth in 2020 but increased by 3.4% in 2021 compared to the previous year. The share of the two largest importers (the UK and the US) fell by 11% and 22%, respectively. South Korea increased its passenger car imports by 29% in value compared to the previous year. China came close to the prominent importers, recording a 234% increase in passenger car imports in 2021 compared to 2020, worth EUR 5.9 billion. Table 2.7: Passenger car imports into the EU27 (by value in EUR million) 2020 2021 Change United Kingdom 9,314 8,249 -11.4% US 10,480 8,144 -22.3% South Korea 5,511 7,105 +28.9% Japan 8,112 7,004 -13.7% Turkey 6,330 6,138 -3.0% China 1,766 5,905 +234.3% Mexico 4,109 4,590 +11.7% Morocco 2,191 2,839 +29.6% South Africa 2,380 1,918 -19.4% Switzerland 271 325 +19.8% Source: Eurostat, ACEA 2.3 New Passenger Car Registrations in the EU The global financial crisis adversely affected the development of new car registrations in the European Union, leading to a decline until 2013. The situation was similar in individual EU Member States, where the crisis led to a decline or at least a slowdown in the growth of car sales and registrations as demand for new cars fell significantly. Some EU Member States tried to counteract this decline with a scrappage scheme, i.e., a financial incentive to encourage the population to replace their old car (one of the conditions for scrapping a car with a fixed minimum age) with a new one. This financial incentive (ranging from several hundred to several thousand euro) was also intended to have a specific anti-crisis effect. For example, the scrapping scheme was used in Austria (an incentive of EUR 1,500), Slovakia, the UK, Italy, and other countries that are also important car producers. Germany was no exception, allocating EUR 5 billion to the scrapping scheme. Owners of cars at least nine years old received EUR 2,500 when they scrapped their car and bought a new one. As a result, the scrappage scheme helped to boost sales in Germany in 2009. However, after it ran out relatively quickly, sales fell again. Therefore, the reversal of the downward trend in new registrations was mainly due to the recovery from the crisis and economic growth with renewed demand in 2014. New passenger car registrations in the European Union increased significantly during the recovery from the global economic crisis. However, recent years have seen only a slight increase. Moreover, the number of new passenger car registrations (and

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sales as well) in 2018 was strongly influenced by the newly adopted WLTP legislation (effective from September 2018), which encompassed the Worldwide Harmonised Light-duty Vehicles Test Procedure - a comprehensive and demanding emissions and fuel consumption test procedure - and RDE (Real Driving Emission). WLTP replaced the existing New European Driving Cycle (NEDC) test procedure. All newly registered cars had to comply with this procedure from September 2018, which proved to be quite time-consuming for car manufacturers. As a result, sales increased before September 2018 (+31.2% year-on-year), and registrations fell after that period (-23.5% year-on year). However, despite the significant decline in the year’s final months, 2018 saw a very slight increase of 0.1% to 15,159,336 passenger cars. The modest increase in new passenger car registrations in the European Union (+1.2%, including registrations for the UK) continued in 2019 to 15,340,188 passenger cars. In 2020, the number of new passenger car registrations in the European Union declined to 9,939,000 passenger cars (excluding the UK, which was no longer part of the EU), or 11,570,000 passenger cars if the UK registrations were included. In 2021, a slight decline was followed by 9,700,000 newly registered passenger cars in the European Union. In 2021, the number of newly registered passenger cars in the European Union continued to fall (9 700 356), with a decrease of around 2% compared to 2020. In 2020, the number of newly registered passenger cars in the EU fell by a quarter from 13 028 000 to 9 939 000 passenger cars. All EU Member States recorded a decline in new registrations in that year. In 2022, new passenger car registrations fell further to 9,256,000. Almost all leading economies experienced a decline compared to the previous year, except Germany, where the number of newly registered passenger cars increased slightly by 1.1% compared to 2021. In the EU, registrations fell by 4.6%, with Spain down 5.4%, France by 7.8% and Italy by 9.7% (Czechia was down 7.1%). Fig. 2.3: New passenger car registrations in the EU (in million units)

Source: ACEA

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In 2021, there were more than 22 new passenger car registrations per 1,000 inhabitants in the European Union. Luxembourg ranks first with 70 new passenger car registrations per 1,000 inhabitants, followed by Belgium (33), Denmark and Germany (both 32). On the other hand, the lowest sales per 1,000 inhabitants in 2021 were recorded in Bulgaria (4) and Romania (6). Table 2.8: New passenger car registrations in the EU countries

Number of registrations per 1,000 inhabitants (2021)

% change 2022/2021

Country

2021

2022

Germany

2,622,132 1,659,003 1,458,032

2,651,357 1,529,035 1,316,702

+1.1 -7.8 -9.7 -5.4 -6.0 -4.4 -3.2 -4.3 -10.3 -7.1 +6.6 -20.0 +6.7 -8.5 +4.3 +0.3 -17.0 +4.1 -14.2

31.5 24.5 24.6 18.1 11.8 33.2 18.5 29.0 26.8 19.3 31.7 14.2

France

Italy

Spain

859,477 446,647 383,123 322,318 301,006 239,803 206,876 146,637 185,312 121,208 121,920 100,911 104,932 98,484 75,700 53,988 44,915 44,372 24,537 31,454 22,336 14,348 10,624

813,396 419,749 366,303 312,129 288,087 215,050 192,087 156,304 148,293 129,328 111,524 105,283 105,253 81,698 78,841 46,339 42,939 42,094 28,684 25,544 21,571 16,713 11,627

Poland

Belgium

Netherlands

Sweden Austria Czechia Portugal Denmark Romania Hungary Greece Ireland Finland Slovakia Slovenia Croatia

6.3

12.5

9.5

20.9 17.8 13.9 25.6 11.1 69.9

-4.4 -5.1

Luxembourg

Bulgaria Lithuania

+16.9 -18.8

3.5

11.2 16.8

Estonia Latvia Cyprus

-3.4

+16.5

7.6 8.5

+9.4

EU 22.2 Source: ACEA; Eurostat; data for Malta and Cyprus not available; in descending order by 2021 9,700,095 9,255,930 -4.6%

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2.4 New Passenger Car Registrations by Manufacturer in the EU Despite the COVID-19 pandemic, the Volkswagen Group has maintained its strong position in new car registrations, accounting for a quarter of all car sales in the EU27 in 2021 and 2022, i.e., almost 2.5 million cars, followed by the Stellantis Group (former PSA Group linked to Fiat) with a fifth share, and the Renault Group (10.6%). Fig. 2.4: Share of automotive groups in new passenger car registrations in the EU (2021, 2022)

Source: ACEA; data for EU27

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In 2022, Volkswagen (1.02 million units with a share of 11.0%), Peugeot (0.65 million units) and Renault (0.64 million units) were the most popular brands in the EU market for newly registered passenger cars. Fig. 2.5: New passenger car registrations by brand in the EU (share; 2021, 2022)

Source: ACEA

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2.5 Development of Electromobility in the EU The development of electromobility and the pressure on production are reflected in the sales statistics. The growing supply of EVs and hybrids is matched by rising demand, and registrations in EU countries have increased significantly. While car manufacturers have seen a significant drop in new car registrations during the pandemic, the number of full-electric battery vehicles (BEVs) or plug-in hybrids (PHEVs) is soaring. In many EU countries, the year-on-year increase has ranged from tens to hundreds per cent. In 2022, the share of EVs in EU passenger car sales reached 21.6%. Table 2.9: New full-electric battery passenger car registrations in the EU (in thousand units) Country 2021 2022 Change EU 878.0 1,123.8 28.0% Germany 356.3 471.4 32.3% France 162.1 203.1 25.3% Sweden 57.4 95.0 65.4% Italy 67.3 49.2 -26.9% Netherlands 63.8 73.4 15.1% Belgium 22.7 37.6 66.0% Spain 23.7 30.5 28.9% Denmark 25.0 30.9 23.4% Austria 33.4 34.2 2.4% Portugal 13.2 17.8 34.4% Finland 10.1 14.5 43.1% Ireland 8.7 15.7 81.3% Poland 7.1 11.3 58.2% Romania 6.3 11.6 83.5% Luxembourg 4.7 6.4 37.5% Hungary 4.3 4.7 9.2% Greece 2.2 2.8 29.9% Czechia 2.7 3.9 46.7% Slovakia 1.1 1.4 25.9% Slovenia 1.7 2.3 33.1% Croatia 1.4 1.4 1.3% Lithuania 1.2 1.4 17.3% Latvia 0.4 1.1 158.0% Bulgaria 0.4 1.0 131.4% Estonia 0.5 0.7 51.0% Cyprus 0.1 0.4 379.8% Source: ACEA data; EU27 data

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The increase in registrations in the EU is well reflected in the quarterly data, with a sharp rise in registrations of new passenger electric vehicles, especially in Q4 2021 and Q4 2022. The trend is apparent even though many car manufacturers struggle with component shortages or direct supply chain disruptions. Fig. 2.6: Quarterly registrations of new full-electric battery passenger vehicles in the EU

Source: ACEA; selected countries with the most registrations and Czechia Plug-in hybrids face a similar situation to all-electric passenger cars, with an annual increase of nearly 71% in the EU in 2021 but only 1.2% in 2022, according to ACEA. The drop was mainly caused by a decline in leading economies; for instance, Sweden saw a 14% drop between 2021 and 2022, and France 10%.

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Table 2.10: New registrations of plug-in hybrid passenger cars in the EU (thousand units) Country 2021 2022 Change EU 863.8 874.2 1.2% Germany 325.3 362.1 11.3% France 141.0 126.5 -10.3% Sweden 77.8 66.6 -14.4% Italy 69.9 65.6 -6.1% Netherlands 31.0 34.5 11.4% Belgium 47.8 59.3 24.1% Spain 43.2 47.8 10.6% Denmark 40.4 26.4 -34.7% Austria 14.7 13.3 -9.3% Portugal 15.6 16 2.3% Finland 20.2 16.2 -19.7% Ireland 7.9 7.7 -2.7% Poland 9.2 9.7 5.8% Romania 0.0 0 0.0% Luxembourg 4.4 3.8 -13.4% Hungary 4.3 4.9 15.1% Greece 4.8 5.5 14.8% Czechia 3.8 3.6 -4.7% Slovakia 1.2 1.6 33.4% Slovenia 0.3 0.6 91.6% Croatia 0.4 0.8 109.5% Lithuania 0.4 0.7 66.5% Latvia 0.1 0.3 119.7% Bulgaria 0.1 0.1 20.5% Estonia 0.2 0.4 78.2% Cyprus 0.1 0.2 132.7% Source: ACEA data; EU27 data Sales of plug-in hybrids also recorded strong growth in Q4 2022.

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Fig. 2.7: Quarterly new registrations of plug-in hybrids in the EU

Source: ACEA; selected countries with the most registrations and Czechia Despite the record-breaking year-on-year growth of EVs in recent quarters, EVs still represent only a very small fraction of the total fleet in the European Union. In 2021, full-electric battery cars (0.8%) and plug-in hybrids (0.7%) accounted for only 1.5% of the total number of registered cars in use in the EU.

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Table 2.11: Share of passenger cars in use by fuel in the EU in 2021

Full-electric battery

Plug-in hybrid

Full-electric battery

Plug-in hybrid

Country

Country

Hungary

0.5% 0.5% 0.4% 0.1% 0.3% 0.3% 0.3% 0.1% 0.3% 0.0% 0.3% 0.0% 0.3% 0.0% 0.2% 0.1% 0.2% 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

EU

0.8% 0.7%

Netherlands

2.8% 1.5% Slovenia 2.4% 2.8% Spain 2.2% 2.8% Lithuania 1.9% 1.9% Latvia 1.5% 0.0% Estonia 1.3% 1.2% Italy 1.0% 0.8% Croatia 0.9% 2.0% Romania 0.9% 0.8% Slovakia

Denmark

Sweden

Luxembourg

Austria

Germany

France

Belgium Ireland Finland Portugal

0.8% 2.8%

Czechia

0.8% 0.9% Poland

Source: ACEA data; full-electric battery cars To accelerate the development of electromobility, it is necessary to develop the infrastructure of charging stations for electric vehicles. Although the infrastructure is being developed, only a few EU countries have adequate EV charging facilities. In 2021, the Netherlands had the highest number of EV charging points (64.3 per 100 km), followed by Luxembourg (57.9/100 km) and Germany (25.8/100 km). At the other end of the ranking are countries with less than one charging point per 100 km of roads (including motorways, national and local roads). These countries are among those with the lowest market share of new EVs due to a lack of infrastructure.

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Fig. 2.8: EV charging points per 100 km of roads in 2021 (in units)

Source: ACEA; Electric vehicles – full-electric battery vehicles (BEVs) and plug-in hybrids (PHEVs)

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Fig. 2.9: Market share of electric vehicles in the EU in 2022 (%)

Source: ACEA; Electric vehicles – full-electric battery vehicles (BEVs) and plug-in hybrids (PHEVs)

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3 EUROPEAN, CHINESE AND AMERICAN INSTRUMENTS PROMOTING ELECTROMOBILITY The following chapter addresses electromobility as (a) a clean transport technology and (b) a geopolitically strategic technology area currently targeted by global players: the EU, China and the US. Reviewing recent automotive history, it is worth recalling that the initial impetus for energy-efficient transport solutions (including electromobility) were the oil shocks of the 1970s. They led to the introduction of the first regulations aimed at reducing overall fuel consumption (e.g., the 1975 CAFE programme in the US) and establishing programmes aimed at developing electric mobility, albeit unsuccessfully (e.g., the Federal Electric and Hybrid Vehicle Development Programme in the US). To date, the regions studied have adopted fuel economy standards to reduce their dependence on imported oil, with a particularly strong emphasis on mitigating the threat of increased dependence in China. Consumption standards are followed by policies to control local pollution, i.e., smog-causing emissions. Finally, regulations set limits on greenhouse gas emissions, and the EU has played a leading role in enforcing such policies. The following sections focus on each region (the EU, China and the US) and examine the current regulation and promotion of electric mobility, focusing on the last ten years and the geopolitical aspect of this technological change. 3.1 Regulation and Promotion of Electromobility in the EU The development of electromobility has been significantly supported by European environmental legislation prior to the signing of the Paris Agreement in 2015. (1) The EU has regulated local pollutant emissions since the 1990s. The current EURO standard applies to the sale of all new cars put on the market since 2015 and has undergone significant changes, with individual limits being tightened considerably. (2) In 2008, a voluntary limit for greenhouse gas emissions from cars and vans placed on the market by individual car manufacturers (CO 2 limits) was set, leading to the first mandatory European standards for 2015. Following the Paris Agreement in 2015, the European Commission proposed the European Green Deal in 2019, which sets out a roadmap and actions to ensure a sustainable economy and zero net greenhouse gas emissions in the EU by 2050. It covers all EU industries, policies, and activities. The ultimate target agreed by EU Member States is to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. One of the main components of the European Green Deal is the Sustainable and Smart Mobility Initiative. Under this initiative, the EU aims to reduce emissions from transport by 90% by 2050, introduce stricter standards for car pollution and promote alternative fuels for transport. The main instruments to combat climate change and

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air pollution in the automotive industry are the CO2 emission limits for cars and vans placed on the market, which are to be reduced to zero by 2035, and the new EURO 7 emission standards, which could come into force from 2027 (the current unapproved proposal refers to 2025, but negotiations are leading to the possibility of postponing the entry into force), but also, for example, the regulation of fuel suppliers (promotion of advanced fuels – green hydrogen, synthetic fuels, advanced biofuels). As part of the ‘Fit for 55’ package, the European Commission has proposed a separate emissions trading scheme for transport, which would apply to fuel suppliers from 2027. The package also includes robust support for constructing charging and refuelling stations for electric, hydrogen or LNG vehicles (the target is 3.5 million charging stations by 2035). Sustainable finance is one of the tools to put the European Green Deal into practice. On the one hand, financial institutions will have to consider sustainability when assessing their clients’ risk; on the other hand, listed companies and large enterprises will have to disclose information on their sustainability from 2024. Later, this obligation will also apply to medium-sized companies. The promotion of electromobility in the EU depends on specific national strategies formulated, for example, based on the Alternative Fuels Infrastructure Directive of 2014, with financial support from European instruments under the Multiannual Financial Framework for 2014-2020 and 2021-2027. An example of such a programme is the Connecting Europe Facility for Transport, which focuses on charging infrastructure (European Commission, undated). The promotion of EVs, especially direct purchases by households or businesses, has often been covered by national budgets (see Germany or France, among many others). Currently, national recovery plans through the 2021 Recovery and Resilience Facility include additional government incentives to support EV purchases and infrastructure development. Building on the US Inflation Reduction Act of 2022 (White House, 2023), the EU has also committed to an industrial policy in 2023 to support the production of electric vehicles and the development of the battery industry through the Net Zero Industry Act. The proposal drafted by the European Commission in March 2023 has not yet been adopted, but it is likely to contain the outlines of the policy that will be implemented. Its impact will depend on the level and modalities of support that EU leaders can agree on. The draft sets out a roadmap for building up production capacity by 2030 to meet the EU’s domestic production quota for eight key strategic technologies, including electromobility and battery technology. A loosening of national public support rules for the industry has also been discussed (European Commission, 2023). 3.2 Regulation and Promotion of Electromobility in China China has so far lagged the EU and the US in environmental policy. For example, China introduced EURO-style emission standards five to ten years after the EU. However, China’s updated and more ambitious 6b standards shall come into force in 2023 (Reuters, 2023). In terms of CO 2 limits, the equivalent is the fuel economy regulation, which imposes relatively stringent limits on China by 2025 and 2030. In some respects, China is outpacing the regulatory environment of its global competitors and increasing pressure on the development of electromobility, which has been

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repeatedly identified as a strategic area in its Five-Year Plans since 2001 (Wachtmeister, 2013). Individual government strategies have also demonstrated public support for this focus in recent years. In 2016, China’s Ministry of Industry and Information Technology introduced an automotive development plan called the Technology Roadmap for Energy-Efficient and New-Energy Vehicles (GIZ, 2018). The category of new-energy vehicles (NEVs) includes full-electric battery vehicles (BEVs), fuel-cell electric vehicles (FCEVs), and plug-in hybrid electric vehicles (PHEVs). The objective was to increase total vehicle production in China to 35 million units by 2025, of which the NEVs would account for 15%. By 2030, the share of NEVs in newly produced vehicles will increase to 40%. In October 2021, the Chinese government published two documents to achieve peak greenhouse gas emissions before 2030 and carbon neutrality by 2060. The former is a set of guidelines for the country’s climate action, and the latter is an action plan for achieving peak emissions. The action plan includes incentives to promote low-emission transport so that the new energy vehicles account for approximately 40% of total new vehicle sales by 2030, and to reduce the carbon emissions from commercial vehicles by approximately 9.5% in 2030 compared to 2020. According to the action plan, much of the government’s support shall be directed at developing charging and refuelling infrastructure (News.cn, 2021). The government of China has been trying to achieve its objectives using various instruments, the most important being subsidies for the purchase of new NEVs and renewed requirements imposed on car manufacturers. China introduced subsidies for the purchase of electric vehicles in 2009, but these have been reduced in recent years and will cease altogether from the beginning of 2023. However, the 10% tax exemption on purchasing electric vehicles will remain in place until the end of 2023 (China Dialogue, 2023). Major Chinese cities (necessary for the development of electric mobility) are expected to make it easier for electric vehicles to obtain number plates and to ban combustion engine vehicles from city centres. Cities such as Beijing, Shanghai, Guangzhou, and others have promoted the rapid development of electric vehicles by adopting regulations beyond government institutions and offering financial incentives surpassing government support. As a result, the development of electric vehicles in China is highly uneven and concentrated in large cities. Car manufacturers in China must comply with the terms of the Dual Credit Regulation, which mandates that manufacturers receive positive credits for producing NEVs and, conversely, negative credits for producing internal combustion vehicles. Carmakers can also buy positive credits from their competitors. If a manufacturer has a negative balance at the end of the year, it must pay a fine. Manufacturers are thus incentivised to buy low-emission cars or increase the price of internal combustion vehicles (GIZ, 2018). Considering geopolitical developments, it is essential to highlight that China is a major player in the global battery industry, and targeted support for the development of this industry will enable the rapid development of electromobility in China and beyond (IEA, 2023). In response, the US and EU are currently implementing industry

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policies such as the Inflation Reduction Act or the Net Zero Industry Act, which aim to build domestic supply chains and reduce reliance on Chinese EV technologies. 3.3 Regulation and Promotion of Electromobility in the US The US has the most extensive experience in regulating local pollutants through the Clean Air Act, which imposed the first mandatory limits in 1975. Currently, the limits aim at the most ambitious targets for 2025 in relation to the regions studied (ICCT, 2017). On the other hand, greenhouse gases (CO 2 limits) were only included in specific legislation in 2010, with an effective date of 2012. In doing so, they extended and updated a similar regulation on monitoring total fuel consumption (“CAFE”), which had been in place (and little updated) since 1975 and was included in the Energy Policy and Conservation Act. However, this law was initially designed to respond to oil shocks and fuel shortages. The State of California (Tesla’s home base) has long been a leader in the development of electric mobility, first adopting targets for electric vehicle production and development in the 1990s and statewide standards for greenhouse gases from personal transportation in 2002, including a financial and non-financial support model. Other US states have been inspired by the above legislation and California’s new statewide programme introduced in 2012, which again tightened individual emission limits beyond the national standards (CARB, undated). However, it is only in 2022 that the US will return to a comprehensive industrial policy to support domestic manufacturing and EV deployment. The primary tool to support EV development is the so-called Inflation Reduction Act, signed by US President Joe Biden in August 2022, which aims to reduce energy costs for households and small businesses, accelerate private investment in clean energy solutions, strengthen supply chains for critical minerals or electrical equipment, and create jobs in new sectors of the economy. The legislation is expected to generate USD 370 billion in total investment and contribute to a 40% reduction in US greenhouse gas emissions by 2030 compared to 2005 levels (White House, 2023). The Inflation Reduction Act introduces the key measure to support EVs, the Clean Vehicle Credit, a tax credit for the purchase of EVs by individuals. Individuals with gross annual incomes not exceeding USD 150,000 (up to USD 300,000 for some exemptions) will be eligible for a tax credit of up to USD 7,500 for the purchase of a new electric or fuel cell electric vehicle up to a maximum of $55,000 ($80,000 for vans, sport utility vehicles and pickup trucks). The vehicle must meet critical mineral and battery component requirements to qualify for the tax credit. The applicant may receive a tax credit of USD 3,750 for critical materials if their percentage in the battery meets or exceeds the thresholds listed below (U.S. Department of Energy, 2023). At the same time, the critical minerals must be mined or processed in the US or in countries that have free trade agreements with the US and/or recycled in North America:

For 2023: 40%, For 2024: 50%,

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