Outlook: How development of electric vehicles and 5G in China affects the European automotive industry
Companies operating in the European automotive industry need to keep a close eye on what is happening in China – particularly with regard to electromobility and 5G development. This was opined by two leading experts who took part in a panel discussion at Business Region Göteborg’s Automotive Gothenburg Networking Event.
Bill van Amburg, Executive Vice President of the US-based non-profit Calstart, and Mats Harborn, Chair of the European Trade Commission in China and Executive Director of Scania in Beijing, were invited to discuss automotive trends and developments in their countries and to offer their viewpoints. Calstart is the world’s largest organisation geared towards consolidating issues regarding cleaner transport technologies and environmental policies. Bill van Amburg opened the discussion by affirming that electrification is gaining considerable ground in the US, with lighter vehicles and longer ranges being two dominating trends. Electric-powered school buses and city delivery vehicles are becoming increasingly commonplace, and sights are set on electrifying heavier transport vehicles at a critical time as zero emissions will soon be a necessity. Autonomous vehicles are also becoming more ubiquitous, particularity off-road and in enclosed areas.
“But there is a concern that innovations in these areas currently imply that we will be driving more in the future. Calstart believes that we should generally aspire towards fewer autonomous vehicles that we share”, summed up van Amburg.
Mats Harborn, Chair of the European Trade Commission in China and Executive Director of Scania in Beijing, has spent many years in China. During the panel discussion he put paid to rumours that Chinese consumers have strong loyalty to national brands.
“Sixty percent of customers purchase a car based on how quickly they are able to pair their smartphone with it”, explained Harborn. He also reported that attitudes are changing: many young Chinese people are more interested in sharing than owning, which is something he thinks will affect car sales and mobile phone services going forward.
China wants to be the best in the world at electrification
The first panel discussion addressed the rapid development of the Chinese automotive industry and its impact on both the US and EU. The goal established by the government in the nation’s strategy plan, ‘Made in China 2025’ stipulates that China will be the world-leader in electromobility. Mats Harborn stated that Chinese development of future vehicles is primarily spurred by three parameters: the will to be the best in the world, overcoming the country’s excessive emissions, and reducing noise levels.
“There are, of course, other driving factors, such as increased safety. Autonomous and connected vehicles would create better flows in infrastructure with more predictable behaviours, thereby reducing accidents”, Harborn said.
It is common knowledge that Chinese vehicle manufacturers are investing heavily in foreign makes, which is currently more about innovating and integrating components and technology, rather than copying them, particularly with regard to electric vehicles.
“Today, China is top of the class, or has bought into those who are top of the class. But the production of electric vehicles is a subsidised industry, something that European manufacturers can benefit from later on and when subsidies are discontinued”, said van Amburg.
But he also noted that Chinese dominance stems from economies of scale that no other manufacturers can match, including those involved with battery manufacture.
“I think, however, that European and American companies are benefited by their expertise and development as relates to both business and environmental sustainability”, Harborn said.
“China, which only a few short decades ago could be considered a bicycle society, is today totally dominated by vehicles, with an estimated ratio of heavy vehicles to light vehicles at 50/50, which equates to an immense number of climate-impacting haulage miles on a nascent road network. At the same time, there are a large number of major cities with populations in excess of one million inhabitants where inner-city transport – such as distribution and waste disposal – is achieved by smaller fuel-driven vehicles that must and should be replaced”, said Harborn.
Customs duties and tariffs causing problems
The next topic of discussion was the trade war between the US and China, which the two experts summed up with the words ‘total disruption’ – at all stages of the global production system. Customs duties and tariffs are throwing a spanner in the works, which in the long run will lead to regional solutions that do not benefit anyone, according to Harborn, who is critical of the US’s tough stance against China and advocates engagement rather than threats and restrictions. Bill van Amburg noted that a prevailing trend in the US is to blame everything on China – unemployment, price increases – because it’s easy.
Regardless of the political line in the trade war, there have been significant consequences for companies outside the US and China as well.
“If companies had known that the current situation would be the new normal, they could have at least planned for it. But this is not currently possible and it is threatening the business models and survival of companies”, he said.
5G possible for many
The third discussion of the evening was about the development of 5G technology and mobility services in China, and how these in turn affect the EU’s automotive industry. Mats Harborn noted that China has a great advantage in having a unified 5G and IoT market, unlike Europe, where the countries have different system prerequisites and legislation.
“This gives China a head start in climbing the value chain when everything will be connected. But the 5G structure requires the participation of many companies, so I still think it provides business opportunities for more”, said Harborn.
The large Chinese market means that Chinese mobility services are able to scale up and roll out faster.
“With 1.4 billion consumers, China is the largest market on Earth. Any service can get 200 million subscribers in a snap. Those who have strength in China are strong everywhere”, said Harborn. Bill van Amburg concurred with this and believes that those who want to lead 5G may have great advantages by operating in China, testing products there, and – as far as possible – contributing to the establishment of global standards able to benefit many.
Per Österström, Group Manager of Vehicles and Transport at Business Region Göteborg, served as moderator for the evening and linked the 5G question to fleet management, while Harborn and van Amburg proclaimed that 5G will first and foremost usher in a change with respect to logistics and shipping systems, not the trucks themselves.
“In this, the positive effects are numerous. With faster systems and services, transport, which is the part of the production chain that accounts for the greatest emissions and most accidents, will be significantly improved. And we have already seen major improvements”, said Harborn.
Here, however, van Amburg interjected with a warning:
“For both the US and China, it is imperative to have a plan for all those who will be unemployed when fewer drivers are needed in the transport sector. These are consequences that we must take into account.”
• When China joined the World Trade Organization in 2001, 2.4 million vehicles were manufactured in the country per year.
• Today, approximately 28 million units are produced in China. This equates to a third of total global vehicle sales. The US market accounts for 17 million units.
• Sales of commercial vehicles, trucks and buses continue to increase. Truck sales grew by 4-5 percent last year. China is the world’s largest market for heavy goods vehicles.
• At the same time, car sales fell by 2.8 percent last year. This was the first time in 25 years that car sales declined – previously, sales saw double-digit percent increases each year. This creates uncertainty for 2019 and beyond.
• The trade war has harmed investment incentives, and China has launched a campaign to reduce its indebtedness by comprehensively reducing borrowing relative to GDP, making it harder for individuals and businesses to borrow money.
• The Chinese government has introduced so-called EV quotas for 2019 and 2020, which means that all manufacturers who produce and sell more than 30,000 vehicles per year receive 10 and 12 percent New Energy Vehicle credits, respectively. This is conducive to new industry cooperation.
• In February 2019, Bloomberg News reported that The Ifo Institute for Economic Research calculated that if the United States imposes 25% tariffs on German vehicle exports to the US, exports will decline by about half, corresponding to approximately EUR 17 billion.
• Joseph Francois of the World Trade Institute at the University of Bern has summarised the impact that the US metal and vehicle tariffs have on Sweden: The tariffs threaten 3,600 jobs in the Swedish automotive sector and about 800 jobs in the metal industry including reprisals.