Foreign, The European commission announced that they had begun an investigation into Chinese electric vehicles, which could lead to tariffs and other trade restrictions. They allege that China is giving massive subsidies to electric vehicle manufacturers, which is creating unfair composition and distorting the market. In the first seven months of 2023, Chinese Automakers sold 86 000 EVS in Europe representing eight percent of total EV sales. This is almost double the amount they sold last year and just a few years before that, Chinese cars were almost non-existent in Europe.

This is a major reversal, as Europe used to be a major exporter of cars to China not the other way around. China has invested tens of billions of dollars to gain a dominant position in the electric vehicle industry. The Chinese company Byd is the single largest Ev maker in the world, having delivered 1.9 million EVS in 2022, almost 50 percent more than Tesla Western automobile. Executives Have been shocked by how Chinese EV makers can pump out massive volumes of cars at very cheap prices and surprisingly high quality.

Historically, Japanese and German automakers like Toyota and Volkswagen dominated automobile exports, but in recent years, they have lost significant market share to China. In the first half of 2023, China surpassed Japan to be the single largest exporter of cars. The collapse in Europe's exporting market share could be economically catastrophic, as the automobile industry currently supports 13 million jobs across the continent. So it's no surprise that the EU is concerned about the massive competitive threat posed by China.

The CEO of BMW recently said that Chinese automakers pose an imminent risk to the European industry, and soon it will no longer be feasible to produce low-end cars in the Continent. In this video, we'll look at the meteoric rise of Chinese electric vehicles and how this could reshape the entire industry before we get into the Chinese EV industry. Quick word from our sponsors over attendees. The Attendees iOS and desktop app is the first serious attempt to integrate trading tools with a social social media platform and it's 100 free! It has everything from an earnings calendar, proprietary research from their expert analysts, a news feed connected to Reddit options flows and options profit calculator.

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Make sure you click the link in the description for this free options, flow data and take advantage of the market chaos. Foreign has been producing cars for a long time, but historically they've been very cheap and have notoriously poor quality. Anyone in China who could afford a foreign car bought one, and Chinese cars were almost non-existent in the export. Market Japanese German American and South Korean Brands gained massive market share in China and they often set up joint ventures to manufacture the cars within China itself.

As early as 2007, the Chinese government saw the potential of electric vehicles and made a strategic decision to invest in the nascent industry. China has long had issues with air pollution. Rapid urbanization and industrialization made cities overcrowded, leading to the notoriously poor air quality. Shifting to zero emission electric vehicles could be a big step towards solving this problem.

Another benefit is that by adopting a new technology, Chinese Automakers could reset their previously poor reputation with both domestic and foreign consumers. Brands like Volkswagen and Toyota have a significant Heritage and combustion engine vehicles that China had no way to map, but consumers would be more willing to try out new brands for a new technology like electric vehicles. One of the most difficult aspects of building electric vehicles is the batteries, which can make up as much as 50 of the total cost of lower end cars. EV Batteries require large amounts of rare earth minerals such as Lithium, Cobalt nickel and manganese, which are expensive and it can be difficult to find Reliable suppliers for large-scale manufacturing.

One of the main reasons that Legacy Automakers in America, Europe and Japan have had such a hard time transitioning to electric vehicles is because of their lack of expertise in batteries. They've been building internal combustion engine cars for decades and their entire supply chain and Engineering expertise is optimized for this purpose. This made them weary of entering into a brand new technology that they didn't understand. Chinese EV Makers had a very different approach.

today. the single largest Ev maker in both China and the entire world is Byd. Byd was founded in 1995 and initially it wasn't a car company. they were a battery company making rechargeable batteries for cell phones and other electronic devices.

In 2003, they acquired a small Chinese Automaker and started producing their first internal combustion engine cars. But from the beginning their goal was to create a plug-in hybrid and eventually fully electric vehicles. In 2008, they launched the Byd F3 which was the first mass-produced plug-in electric hybrid vehicle. It was an instant success in the domestic Market selling hundreds of thousands of units.

Two years later, they launched the fully Electric Byd. E6 The car sold for 370 000 RMB which is the equivalent of about 50 000 US Dollars This was far more expensive than gasoline-powered cars due to the high cost of the battery. This is where the government subsidies come in. Consumers who buy fully electric vehicles receive sixteen thousand dollars of government cash and tax incentives, bringing the effective costs down to thirty four thousand dollars.

Over the past decade, the Chinese government has spent well over 20 billion dollars to subsidize the EV industry. To be clear, many countries, including the US and many countries in Europe have also implemented similar incentives to encourage consumers to buy electric cars. But in addition to buyer subsidies, the Chinese government has also provided billions of dollars worth of direct subsidies and grants to companies like Byd, both to support research and development as well as expansion of their manufacturing facilities. Byd alone has received 2.1 billion dollars of government grants between 2009 and 2022, which represents about 23 percent of their total pre-tax profit.

During the same period, the research and development spending has allowed Chinese companies like Byd to achieve breakthroughs in Battery Technology including lithium-ion phosphate batteries and more recently, sodium ion batteries. These can be far cheaper than the Lithium Nickel, manganese batteries used in the past. These Innovations, as well as a relatively cheap cost of factory labor has allowed China to gain a dominant 77 market share of all EV batteries produced Globally, Government government support has gone well beyond R D subsidies. Chinese state-backed companies have also been on a buying spree, acquiring dozens of Mines across Africa and South America which produce minerals necessary for battery production.

As one example, in 2020, a Chinese state-owned company paid 550 million dollars for a Cobalt mine. In the Democratic Republic Of the Congo, the Chinese buyers were willing to pay high prices for the mines prices that seemed unjustified in isolation, but China was playing the long game. They weren't trying to make a profit from the mines themselves. Instead, they were securing access to minerals which they could supply to the domestic EV companies at favorable prices.

Rapid declines in battery costs have translated to massive cost declines for EVS. In 2023, Byd unveiled the Seagull, a compact electric car available in the domestic Market. Its starting price of ten thousand dollars is roughly one-fifth of that of the first electric vehicle they released 13 years prior. We can also see this trend in the aggregate numbers.

In 2015, the average electric vehicle in China cost 67 000. Before the subsidies, this was significantly more expensive than EVS produced in the US or EU. By 2022, the average cost had declined by 52 to 32 000, while prices in the U.S and EU had risen by 11 and 17 respectively. Today, the average EV in China is 40 cheaper than those produced in the U.S and 50 cheaper than those produced in Europe.

With battery production in the West unable to keep up with demand, U.S and European automakers such as Ford, Volkswagen and even Tesla have had to resort to importing batteries from China. Ironically, many of them are buying batteries from Byd, which is also their competitor. Batteries are heavy and shipping them to the other side of the world is expensive. The difference in manufacturing costs can be clearly seen with Tesla.

The cars they sell in China are produced domestically at their Shanghai gigafactory. They sell the cars for 40 percent Us in The exact same models in the US The cost advantages of manufacturing EVS within China has unsurprisingly manifested itself in foreign: Brands Losing market share in 2008 domestic Brands only accounted for 24 of new vehicle sales. By 2023, this has surged to 47 The Increased market share of domestic brands has come at the expense of Japanese German American and South Korean brands foreign addition to dominating the domestic Market China is increasingly dominating the export Market as well. In the first half of 2023, China surpassed Japan to be the single largest car exporting country.

In recent years, almost all other countries have seen declines in exports as China took market share. Part of this increase has been driven by Russia Following the outbreak of the war in Ukraine Western automakers left Russia allowing Chinese automakers to fill the Gap, but they've also gained massive market share in Southeast Asia the Middle East in South America Chinese Auto Exports do well in countries that don't have domestic EV Industries and thus competition is less intense. One place where you won't find Chinese EVS is in the U.S It's impossible for Chinese automakers to compete as they don't qualify for the seven thousand, five hundred dollar EV tax credits. Also, Trump placed the 27.5 tax on Chinese Auto Imports in 2018 as part of his trade War These tariffs have never been lifted with the Us out of the question.

Chinese Makers have ramped up exports to Europe in 2021. Chinese Imports made up less than two percent of total EV sales in Europe. By 2023, this had doubled to four percent, and in the first seven months of 2023, it doubled again to 8 percent. It's important to note that the vast majority of these Chinese Imports are not Chinese Brands like Byd, about half of them are Teslas made in China and then shipped to Europe.

Another 14 are European Brands which made the cars in China under joint ventures and shipped them to Europe 35 are European Brands which were bought by Chinese companies and are now made in China. Only two percent of the Imports are Chinese Brands such as Byd, Neo or X-pong European consumers are still skeptical of Chinese car brands, but they are willing to buy Chinese-made cars sold under old European brands. For example, Mg Motors was a British automobile company. They went bankrupt and the Chinese company bought the rights of the brand and started selling them again in the UK.

Many consumers likely don't even know that the cars are made in China. Similarly, the Chinese automobile giant Gili bought Volvo in 2010 and most of the Volvo EVS are made in China. Yet, the cars remain popular with European consumers. From the perspective of the EU, they don't care about the brand to the cars.

they just want the cars to be made inside of the EU to support the millions of jobs tied to the industry. The European commission will begin an investigation in the Chinese EV subsidies. These could lead to tariffs against Chinese cars, which would make importing them infeasible. Such tariffs will undoubtedly help European car makers in the domestic Market, but it risks starting a broader trade war with China putting retaliatory tariffs on European exports.

The risks of starting a trade war with China may not be worth the benefits. According to Volkswagen CEO, the competitive threat of Chinese EVS within Europe is way overblown. This is due to the fact that shipping cars all the way from China to Europe is prohibitively expensive. Let's take the example of Byd.

They recently launched three models for sale in Europe: the 803 which has a starting price of 38 000 Euros and the more expensive Tang and Han models which start at 72 thousand dollars. These same models are sold in China for the equivalent of 18, 000, 32, 000, and 27 000 Euros. Thus, the cars become 2 to 2.6 times more expensive once they arrive in Europe. This is due to the high shipping costs as well as the fact that Byd has to pay local Distributors to distribute small volumes of cars, which is very costly on a per car basis.

Chinese Imports still only represent eight percent of new EV sales in the EU and the vast majority of them are Teslas or other European Brands. Like Volvo and Mg Motors, these are brands with significant Heritage and thus don't compete on price alone. EU Car production peaked in 2017 with 15 million cars produced. The majority of these were exported.

By 2022, car production had declined by 30 to 11 million. Of those 11 million cars, 6 million were exported. The decline in the European automobile industry is not the result of competition in the domestic Market but instead increased competition in the export Market The only place where European automakers have a cost Advantage is in Europe itself. Because of the lower Transportation costs, It doesn't matter what tariffs the EU implements, they will continue to lose market share to the Chinese EV makers in the export Market The battery and labor costs advantages in China are simply too much for the Europeans to compete with.

Alright guys, that wraps it up for this video. What do you think about Chinese Electric vehicles? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.

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