As of: March 28, 2024, 6:41 p.m
By: Sven Hauberg
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Cars from the manufacturer BYD leave the “Explorer No.” in Bremerhaven. 1". © Focke Strangmann/AFP
China's economic difficulties are also becoming a problem for us. The country produces more than people buy. The result: cheap electric cars are flooding markets worldwide.
At the end of February, one of the huge car freighters that have been sailing the world's oceans for decades docked in Bremerhaven. But something was different this time. BYD Explorer No. 1” was emblazoned on the outside of the ship, the name stands for the currently most successful manufacturer of electric cars in the world. In the last quarter of 2023, BYD sold more electric vehicles for the first time than the previous top dog, Tesla. The “Explorer No. 1” is the first of eight planned BYD freighters that will transport the manufacturer’s vehicles from Shenzhen in southern China to Europe. Around 3,000 cars rolled off the 200-meter-long colossus in Bremerhaven, and hundreds of thousands are expected to follow in the coming months and years. You can call this a success story. Or a declaration of war.
Because the electric cars from BYD and all the other Chinese manufacturers that have names like Cherry, Ora or Xpeng are significantly cheaper than the German competition. In China, an entry-level model from BYD costs the equivalent of around 10,000 euros - half as much as the planned ID.1 from Volkswagen. And it shouldn't come onto the market until 2027. The Chinese cars, on the other hand, are already there. “Global markets are now flooded with cheaper electric cars. And their price is kept artificially low by enormous state subsidies,” complained EU Commission President Ursula von der Leyen last September. And announced investigations that could be followed by special tariffs on Chinese electric cars.
China produces more than it buys
Last year, China produced 30 million cars, but only sold 25 million of them domestically, says Jacob Gunter, lead economy analyst at the China think tank Merics. The rest was exported. “That was 50 percent more exports than in 2022.”
Chinese manufacturers are trying to sell more cars in their own country with high discounts. But that only works to a limited extent because China's economy is weakening and people are holding on to their money. The economy is expected to grow by around five percent this year, according to a recent decision by the parliament in Beijing. However, due to the gigantic real estate crisis, the construction sector is no longer a growth driver. So the manufacturing industry has to go full throttle, politically this is what is desired, the sector is being artificially nurtured. The result: Industrial production is increasing faster than retail sales - so more is being produced than bought.
This excess capacity is “a feature, not a defect, of the Chinese economic model,” says Jacob Gunter. He explains the problem with electric cars like this: The government in Beijing wants to make the country the world market leader in e-mobility with subsidies, tax breaks and loans. Tens of thousands of companies responded to the call and new companies were founded all over the country. Beijing's plan: If subsidies are reduced after some time, the pressure on manufacturers to become better and more competitive will increase. Anyone who can't do that will go bankrupt. What remains is a handful of companies that are so good that they are at the top of the world.
China can build an additional ten million cars every year
However, according to Gunter, it is not just Beijing that has pumped a lot of money into the electric car industry, the provincial governments are also getting involved. Every provincial ruler wants to produce his own champion, build a supply industry, create jobs and fulfill growth goals. You can't afford to build up manufacturers with a lot of money only to then abandon the majority of them. So the already heavily indebted provincial governments would “continue to feed these companies,” as Gunter says. “They are betting that they can do this longer than the other local governments.”
This is one of the reasons why China currently has the capacity to build another ten million cars annually. “And investments in the car industry remain high.” Chinese customers have ordered around 100 car freighters like the one that docked in Bremerhaven a few weeks ago. Many of them are likely to be moored at European ports one day. And the still tiny market shares of Chinese manufacturers in this country are growing.
What can happen if governments don't take countermeasures can be seen in the solar industry. “China’s production capacities are sufficient to supply the entire world with solar panels 2.5 times,” calculated the former President of the EU Chamber of Commerce in Beijing, Jörg Wuttke, in the
Handelsblatt
a few months ago. There is no longer any serious competition in Germany; the solar manufacturer Meyer Burger recently stopped module production at its factory in Freiberg, Saxony. Wind turbines could be next in line; analysts see signs of overcapacity here too. Of course: the energy transition is cheaper this way. But for Germany the price is still high.
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“There is a real danger that Europe will go through an intensive deindustrialization phase”
The problem is existential for the Federal Republic, says Gunter. It is no consolation that inflation-stricken German consumers benefit from cheap Chinese imports. To understand this, take a look at the USA. Since China's admission to the World Trade Organization in 2001, entire industries have migrated from the USA to the People's Republic. “There are not very many people in America today who are convinced that this was a good thing,” Gunter said. “There is a real danger that Europe will go through an intense phase of deindustrialization if it allows what the Americans allowed 20, 30 years ago. Namely that a large part of their industry is destroyed just to have very cheap goods available.”