Why China is winning the electric car race against Europe and the US

Why China is winning the electric car race against Europe and the US

China is leading the electric car race, as its strategy allows it to reduce production costs and sales price. This has a very positive effect on sales figures, contrary to what happens in Europe and the United States.

Moving from EV incentivization to pricing is an opposing trend between the US and Europe on the one hand and China on the other. And we are talking about a crucial race in the future of the automotive industry.

And it is that, according to a report issued by JATO Dynamics, electric vehicle prices in the US and Europe continue to rise, while China has already established a clear downward trend. This, how could it be otherwise, has a direct consequence on the demand for this type of vehicle.

“The average retail price of electric cars in China has dropped 47% in 10 years”

In China, 40% of electric cars sold this year were city-cars, which had an average retail price of €6,700. Even, “Consumers can buy a new electric vehicle for as little as €3,700. The price in Europe jumps a lot in comparison, with consumers needing at least €15,740 to buy an electric vehicle. In the United States, this figure increases even more, to a minimum of €24,800.

This difference in prices is also influenced by the supply and demand for electric vehicles. In Europe, the market is dominated by SUVs and in the United States by midsize sedans, which are more expensive than the city cars that dominate the Chinese electric vehicle market.

The progress seen in China’s electric vehicles is impressive. In 2011, the average retail price was €41,800, which has been significantly reduced to just €22,100 this year (-47%).

This is how the average price of electric cars has evolved in Europe, the United States and China.

China’s progress can be attributed in large part to its emphasis on popular cars with affordable prices. While the industry in general has set its sights on developing better technologies, higher ranges and premium cars, the Chinese are doing both, adapting combustion models to more affordable electric vehicles.

“This gave consumers of various socioeconomic levels the opportunity to buy an electric carincreasing the sales of the manufacturers”, the report points out.

By comparison, the average retail prices of electric vehicles registered in Europe rose from a minimum of €33,292 in 2012 to €42,568 in 2021 (+28%). In the United States, prices have risen even more: from €26,200 in 2011 to €36,200 in 2021 (+38%).

Europe has to cut prices a lot

If we focus on specific European countries, there are clear differences between markets within the continent. In Germany, progress has been made in the gap between prices for thermal and electric cars. This year, electric vehicles were only 8% more expensive than the average retail price of diesel or gasoline cars (€39,755 vs. an average of €36,979).

However, the percentage spread has not shown significant decreases in recent years, and the only driver of the price reduction has been the electric SUV (with average prices falling from a high of €118,300 in 2017 to €49,700 this year).

Contrary to broader trends, Norway is the only European country where the average retail price of an electric is lower than the average of a thermal automobile. There, the average price of a thermal car is €53,000, being €44,500 for electric cars.

Policies in Norway have focused on make electric vehicles more competitive than thermal cars, due to its incentive program. However, in Norway the prices of electric vehicles have not decreased in recent years.

In fact, the average price of electric vehicles has risen from €30,500 in 2010, when only small cars were sold, to €44,500 this year. The arrival and growing popularity of the Tesla Model 3, the Audi e-tron, and more recently the Volkswagen ID.4 explain this increase due to their relative expense.

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Why China is winning the electric car race against Europe and the US
The Tesla Model 3 is the best-selling electric car in Europe, but its entry price exceeds 50,000 euros.

It is clear that Western markets need to catch up with their counterparts in China. Despite the efforts made, on average electric vehicles are still much more expensive than gasoline and diesel models.

In Europe, the price of an electric car in 2021 was 32% higher than a thermal one, and 45% higher in the United States. “Until manufacturers are able to improve the affordability of electric vehicles, consumer acceptance will likely continue to lag behind sales in China”.

More affordable electric cars

Despite attempts in many markets and manufacturers, electric vehicles in Europe and the United States are still too expensive compared to models with a combustion engine.

There is no doubt that, at this point, it is an urgent need for the industry focus on affordable 100% electric models that reflect consumer demand.

For example, last year, 44% of the world’s population that demanded passenger cars chose an SUVbut this type of car only accounted for 25% of the combined sales of electric passenger vehicles in China, the United States and Europe.

With Western factories designed to produce high-end vehicles on a scale, it is unlikely that many automakers will start changing their plans to produce entry-level, affordable cars soon.

However, if lowering EV prices remains a non-priority, there will be significant consequences for the entire auto industry. And it is that a large proportion of the population will never be able to afford the cost of electric vehicles.

How manufacturers will prepare to live without economic incentives and reduce their prices remains unknown. One thing that is clear, however, is that American and European manufacturers must transfer the demand for thermal cars from the consumer to the electric production lineas well as reduce production costs. Otherwise, it risks falling behind China.

Tesla and Volkswagen as an example of preparation for a world without incentives

In Norway, it has already started dispense with subsidies and incentives for the purchase of electric cars. And, little by little, this will have to happen in the rest of the world.

In particular, Tesla and Volkswagen are beginning to take clear steps to reduce production costs and improve profitability. Tesla plans to reach 1.5 million production this year and VW intends to reach 800,000 units.

This increase in factory utilization means that both manufacturers are also consistently moving closer to the goal of producing vehicles with lower cost of production.

Tesla is also seeing increased profitability. In the first quarter of 2021, earnings before interest, taxes, depreciation and amortization (EBITDA) increased 94% compared to the same period in 2020.

“This is a good indication that Tesla will soon be ready to expand its product line and take steps to launch more affordable electric vehicles.”says JATO Dynamics.

Why China is winning the electric car race against Europe and the US
Price difference between electric and thermal cars in Europe. Only in Norway the former are cheaper.

Volkswagen, for its part, is accelerating its electrification plans with the introduction of several new electric cars. Currently, they offer 14 products on three different platforms. The ID family, in particular, is known for supplying a range of electric models in different segments with the aim of appealing to a broader base of consumers, while using the same technology in all of them.

Currently the world’s largest-selling manufacturer of small, subcompact and compact vehicles, Volkswagen sold almost 6.5 million units in 2020. “This shows exactly how present the company is in the lower segmentsand how well positioned it is to make moves in popular electric vehicle segments,” the report said.

In fact, the company already has plans to unite its platforms into a Scalable Systems Platform (SSP), with the aim of unify its range of products in a complete platform that includes all types of cars.

JATO Dynamics