A historic transition is in the works that shifting from the century of the combustion engine to the time of electric vehicles. This transformation is affecting consumers and businesses alike. US consumers bought nearly three hundred thousand new battery electric vehicles in the second quarter of twenty twenty three. In the race to dominate the EV global market, China is the standout. It makes over eighty percent of the world's lithium iron batteries that power such vehicles, but the US
is keen to be competitive too. President Joe Biden's Inflation Reduction Act aims to bring more EV manufacturing back to the US and its trading partners.
That massive new spending bill also set to boost sales of electric vehicles. It includes hundreds of billions of dollars to address climate change one program new tax breaks for electric vehicles.
Bloomberg's Colin Mckerrika and Malcolm Scott report that this is the dawn of the EV era, and the stakes are incredibly high.
When we look at the EV sales figures in the most recent month, about a third of all vehicles sold in China, in the largest vehicle market in the world, are plugins, and about twenty five percent of those are purely electric. This is happening really fast now in the largest auto market in the world.
It's all about tensions not just between US and China, but tensions between labor groups, tensions between parts of society that this transition is causing.
I'm your host today, Roslin Matheson today on the big take. The electric vehicle revolution is here and it's shaking up.
The global economy.
Malcolm, I'll start with you because you write in this important story that the world is going through what you call a historic transition from internal combustion engines to electric powered vehicles. Can you just begin by giving us an overview of what's happening.
So, the world economy has been set up for about one hundred years based on internal combustion engine supply chains. That is all changing very rapidly right before our very eyes. At the moment. Of course, those legacy automakers are still around,
They're still churning out the gas guzzling cars. But the Chinese have really made the world stand up and notice that this transition to EV sales and EV adoption is happening quickly, and it's happening right now, so right across the world economy, we're starting to see these changes in supply chains already play out. And it's just the start of what's going to be a decades long process that will revolutionize parts of the global economy.
And it is happening really really fast. But what's behind it happening so quickly? Is it demand to people just want to drive electric vehicles because of the environment, because of cost. What are the main things that are pushing this rapid shift.
I guess there's the demand side. People have realized that these cars are actually pretty cool. Tesla's helped us learn that. But then on the technology side, the battery side's become so much better. And that's call in space where he can maybe talk about some of those changes on the battery technology front.
Yeah, I mean, this is something we've been tracking for over a decade at Bloomberg New Energy Finance Bloomberg and EF and one of the things that you can really see is that battery prices have plummeted. They've gone from over one thousand dollars a kill a one hour to about one hundred and forty dollars one hundred and fifty
dollars a kilo one hour over the last decade. There is a consumer adoption consumer interest angle, but there's a really big technology story here, and it's one of the most remarkable technology stories of our time, and that is that it has gotten much cheaper to store power in a battery over the last decade. And not only has it gotten cheaper, the batteries themselves have gotten much better,
better energy density, better cycle life, better safety. All of these things are a big part of what's enabling this EV story to take off.
It's interesting you're talking about those confluence of factors all coming together at once in a way to create the environment for this. But mal you mentioned one country in particular, China already the standout lead in the EV race. How did it get in front so quickly? What gave them this advantage?
Short answer is it's a mix of government subsidies, tax breaks, and you know, China doing what China does, deciding we want to dominate this space, and then going all in. You know, it started in the early two thousands, really before many of the Western countries saw the potential I
guess of what we're seeing today. Into the twenty tens, I think there was a real acceleration in China, maybe some recognition that it was going to be tough to take on the Japanese legacy automakers, the Americans, the Europeans in their own game, so maybe EV's was an area
where they could perhaps leapfrog to some extent. Into the mid twenty tens, you had the China twenty twenty five Industrial Policies outlined where they decided, hey, we want to move our economy away from this low end manufacturing gig that's fueled their rise to that date and beca i'm an economy moving up the value chain where more of the value added of what they're selling is made and recognized and into the pockets of the Chinese companies doing it.
And evs were part of that broad technology focus that was part of that broad industrial plan. They've also at the same time made sure that they had some strength in the processing of the minerals that are needed for evs. They've dominated on the production side, but also in the processing of those minerals.
I think a lot of people don't realize this, but China is by far the largest auto market in the world. It is significantly larger than the US or the EU, and not only that, but when we look at the ev sales figures in the most recent month, about a third of all vehicles sold in China, in the largest vehicle market in the world, are plugins, and about twenty
five percent of those are purely electric. So, just to underline Belkom's point, this is happening really fast now in the largest auto market in the world.
It's really interesting the way that we talk about it both being very fast in a way very slow, because it feels like the accelerated in the past year or so where everybody's talking about electric vehicles. But now your point was that China saw this twenty years ago. By comparison the US and Europe, they seem to be catching up or trying to catch up. Colin, can you talk a little bit about where the US and Europe are now and the question is can they catch up?
About seventeen percent of global vehicle sales this year are going to have a plug of some sort, so that's plug in hybrids or battery electrics, and only about three percent of all the vehicles on the road in the world at the end of this year will be electric. There's still lots to play for, but China does have
this really formidable lead. So China accounts for about eighty percent of the battery manufacturing capacity in the world today, the lithemion battery manufacturing capacity, and in some parts of the supply chain upstream from there, it's even more than that.
So what's happened in the last really the last two or three years, is that Europe and North America have decided, actually, you know, we don't want to significantly lose this much of the auto supply chain and of the cutting edge technology that is going to be a big part of the next hundred years of the automotive industry and other industries. And they've said, look, we want to re onshore more of the manufacturing supply chain.
And so they're making a big push.
There's a big push going on right now in Europe, in North America, and I would say it's being broadly successful. There is a significant amount of battery and ev manufacturing capacity being built in North America and Europe. It's not the scale that China is. So when we look at twenty twenty five, look out a few years in twenty twenty five, we're still anticipating China to be about seventy to seventy two percent. Again, that's down about eighty percent
today of global battery manufacturing capacity. So the lead is formidable, but it is still very early days in this and this is a story that's going to play out over several decades because there are about one point three billion vehicles on the road today and only about forty million of those are electric.
At this point, let's talk about some of the specific forecasts from bluebeg NEF. We're not saying billions, we're talking trillions here, potentially up for grabs. What are the forecasts telling you that you're looking at.
One thing to note is that global auto sales are worth about two point five trillion dollars a year, very significant portion of GDP for some countries and a significant portion of exports for other countries. And if we just take a sort of a step back on where we are on this ev question, evs were about one percent of sales in twenty seventeen, five percent in twenty twenty. This is when everyone starts to notice it a little bit, and this year, as they said, around seventeen or eighteen percent.
When we look a bit further out, we think they get to around thirty percent or but a third by twenty twenty six, and then just under fifty percent by twenty thirty. If you think about that two point five trillion dollars a year in annual vehicle sales, a growing share of that is going to be electric.
Colin.
Let's talk about the US Inflation Reduction Act. Whether the US is spending essentially billions to lure produces to or back to America. Some critics have called it a subsidy in effect for US industry. How might the IRA is they call it or IRA play a role when it comes to the EV sector in the US.
Yeah, there's a bunch of different moving pieces around IRATH. One of them is around a tax credit for producing batteries. So there's a forty five dollars per kilowot hour tax credit if you make a battery in the US, and that is enough to more than close the gap currently with what we see in the difference between batteries produced in the US versus in China. So that's meant to say this can be a very competitive place to build batteries and therefore evs.
Then there are other things around end consumer subsidies.
So an income tax credit of seventy five hundred dollars for electric vehicles. And then there are a number of other provisions that are meant to encourage automakers to retool manufacturing plants, and a bunch of other things that are designed to look at this whole supply chain altogether. So it's a lot of money that the US is mobilizing, and in some cases its allies or close friends are sort of saying, actually, you're pulling a lot of the jobs from other places as well. And that doesn't just
apply to EV's and batteries. It applies across other areas like hydrogen or carbon capture and storage, and a number of other parts of what we call the broader energy transition. What the move to EV means is that there is a large number of very small part suppliers. Those jobs are really at risk because a lot of those parts and components that go into larger components that eventually go into an engine or go into a vehicle, those are really at risk in the switch to electric because you
just won't need as many parts. So I think in the supply chain you are probably going to see reduction as you move from internal combustion engine to electric vehicle, But the big question is where do the battery manufacturing jobs go, And that's why there's this big sort of fight and this big industrial policy push over the batteries.
If those can replace what's going on on the job losses on the internal combustion engine parts supply side, then it's a net neutral or maybe even positive from a job's point of view.
After the break, what are the US and Europe doing to keep up with the push for evs? We talked earlier about the US and China, but it's also interesting to talk some of the key examples around the world where this is playing out. So, Malcolm, one of the countries that you and your colleagues write about in this story is Mexico, which is intriguing because why is Mexico so prominent when it comes to electric vehicles.
Well, Mexico stands to be one of the big winners from IRA with those juicy tax credits because they apply to cars made there as well, so manufactured right across North America, not just the United States of America. So you've got General Motors, BMW, Ford, Stilantis, Kia. They're all announcing plans to boost and expand their EV production there
because they want to get in on that game. Tesla of course, is building a megafactory in northern state there, so you know they want to get in on the game. Problem is, China is already there. China is ramping up as sales to Mexicans just as Mexico starts to get ready to ramp up those sales to North America, to the United States. China's already in there. They're selling electric buses, they're selling electric taxis, and they're selling a lot of
cheap internal combustion engines still to Mexico. So so far, they're pretty confident that they can keep doing that without necessarily causing political tensions. We spoke with BYD America's chief Stellar Lee. She said she's not worried about what she calls disturbing noise in the media regarding these tensions. She thinks that there's going to be so many jobs up for grabs. It's going to be new technology brought to Mexico.
She's betting and maybe China's betting that there's enough to go around for both in this case.
And meanwhile, looking at North America, it's interesting because Canada is trying also to push to build a domestic supply chain of electric vehicles. We'll see a lot of countries try and get this domestic supply chain going.
Colin how is that going?
The Canadian government doesn't want to be left out of this.
Auto manufacturing is a significant portion of jobs in southern Ontario and also Quebec, so the Canadian government is also making a big push to ensure that batteries are built there. So there's been some big announcements there both in Quebec and Ontario, and also evs are built there.
We do this.
Lithiumion battery supply chain ranking every year at Bloomberg and EF and Canada actually comes out quite positively in the top few countries, partially because of all the access to raw materials it has that can help fuel this battery boom. So I think Canada is quite well positioned, and the government is providing significant support both at the federal and the state level to ensure that jobs aren't lost there and that Canada stays at the cutting edge of battery and EV manufacturing.
But there hasn't been.
That much actually built todate, I should say, so most of it is forward looking, at least on the manufacturing side. But I do think the Canadian government is very conscious that it doesn't want to see all of this new capacity end up purely in the US because of the Inflation Reduction Act, So it is trying to ensure that it's at the table and providing significant support to match some of those programs.
And Malcoln we write in the story about what's called the ring of fire, and that's not what we think of as kind of the earthquakes and volcanoes that can go off around the world, but something else. And why is it so important for the manufacturing prospects for Canada when it comes to electric vehicles, Well, the.
Ring of Fire gives them a real shot at mining many of these minerals that're so crucial to the batteries. Domestically, there's some sixty seven billion dollars worth of these minerals that mining companies are estimated to be sitting on. It's all about tensions, not just between US and China, but tensions between labor groups, tensions between parts of society that this transition is causing. Here, it's a tension between two
green goals. We think that digging up these minerals is going to be good in the long run because it's going to get rid of these gas guzzling engines and help produce nice, clean evs. But on the other side of this, there are people pro testing and saying hold on, These vast deposits of minerals are also in what's one of the world's most effective carbon sinks, and we don't want to mess with that. There's also indigenous interests and communities that are saying hold on, hold on, let's not
mess up this pristine green environment. So you know, you've got these green goals colliding, and that means there's been real delays in the approval of what could be a real lifeline to Canada's economy. Bloomberg economist Stuart Paul says this could be worth somewhere between two point seventy five to four point two five percent of Canada's GDP, So this is significant, you know, economy altering stuff that's up for grabs here.
Over in Europe.
Also, there's another country that stands out also pushing into the manufacturing race on electric vehicles, and that's Hungry.
Our reporter there, Bureau chief Salton Simon in Budapest, has done plenty of reporting on the big new battery plant that's being built by the Chinese investment there. BMW is building a new EV factory in Hungary. So it's interesting what's happening in the second largest city in Hungary to Brexen, which is traditionally played second fiddle to Budapest, but at the moment is something of a boomtown. It's transforming the city of around two hundred thousand residents. Home prices are
surging as workers file in. This is putting Hungry potentially on the map to become one of the world's most significant battery producers.
And Colin, what are we drawing from the Bloomberg NIF data about that industrial park in Debretzen.
That Hungary is emerging as one of the clusters and that specific region as one of the clusters of the new automotive supply chain. And if you look across Europe, there's a few of these forming. There's one in sort of Hungary and eastern Europe. There's another one in the Nordics where a lot of the battery makers are looking to try and capitalize on the fact that the grid is already supplied by clean electricity, mostly from hydro and
trying to make a green battery as a result. But so these are kind of the new hubs I guess if you will, of where it looks like this industry is emerging. So Hungary is definitely one of them.
And Malcolm, is that feeding into any tensions in the region. Are we seeing that start to show up when it comes to electric vehicles and the competition there for market share?
There is the threat that nearby neighbors that are still very reliant on the internal combustion engine, like the Czech republican Slovakia, they get left behind somewhat. The Czech government was left scrambling for alternatives. Volkswagen they said that there's no business rationale to build a battery factor in the
country now, or at least for now. So you know, there is a risk that as Hungry rises, other nearby neighbors that are still maybe stuck with their legacy IC engines and supply chains reliant on those start to fade. We are still going to see internal combustion engines around for a while yet, So this isn't necessarily overnight. It's about tapping into the rapid growth of evs. While the legacy ICE related manufacturers maybe are all battling for a smaller and shrinking pie.
Coming up a closer look at China's investment in the EV market beyond.
Its own borders.
We were talking earlier on about Mexico, which is a key player in all of this in terms of the push for electric vehicles and mal you did talk about China's role in that, but Colin, can you just remind listeners, how is the approach of China in Mexico different from the US approach.
The Chinese vehicle manufacturers of all types have significant over capacity, and that's not just evs, that's also internal combustion engines. Vehicle sales in the country have risen dramatically but have not continued the same trajectory they were on before the pandemic. And what that sort of means is that a lot of those manufacturers are then looking to other parts of the world and looking to where they can export vehicles to.
So you're seeing a significant amount of Chinese made vehicles starting to show up in places like Mexico and other parts of Latin America. There's places like Mexico, but other markets like Brazil interestingly, forward closed its vehicle manufacturing facility in Brazil, and the buyer of it was BID, a Chinese electric vehicle manufacturer, and that will start producing evs for the Brazilian market starting next year and probably other parts of the Latin American market.
So China is sort.
Of stepping in in some ways as the US is stepping back. The Chinese vehicle players are targeting the bottom of the market and are really going aggressively after these international regions because of this overcapacity they have domestically.
Well quite some way away, Malcolm.
Of course, China is also targeting Thailand for electric vehicles. Can you talk a bit about what you're saying there.
We had reporting there that tapped into the tension that's flaring this time, not necessarily US China tension, which were also used to talking about this time, it's Japanese Chinese tension. Japan has long been the leader in Thailand's car making space, but quickly it's being challenged by China, which is ramping up its foreign direct investment into the area. Thai authorities
are welcoming it with open arms. We spoke with the manager of a vast industrialist state who said that she's seeing huge investments from companies such as byd and others, and her Japanese clients are teasing her saying, hold on you, you like these Chinese guys better now She of course said, no, no, no, we like all our clients. But you know, the numbers do tell the story from just a few years ago, where the Japanese were outpacing Chinese investment into that automotive
space by you know, four or five to one. Now those ratios are flipped and this year so far we've seen Japanese investment lagged Chinese investment by about a ratio of two to one. So the Chinese are pouring the money in to what is a vastly important industry for Thailand.
And Colin of course, we know that the Thai government is very much encouraging investment but also pushing people in Thailand to drive more electric vehicles.
What's their target for twenty thirty, So.
The Thai government has a target of thirty percent of all automobile production in Thailand to be electric by twenty thirty. And that's really because right now auto manufacturing is about ten percent of Thai GDP. It's sometimes referred to as the Detroit of Southeast Asia or Detroit of the East It is a very significant part of the overall economy, and Thailand exports vehicles to a lot of the other Southeast Asia economies, so they're again ensuring they don't want
to be left behind in that. So they've got this thirty percent target by twenty thirty, which is six years away. Now that they're aiming for that, early signs are quite promising, as Mel has said. Byd Changana see Great Wall Motor.
These might not be household names to Western listeners, but these are big Chinese auto manufacturers who are setting up shop building plants making investments in Thailand as a way to get into the broader Southeast Asia region, which is one of the faster growing car markets in the world.
And obviously we're talking about a lot going on globally here, a lot of money, a lot of accelerated plans for investment companies taking advantage and pushing heavily into this sector. And as you were saying, call, some of these targets aren't that far off, but also a lot can happen between now and then. If you're talking to our listeners, you're saying, what are the things they really need to be looking for in the coming months and years.
Yeah.
So the first one is this point between government push and organic consumer demand take off. So a lot of the last decade has been government trying to get the EV market going, hoping that organic consumer demand will take off and then they won't be rolling such a big ball up such as steep Hill.
And that's already happened in China.
What we're watching for is which other countries does that happen to as well. In Europe, you're already over twenty percent of sales being electric too, so you could argue that's kind of the case there too, though there are a bunch of policy leaders still pushing that forward.
The big question is the US.
For US, so since the Inflation Reduction Act was passed, over one hundred billion dollars of new investment we've tracked that is going into EV and battery manufacturing in North America. That's a really, really significant amount of money that should really set the US and North America up to start to catch up with the rest of the world.
When it comes to EV adoption.
But you move from this challenge of kind of getting in the game to executing, and now we're in kind of this execution phase. We're watching to see how well the US can execute on this scaling up all these things of the supply chain to enable this supply to match demand and continue to rise and get that takeoff that we've seen in other places. The other thing is this tension between different parts of this transition. So there's this tension between global environmental goals or large scale CEO
two goals and local environmental concerns around extraction. There's also this tension between localization and cost reduction. So a lot of the push over the last decade has been to get costs down. Now you also have this additional variable in there, which is we don't only want them to be affordable, we want them to be made locally. That may actually cause a slowdown in some of the adoption that we're seeing.
We're already seeing some of this protectionist sentiment come through. The European Union last month launching an investigation into Beijing's financial support for the ev industry.
The EU is worried about the threat to its carmakers from cheaper imports from China. It says it's Chinese rivals have an unfair advantage from state subsidies. European officials say this distorts the market. They've launched a major inquiry.
You know, there's millions of jobs that at risk across Europe as these cheap Chinese cars flood in. If they start to put up barriers, If these barriers start to impede on the relationships even further than that, of course, is going to ripple through the global economy, in fact, is already rippling through. And the other thing that's come up already in this conversation is the simple fact that evs don't need as many bits as the cars that
we're used to. So we're seeing some economies, some smaller economies that really are going to lose out no matter what. One of the cases we've got in our stories. South Africa, platinum palladium is a big part of their mining industries. As those metals go into catalytic converters, which are parts of the exhaust system that turn some of the nasty gases into less nasty gases. You just don't need those
in evs anymore. So we've got those metal prices falling dramatically, about forty percent down at the moment over the past year. Jobs are being lost already there in an economy where unemployment's already around thirty three percent, potential loss of mining jobs. The challenge to keep up is going to be really challenging.
And that's just one economy. There's going to be plenty more losers e merge for every winner, So you know that's going to be very challenging right across labor markets across the globe.
And of course you throw politics in the political cycle and elections coming into all of that, and you've got a complex soup. Colin Malcolm, thank you very much for joining me today.
Thanks for us, Thank you, thanks for.
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our engineer. Original music by Leo Sidron. I'm Roslind Matheson. We'll be back tomorrow with another big take
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