Electric vehicles are a major structural bright spot in the current economy. From a macro perspective, a natural question is whether EVs can effectively hedge against the shortfall caused by the old economic downturn.
Recently, the New York Fed had an article "Thomas Klitgaard, "Can electric cars power China's growth?"."Federal Reserve Bank of New York Liberty Street Economics, February 28, 2024, briefly discusses this issue, let's take a look.
The article argues that although electric vehicles are developing rapidly, they may not contribute much to GDP growth. The logic of the article is that although the technology of electric vehicles is advanced, due to the maturity of the automotive industry, the contribution of pure electric vehicles to GDP growth is limited, and passenger car sales peaked in 2017. This is a constraint because BEVs are not as innovative as the introduction of PCs or mobile phones that create new demand. Instead, they are just a new version of a familiar product that may not see a significant increase in sales.
Let's take a number with reference to this logic: assuming that the average replacement cycle of a car is 10 years, we use the current car sales and subtract the sales of 10 years ago, and we can see that after taking into account the replacement, car sales have been at a low level since April 2020.
Another logic is also mentioned in the article, because most of the foreign-funded or joint venture oil vehicles were also produced in China in the past, so in the process of switching from foreign capital to domestic production and oil vehicles to electric cars, the production location has not changed in China. This process may change the distribution ratio of domestic and foreign capital, but the impact on GDP is not significant.
The article argues that the absence of large imports in the past meant that switching from petrol vehicles to electric vehicles (BEVs) only produced winners and losers internally, similar to a zero-sum game, but did little to boost gross domestic product (GDP). In addition, improvements in battery technology that reduce the average car average** are good for consumers, but unless they are matched by a corresponding increase in sales, they will reduce the output of the automotive industry.
In addition, the article also mentions that one of the bright spots of electric vehicles is the rapid increase in exports. According to the General Administration of Customs, the export volume of electric vehicles increased from about 250,000 units in 2020 to 500,000 units in 2021, 1 million units in 2022, and 1.5 million units in 2023.
The article mentions that the extent to which EV exports benefit depends on the share of BEVs imported from abroad and China's share of these BEV imports. In Europe, for example, the BEV of China's exports exceeded 43 in 202260,000 units, accounting for more than half of China's total exports (exports to the U.S. are negligible due to high tariffs imposed by the U.S.). The European Automobile Manufacturers Association estimates that BEV sales in Europe were 1.2 million units in 2021 and 1.6 million units in 2022, while total vehicle sales fell from 11.8 million to 11.3 million units. Taking into account the growing popularity of BEVs (market share from 10% to 14%) and China's high share of BEV sales in the region (from 17% to 28%), a quick calculation shows that China's share of BEV sales grew from 2% to 4% in a year.
But the article notes that the benefits may soon flatten out, partly because of greater competition from European factories trying to catch up, and partly because of political pressure to limit Chinese exports. If you want to increase sales in the future, there will be implicit and explicit pressure to build facilities in overseas markets.
In addition, the article mentions that while battery electric vehicles (BEVs) may have some potential limitations in increasing the automotive industry's contribution to gross domestic product (GDP), this does not diminish other important benefits from policies that nurture the industry, such as profits from new foreign businesses, technological and manufacturing spillovers to the economy as a whole, and the use of domestic renewable energy to replace imported petroleum products.