President Xi Jinping identified electric vehicles as the best strategic product to revitalize the Chinese economy, dreaming of dominating the global market through various state-level support. However, the electric vehicle industry has hit a sudden brake. Chinese electric vehicle manufacturers are incurring losses as they produce more electric cars, leading them to declare that they will instead focus on making hybrid cars. Time magazine examined the unexpected blow to China's electric vehicle global strategy. 

On the 8th, Bloomberg reported that Chinese electric vehicle manufacturers are shifting towards hybrid cars because electric vehicles are not profitable. To generate revenue, some manufacturers that previously only produced battery electric vehicles plan to produce plug-in hybrid vehicles or extended-range electric vehicles that utilize both automotive engines and onboard batteries.

This caught attention in the report. Bloomberg subsequently mentioned companies that have shifted their production direction towards electric vehicles, including Xpeng, which is listed in the U.S., and Geely's premium brand, Zeekr. They also stated that the GAC Group's executive, Gu Hu, revealed that their Aion brand is developing extended-range electric vehicles. According to Bloomberg, hybrid vehicles are alleviating concerns about driving range and tend to be more affordable, leading to a rapid increase in popularity in China and other regions. Among these, plug-in hybrids include a fuel tank and engine that can operate when the battery is low, while extended-range electric vehicles periodically use a gasoline engine to recharge the battery. In this regard, the number of hybrid registrations in China surged by nearly 140% in August, and extended-range electric vehicles also saw a 90% increase.

The growth of pure electric vehicles has outpaced expectations. According to the China Automotive Technology and Research Center, sales of pure electric vehicles increased by 20% in just one month. However, Bloomberg reports that another reason why Chinese electric vehicle manufacturers are entering the plug-in hybrid market is practicality. During a performance announcement conference in March, Gui Shengyu, an executive from Chinese automaker Geely, stated that the only automotive companies making money in China are those producing internal combustion engines, and that pure electric vehicle companies are not profitable. He added that, aside from Tesla, there are no pure electric vehicle manufacturers in China that have escaped from losses. Consequently, the Chinese companies BYD and Li Auto are profitable but are focusing on producing plug-in hybrids or extended-range electric vehicles. This shift reflects the changing consumer preferences among Chinese automotive manufacturers.

To revive, it is about showing will, which contrasts with the criticism from some executives. I can explain it this way: According to current media reports, four years ago, Volkswagen's China CEO, Stephan Wöllenstein, stated that extended-range electric vehicles are the worst solution for the environment. Tesla CEO Elon Musk also dismissed hybrids as vehicles that should be phased out in July 2022. However, the disdain for Tesla's hybrid cars could potentially lead to significant losses for Tesla, as it goes against the trend in the automotive market. The problem is that if the electric vehicle market is shaken, it could undermine even President Xi Jinping's grand vision. According to BloombergNEF, sales of pure electric and plug-in hybrid vehicles more than doubled compared to 2021, and in 2022, they grew by 62%.

Last year, sales increased by only 31%, indicating a slowdown in growth. In particular, it appears that the transition to electric vehicles is retreating, especially in Europe and the United States. In fact, as of August this year, the market share of battery-powered vehicles in Europe was 14%, a decrease of 1 percentage point compared to the same month last year. However, according to the European Automobile Manufacturers Association, new electric vehicle registrations in August fell by 16.5% year-on-year. Notably, in Germany, the largest automotive market in Europe, electric vehicle sales plummeted by 69%. In this regard, the automotive research firm JD Power predicted that battery electric vehicles would account for 99% of total sales in the U.S. automotive market this year, which is a decline from the previous forecast of 12.4%. They also noted that the main driving force behind the current growth of the electric vehicle market, excluding China, accounted for 59% of global sales. Bloomberg reported that in the early stages of the electric vehicle market...

There was an appeal to early adopters, and the vehicles gained popularity by incorporating various new technologies. However, they pointed out that in order to expand in the market, they overlooked the fact that the consumers they needed to target were different from the early users; they were more sensitive to costs. In this regard, it was noted that in Europe and the United States, pure electric vehicles are 30% and 27% more expensive, respectively, compared to internal combustion engine vehicles. It was analyzed that cost-sensitive individuals are likely to be skeptical about technology and, lacking confidence in charging infrastructure, are cautious about purchasing electric vehicles. In this situation, the abolition of government subsidies in Europe further complicated matters. Without subsidies, electric vehicles are inevitably more expensive than high-priced internal combustion engine vehicles. While Chinese electric vehicles are cheaper, Europe and the United States are taking measures to protect their domestic companies.

With the imposition of trade barriers such as tariffs, the advantage of Chinese electric vehicles, which was their low price, has disappeared. Consequently, it is only natural that the consumption of electric vehicles is sluggish. As a result, major electric vehicle companies like GM, Ford, Mercedes-Benz, Volvo, and Toyota have no choice but to reduce their electric vehicle investment plans and cut their immediate production volumes. In this context, Bloomberg NEF pointed out that traditional automakers have set their electric vehicle sales target for 2030 at 2.37 million units, which is more than 300,000 units lower than last year's forecast. Even Tesla, the industry leader among pure electric vehicle manufacturers, has recently refrained from mentioning its previous goal of selling 20 million units annually by 2030. Ford has also completely halted its production plans for electric SUVs and postponed the launch of its next-generation electric pickup truck. Additionally, annual capital...

The plan is to reduce investment in electric vehicles, which previously accounted for 40% of expenditures, by 30%. Meanwhile, Volkswagen, the largest car manufacturer in Europe, is negotiating with labor unions regarding the closure of its German factory. The contraction of the electric vehicle market has directly impacted battery manufacturers. Northvolt, the largest battery company in Europe, announced a reduction of 20% of its global workforce. This situation in the electric vehicle market is shaking the foundations of Chinese President Xi Jinping's economic development strategy. As the global electric vehicle market shrinks contrary to initial expectations, market forecasts have also become pessimistic. Additionally, the already oversaturated Chinese market is at risk of falling into a state of stagnation. China has been actively exporting electric vehicles to the global market, but these exports are now facing obstacles, and the domestic market is already saturated.

As electric vehicle companies are turning to losses, there are bleak forecasts that if this situation is neglected, the entire automotive industry could collapse. Our newspaper reported on June 11 that the electric vehicle sector, which is a key pillar of China's economic growth under President Xi Jinping, is staggering under the weight of impending oversupply. It is said that while things seem to be going exceptionally well now, starting next year, the sector will enter a state of oversupply, and there are lamentations about the uncertain future ahead. At that time, our report highlighted that the oversupply of Chinese electric vehicles is primarily due to excessive exports to Europe, leading to a significant accumulation of vehicles in various locations across Europe. It was pointed out that if Chinese companies do not adequately respond to this issue, despite having made profits last year and this year, they could lose all the money they earned next year.

I pointed out that there is a high possibility that the electric vehicle market would be impacted. At that time, there were no forecasts suggesting that the growth of the electric vehicle market would be hindered by hybrid vehicles. It was already evident back then, but now, with the market situation changing rapidly, it is clear that the Chinese economy, which has heavily invested in the electric vehicle market, will face significant challenges. 

In fact, according to Caixin, which reports independently on the Chinese economy, China's automobile production has consistently grown in recent years, with electric vehicles being the main focus. However, there is uncertainty about whether this growth trend can continue. Consequently, business leaders suggest that the Chinese automotive industry should also prioritize the export of internal combustion engine vehicles. 

In a report by Xu Shiming, the general manager of Chery Automobile, he stated that the current market structure, where internal combustion engine vehicles hold a 60 to 70% share in overseas markets, is unlikely to change fundamentally in the next 5 to 10 years.

In order for Chinese companies to capture overseas markets, they must not ignore my annual report. This is the opinion that has been expressed. However, the Chinese leadership, including Xi Jinping, has ignored these experts' warnings. Even now, they stubbornly refuse to budge from their focus on electric vehicles. If one believes that such a China will function well, it can be asserted that this is, quite frankly, foolishness. Nonetheless, how should we understand the many who drool at the mere mention of China? I hope they can wake up and look at China properly. This was a commentary on international affairs. Thank you.

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