What Europe can learn from China if it wants to save its industry

Sometimes a bit of distance can improve your perspective.

Walking down the silent streets of Beijing I listened to the future of mobility. Statistics can’t convey the silence of the streets. When an old - usually German or Japanese combustion engine drove by, I heard and smelled China’s smoggy past.

As I checked my phone, together with your ID - your most precious possession in China - I learned France and Germany had agreed a deal to remake Europe’s auto industry.

Brussels-bubble-me might have thought this deal - and the slightly worse European Parliament copy of the deal a week later - was more or less what was to be expected. Seen through a rosy lens the deal maintains a degree of pressure on carmakers to electrify whilst introducing elements of ‘technological neutrality’ the political right so desired.

Perhaps lowering the pressure on carmakers while using local content rules to bar Chinese carmakers like BYD from the company car market could be a clever ploy? It might just buy European industry some time.

But seen from China the car deal is simply terrible and displays exactly the lack of leadership and consistency that Chinese policymakers so deride in western politicians. One of my interlocutors said, “you have politicians, we have statesmen”. I pushed back, spoke up for Europe, but painful as it may be, these days, those words have a ring of truth to them.

In China two-thirds of all new cars are electric. Its car factories churn out the most amazing vehicles. Software defined, developed in record time, with outstanding infotainment and AI features, and electric of course.

Trucks aren't going electric in some distant future as truck manufacturer bosses in Europe like to say. 40% of sales in China are electric already, with battery swapping not just some utopia but a market reality with trucks queuing at stations waiting for a six minute swap.

Oil demand from road transport is in freefall. Urban pollution caused by vehicles is a thing of the past. And as a result of its clear eyed policies and generous support, as well as a little help by Trump and Putin’s oil shocks, Chinese carmakers are now conquering the world.

Underpinning China’s EV might is a world class battery industry. I was in the world’s battery capital, Ningde, once a small fishing town, now a city of nearly 3 million people. The city produces 300gWh worth of battery capacity - more than the whole of Europe. That factory boom town could have been in Germany or Spain, I mused.

The way the China EV story is often told this was all inevitable. But it never was.

China once too had a legacy, combustion engine and oil industry that was saying "electric will never work". Yes, some of those companies were foreign but they all had joint ventures and were locally embedded just like Toyota and Ford are in Europe. Yes, some visionaries were thinking of leapfrogging, but they were a minority for a long time.

China looked at its interests and set out its course. Pollution, oil dependency, climate and industrial strategy all merged into one coherent strategy. Now it is reaping the rewards.

What a contrast with the stitch up back in Europe, which one Financial Times reporter labelled ‘self-destructive.’ The deal means Europe will produce fewer electric cars - just 10% extra compared to today’s sales share by 2030, and it all but abandons the idea of a European battery industry (10% EU batteries required in 2028). Instead it imposes local content rules to protect European producers of seats and wheels.

In an obscene example of political disorientation, the deal creates a new category of “zero emission” vehicles powered exclusively by synthetic e-fuels and biofuels. I asked my Chinese partners why they didn't do biofuels. “We don’t like solutions that compete with food” was the simple answer.

China is all in on electrification. CATL is building up its presence in Europe with three sites in Germany, Spain and Hungary. They are even branching out into shipping and even aviation as it seeks to disrupt another industry. Soon medium sized containerships with range big enough to cover the Mediterranean will hit the water. Made in … China, of course.

When I noted to CATL engineers that the technical challenges involved sounded hard, the reply was, “yes, but we’re only getting started”. If only this would have been the attitude of European industry.

No-one I met here dismissed Europe or its auto industry. I accept that it's hard for incumbents - companies or continents - to be 'first' or 'disruptive'. But if we can learn one thing from China it’s that you can be fast followers if you’re willing to learn from the best. 

China and its EV industry aren’t invincible. Its economy is heavily indebted (300% debt-to-GDP), stagnant and relies on exports for growth. The auto price war means almost no-one makes any money. Nor is its industry a monolithic bloc. Some make very average cars, others make excellent cars, CATL doesn’t make cars at all. The Chinese export model will work only as long as its trade partners accept it.

What is crystal clear though is European industry can’t meet Chinese competition with old gas guzzlers. Those days are over. The future is for those who master battery tech and software, including self driving. The race doesn’t have to be over. Just remember, five years ago China was nowhere.

But Europe’s leaders will need to display a lot more vision and consistency if they want their industry, or indeed Europe itself, to be at the table rather than on the menu in the years ahead.