China's EV Manufacturing Dominance & Biden's Policy Paradox

Across every sector, eyes are on the supply chain and any possible imbalances. e2open’s SaaS platform predicts problems and opportunities, which then allows businesses to reduce waste and perform to the highest level

Mehmet Demirci is the Senior Vice President at e2open, a connected supply chain software platform. Here, he tells us about tensions within EV manufacturing. 

China's EV manufacturing dominance and Biden's policy 

Regarding electric vehicle batteries, Mehmet is focused on how China's manufacturing initiatives could contradict President Biden's efforts to restrict the inclusion of Chinese materials in the production of such batteries.

“China's dominance in the global EV supply chain poses a significant challenge to President Biden's efforts to restrict the inclusion of Chinese materials in EV batteries,” he says. 

China controls almost all stages of the EV supply chain. The country's initiatives, such as heavy investment and subsidies in EV-related manufacturing, have made it a world leader in the sector. 

“President Biden's proposed rules to cut subsidies for vehicles containing Chinese-made battery components could create inefficiencies and increase costs for the US EV industry. If not enforced carefully, these measures may hinder the competitiveness of the US EV market internationally and fail to provide the same value for money to customers,” Mehmet explains. 

Geopolitical competition for strategic raw materials and technologies adds another layer to the challenge. While President Biden's intentions may be to protect domestic interests, macroeconomic theory suggests that protectionism, without accompanying innovation, can lead to inefficiency. 

“The overcapacity situation in both the US and China's EV markets further complicates matters. China's surplus supply, fueled by domestic investments, could put pressure on US and EU-based auto manufacturers to offer lower-cost alternatives for consumers,” he says. “Balancing the power dynamics in the EV sector becomes crucial for the US to lead, as internal demand alone may not be sufficient for American manufacturers in the face of China's dominance.”

Read more on EV policy shifts in the 2024 US presidential race here. 

The evolving dynamics of global manufacturing

China's emphasis on advanced manufacturing sectors, such as EVs and batteries, has led to tensions with the West. The overcapacity issue is evident in sectors like solar panels, where China's dominance has grown substantially. 

“The EU and the U.S. previously had significant market shares, but Chinese government subsidies and the 2008 financial crisis shifted the balance,” Mehmet continues. “In response to these challenges, Western nations are diversifying their imports away from China, seeking alternative manufacturing sources in other economies like Vietnam and Mexico.”

BMW is continuing to branch out in Vietnam, in its partnership with Truong Hai Auto Corporation (THACO). 

“We have cultivated a strong relationship with the THACO team and their experience and commitment to growing the brand is evident,” said Lars Nielsen, Managing Director, BMW Group Asia.

Mehmet adds that in navigating this changing landscape, local subsidies and technological advancements will play a crucial role. 

“Subsidies can offer a short-term buffer for organisations to adapt to the new reality, while technology, including automation and supply chain optimisation, will be essential in offsetting the higher indirect costs in the Western world's profit and loss statements,” he says. “The US and EU are actively pursuing diversification strategies and increasing trade between them as they grapple with the evolving dynamics of global manufacturing and the challenges posed by China's overcapacity.”

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