For climate action, China has chosen long-term extraordinary innovation investments and scale to wean off fossil fuels.
The European Union (EU) is making progress for energy independence by 2027, though with some Chinese technologies.
Too, the UK and Brazil have set ambitious climate targets
The U.S., Trump administration will enhance paths towards stranded fossil fuel assets. The private sector will continue floundering on clean tech innovation and base performance on the short-term, quarterly reports.
Canada will emulate the U.S.
China
China spent $676 billion on clean tech in 2023, over double that of any other nation.
The good news is that China’s emissions may peak by 2025, ahead of its 2030 target and the first annual decline since 2016. Should China succeed in plateauing emissions in 2025, the Paris Agreement target to halve emissions by 2030, could have been a possibility, if it weren’t from Trump.
This potential appears unimaginable since China accounted for 30% of global emissions in 2022, 11 billion tonnes.
China’s 2024 drop in annual emissions is anticipated to be about 7.2% or 8.2%.
The bad news are potential impacts on economies outside China regarding their clean tech manufacturers competing with much more affordable and more advanced Chinese exports.
There appears to be a pattern for China’s clean tech successes, high up front government support for research and development plus oversupplying the domestic Chinese market. This formula has had mixed consequences.
China’s oversupply of clean tech industry typically achieves excellent economies of scale for offering low prices, but often results in profit declines, or even losing money, due to fierce competition in the domestic market.
To make up for the domestic low margins, prices for Chinese export markets are set to be both profitable and affordable choices in these markets.
European Union
The European Union, post Russian invasion of Ukraine, like China, has an agenda to sever dependence on fossil fuels. The EU aims for energy independence via a green transition by 2027.
While there was a 911-like spike in LNG imports from the U.S. immediately after the invasion, thanks to intensive emphasis on renewables, heat pumps, efficiency and other measures, EU gas imports were down 20% in 2023 and anticipated to peak by 2025.
Electric vehicle (EV) sales trends indicate a displacement in European oil consumption of 3.3 million barrels/day by 2030.
U.S. and Canada
Trump promised to pull out of the Paris Agreement.
Though the Inflation Reduction Act (IRA) and Bipartisan Infrastructure Law (BIL) have been outstanding in supporting the building of clean tech factories, EV purchases and the installation of home energy saving solutions, e.g. heat pumps, and solar panels, Trump wants to water down these milestone laws to suit his agenda.
Nonetheless, Trump will have to take into account that in 2023 the clean energy sector, including storage and EV charging, came in at 40% of U.S. energy jobs, with a 200% growth in that year.
The EV and battery projects announced and associated with the Inflation Reduction Act and Bipartisan Infrastructure Law will create of 201,900 jobs. This sector could generate another 931,000 jobs.
Still, since the U.S. innovation gap with China widened even with the original IRA and BIL in place, expect that gap to grow when Trump unbelievably dilutes the legislation.
Trump referred government backing of the green economy as a “green new scam.”
Further contributing to the innovation gap, emission standards across all sectors will become more lenient.
Most notably, the overriding energy themes will be in “drill, baby drill,” for increasing oil and gas production.
What will Trump do when global fossil fuel demand peaks and U.S. clean tech jobs outnumber oil industry employment?
Sadly, Canada will follow in U.S., as always, and continue to be a fossil fuel exporting nation. The next likely Prime Minister, Pierre Poiliève, will make sure of that.
UK and Brazil step up at COP29
At COP29, the UK pledged to reduce emissions by 81% by 2035 from 1990 levels and Brazil has prepared a comprehensive climate plan for a 59% to 67% GHG reduction by 2035 based on 2005 levels.
Electric Vehicles and batteries
China’s dominance in affordable electric vehicle (EV) and battery sectors are prominent examples of technological leadership and the Chinese oversupply business models.
At first glance, one might get the impression that China is an unlikely leader in these sectors.
Compared to Western economies, China has considerably fewer cars, vans, buses, freight and other trucks per 1,000 inhabitants at 231, very low compared to the U.S. 908; Canada 790; Germany 628; and U.K. 600.
In part, low vehicle ownership in China is a consequence of being the global leader public transit. China has 46,000 km of high-speed rail, 50 subway systems with over 10,000 km of track, substantial light rail and had 455,000 e-buses on its roads in 2022.
Yet, with EVs having reached 53% of the Chinese vehicle market in September 2024, China represented 69% of the global EV registrations in 2024, up until October. That’s because Chinese EVs are considerably more affordable than EVs in other countries.
China’s EV tech lead goes back to the 1990’s when China started to invest in EV research. Back then, China had realized Chinese manufacturers of internal combustion engine vehicle (ICEV) models could not compete in export markets that are too overcrowded with competitors.
Thereupon, China developed a complex compilation of measures that pushed manufacturers towards producing New Energy Vehicles (EVs), the consequences being manufacturing of ICEVs became more expensive to produce and EVs less expensive.
Today, additional more compelling contributing factors to Chinese affordable EVs and batteries include government support for quickly getting over the time hump to get a return on investment. Overall, China’s EV financing covers innovation, development, minimizing production costs and start-ups.
China’s holistic long term vision has been a key to reducing EV battery costs. China has invested more on battery research than all other nations combined and has a plethora of EV R & D programs.
Unimageable in Western economies, China’s CATL, the largest battery producer in the world, has 20,000 employees dedicated to R & D.
BYD, the largest EV manufacturer in China and second biggest battery producer, is a rare integrated EV and battery firm making most parts in-house. These achievements are thanks to its 900,000 employees, of which more than 110,000 are R & D staff.
By early 2022, China accounted for 80 percent of global battery production capacity and controls, 75% of battery cell manufacturing, 90% of anode and electrolyte production, 60% of battery component manufacturing, and refining for more than half of global lithium, cobalt and graphite.
The battery technology-related savings have manifested into 95% of Chinese made EVs equipped with the less costly lithium iron phosphate (LFP) batteries. LFP batteries are nearly exclusively manufactured in China.
Outside China, NMC batteries (lithium-nickel-manganese-cobalt-oxide) are typically used.
Compared to the NMC batteries, LFP batteries are cheaper to manufacture, have higher stability and are easier to recycle.
However, on performance, LFP batteries are not yet as good as lithium-ion ones. But technological advances are in the process of closing the performance gap.
CATL and BYD alone, have 90% of the LFP market.
The results are battery costs are about 18% less in China than elsewhere. This is critical for the pricing of an EV since the battery typically comes in at 40% of an EV’s cost.
However, until now, China’s LFP batteries have been destined for the more affordable entry level small low- to mid-cost models.
Hyundai is about to change all that, challenging China’s LFP cartel with an ultra-high capacity 300 Wh/kg LFP battery to be produced without Chinese components by end 2025. Average Chinese LFP battery capacity is 200 Wh/kg.
If Hyundai succeeds in its LFP development plan, it will have a LFP battery with longer range than the typical NMC battery and would be the first LFP battery for high performance EVs.
If all goes according to plan, Hyundai may be able to produce affordable EVs with LFP batteries for both entry level and performance models, with impressive range and not subject to tariff barriers.
Also in progress, BYD is constructing a factory for third generation batteries, sodium-ion batteries, for scooters and micro vehicles, for starters. BYD believes it could eventually produce sodium-ion batteries that will be less than the cost of LFP in the long term.
CATL is working on its improved new enhanced version of sodium-ion batteries for small and short range vehicles and China’s Chery will have a factory for the fourth generation, solid-state batteries.
As well, China’s EVs benefit from better economies of scale associated with oversupplying. Chinese EV manufacturers bet attractive pricing will create demand to meet supply. Oversupply may be an understatement as China’s 200 EV manufacturers will have launched about 110 EV models by end 2024. With all the competition, the average domestic profit margin is slim, averaging 5% in 2023, with some models sold below cost.
As indicated above, the profits are made on exports, while still maintaining a price advantage. The BYD lineup average price is $30,000.
While the U.S. and Canada have imposed 100% tariffs on Chinese EVs, BYD is entering a new foreign market nearly every week, launches about 10 new models/year, and has an operating manufacturing plant in Thailand, plus facility projects in Mexico, Hungary, Turkey, Brazil and Indonesia.
These are important considerations, since the revenues of legacy automakers depend on global markets, not North America alone.
Legacy EV and battery manufacturers outside Asia cannot compete with the scale, pace of innovation and/or vertical integration of their Asian competitors.
Legacy firms depend on a plethora of external suppliers.
All the more for making the future of Western legacy automakers uncertain.
Tariffs and other barriers to affordable EVs
The U.S. and Canada 100% tariffs on China’s EVs, batteries and components will boomerang regarding a growing innovation gap and legacy automakers’ competitivity in critical global markets.
Not bothered by the United States-Mexico-Canada Agreement on trade, Biden and Trump intend to keep Chinese EVs made in Mexico out of the U.S.
Since the U.S. also has a trade agreements with Morocco and South Korea, many Chinese EV components investors had been planning to build plants in these countries.
A Trump reworking of the Inflation Reduction Act and Bipartisan Infrastructure Law, upon which the Moroccan and South Korean projects are premised, may see the aforementioned investments put on pause.
The Biden administration has already implied that Chinese EVs manufactured elsewhere would not be eligible for $7,500 consumer credit applicable to North American built vehicles.
Trump may put the final nail on this escape route.
The Trump additional 25% import tariffs for all goods from Canada and Mexico might apply to Canadian EVs and batteries too.
Contrasting the U.S. an Canada, the European Union has manufacturer-specific trade barriers on Chinese EVs, the EU varying tariffs range from 8% to 35%, on top of an existing 10% duty. The highest tariff is aimed at SAIC Motor Corp, likely because the company is state-owned.
The EU doesn’t want to set the tariffs too high because the EU hopes to attract China’s manufacturers to invest in factories in the EU. Production of Chinese EVs in Europe would remove tariffs and many Chinese EV manufactures are doing just that.
In addition to the BYD EV plants planned for Hungary and Turkey, other Chinese EV stakeholders, such as Geely vehicles and CATL, are engaged in major investments in Europe.
Even with the EU tariffs, many Chinese EV imports will still be somewhat more affordable than their European competitors.
The European Commission (EC) concluded that the average Chinese EV battery electric vehicle (BEV) imports cost 32% less than European EVs in 2023.
The 2024 prognosis is that China’s EV imports will come in at 25% of the European EV market share.
A large portion of these imports are Tesla, Dacia and BMW EVs.
Legacy automakers
The China advantage spells trouble for EVs produced by legacy automakers.
Battery projects in Western economies may be outdated before production begins.
Better technology and better prices cannot be stifled by protectionism.
Many legacy automakers have not gotten over the hump for a return on investment.
In June 2024, Ford claimed it loses $100,000 for every EV sold, its EV division lost $4.7 billion in 2023 and expected losses to hit $5.5 billion in 2024. Thus, Ford plans to offer more of the more profitable plug-in hybrids.
Meanwhile, GM is mumbling about offering different battery chemistries and enlarging its plug-in hybrid lineup.
Volkswagen, the largest German employer with 10 factories in the country, is experiencing economic troubles too and looking to plug-in hybrids as the way forward.
In late October 2024, Volkswagen announced it will be shutting down 3 plants in Germany and cut wages by 10% for 140,000 employees.
Among other things, Volkswagen cited a drop in third quarter 2024 profit levels by 42% associated with lower then projected, or insufficient, EV sales, to recover the high EV transition costs; increased competition from European EV imports from China; and sharp declines in the Volkswagen market in China, where EV sales now exceed ICEVs.
Since traditionally 40% of Volkswagen sales have been in China, the deterioration of the Volkswagen market in China constitutes a heavy blow for the company.
Likewise, BMW and Mercedes Benz are dependent on the Chinese market, for 32% of global sales and 28% respectively.
This puts Volkswagen, Mercedes Benz and BMW in a conundrum.
Germany opposed EU tariffs on EV imports from China.
Oversupply in other clean tech sectors
China is determined to reduce its dependence on fossil fuel imports while Trump aims to increase oil and gas production.
Accordingly, the China clean tech oversupply business model applies to the solar panel, and wind turbine sectors.
In the China’s wind sector, production overcapacity during 2022 and 2023 brought about low domestic market profit margins, while in the U.S. and Europe, the margins were 2 to 3 times higher.
Consequently, the Chinese turbines prices in Europe and the U.S. were lower than their European and U.S. competitors. Six of the 10 top windpower producers are Chinese.
For solar panels, despite China’s mindboggling increases in the annual solar installation rate, China’s solar manufacturers were caught with an oversupply having exceeded China’s storage and transmission capacity.
In the coming two years, the Chinese solar modules manufacturing capacity may actually double world demand.
As is the case with the Chinese EV sector, excessive renewables competition within China has led to unprofitably low domestic prices, compensated by exports of more profitable and affordable exports.
Trump’s proposed 20% tariffs on all solar and wind imports from China could affect the prices of renewables in the U.S.
The takeaway
China, the EU, the UK and Brazil will accelerate weaning off fossil fuels, leaving the U.S., and Canada too, to increase the production of these fuels as the market for these fuels dwindles.
China will persist in manufacturing more clean tech, solar, wind, EVs, batteries/storage, plus electrifying its industries at levels greater than the rest of the world combined.
For the U.S., action on climate change to compete with China, will take inconceivable huge hits with Trump, while fossil fuel production will be administered steroids. The U.S. clean tech private sector will continue to lag on innovation, constrained by an investment community which only understands quarterly reports. The U.S. will continue to lose ground on clean tech leadership.
Canada has much to lose, especially with Conservative Pierre Poiliève, the likely next Prime Minister, aligned with Trump on denial of climate change, increasing oil and gas production and many other issues.
The EU seeks win-win formulae with rational environmental and economic considerations. The EU may show the way forward.
China, the EU, UK and Brazil will stand out as global climate leaders.
