April 27, 2023 - 4:00pm

The European automotive sector — above all the German car industry — is a bulwark of the EU's economic might. But for how much longer? It's becoming increasingly clear that Chinese exports pose an existential threat. This week, Brad Setser, a senior fellow at the Council on Foreign Relations, tweeted out two charts that illustrate the astonishing speed and scale of recent developments. The first chart shows that during the 2010s China became a massive importer of vehicles, but that, since 2020, Chinese exports have surged. As in so many other sectors, the People’s Republic is now a net exporter. To put it another way, a trade deficit of tens of billions of dollars per annum has been more than wiped out in the space of just three years. [caption id="attachment_471864" align="aligncenter" width="640"] Source: Financial Times[/caption] The Chinese haven’t stopped importing vehicles — the market is still worth billions to European exporters. However, China is now exporting back to the EU at record levels. It should be said that this surge is coming from Western companies with factories in China, not just homegrown Chinese firms, but that won't be of much comfort to EU workers or to anyone concerned with the long-term security of the West's supply chains. Automotive is one major manufacturing sector that Europe has managed to avoid offshoring. Allowing this position of strength to crumble seems extraordinarily careless. But why is it crumbling? After decades in which the big European car companies were able to hold their own, why are the Chinese now gaining ground? A quick look at the second chart posted by Setser (originally published in the FT) provides a massive clue: almost all of the Chinese export surge is made up of electric vehicles. The Germans are the undisputed masters of the diesel engine, but that's just the problem: having built an industrial strategy around this core technology, they couldn't let it go. Most notoriously, there was the Dieselgate scandal, in which German manufacturers were caught fiddling emissions tests. Arguably more damaging, though, was the general European failure to lead on developing and commercialising electric cars — thereby allowing others, like Tesla and the Chinese, to seize the moment. The Europeans have no excuses for being caught unawares. After all they were the ones who forced the pace on Net Zero — which requires the complete decarbonisation of road transport.  It's time for the rest of the EU to question Germany's economic leadership. After all, this isn't the only example of Berlin crashing the car. More than anyone else, the Germans were responsible for Europe's reckless dependency on Russian energy supplies. They also impoverished the Greeks and pushed the British into Brexit.  But as far as the car industry is concerned, there is time to regain the initiative. Though the electric engine is a game-changing technology, there may be an even bigger transformation on the way. Given the rapid progress currently being made on artificial intelligence (AI), we might finally get the breakthroughs required to make driverless vehicles an everyday reality.  If we get full automation in the next decade, then the game will change all over again. Without the need for human drivers, the vehicles themselves will be transformed — and so will the way that they are owned, serviced, insured and financed. It will be a whole new world — and one last chance for old Europe to keep up.

Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.

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