Challenges of European EV industry and potential impact on China's nylon industry

Background

Since March 2023, European Commission President Ursula von der Leyen has advocated for a "de-risking" strategy regarding the supply chain from China, aimed at reducing key dependencies on China and enhancing the security and resilience of the European economy. Specifically in the electric vehicle (EV) sector, the EU is promoting local EV industry innovation through a series of funding programs and industrial policies, such as the implementation of the "European Battery Alliance (EBA)," which funds local battery production companies to reduce external dependencies. Additionally, countries like Germany are providing R&D funding to help traditional automakers transition into electric vehicle manufacturers. At the same time, the EU is adopting trade protectionist measures by establishing tariff barriers to strengthen the competitiveness of its domestic EV supply chain companies.

Key timeline:

- October 4, 2023: The European Commission initiated a counter-subsidy investigation into electric vehicles imported from China.

- June 12, 2024: The European Commission announced preliminary results of the counter-subsidy investigation, proposing tariffs of 17.4%, 20%, and 38.1% on BYD, Geely, and SAIC Motor, respectively.

- July 4, 2024: The EU imposed temporary counter-subsidy taxes on Chinese electric vehicles.

- October 4, 2024: EU member states voted to approve the final ruling draft on the counter-subsidy case against Chinese electric vehicles, deciding to impose additional tariffs on pure electric vehicles imported from China, with a maximum rate of 35.3% on top of the 10% basic tariff.

Difficulties facing the EU electric vehicle industry

In June 2024, BMW unexpectedly canceled a long-term supply agreement worth 2 billion euros with Northvolt, transferring the order to South Korean battery giant Samsung SDI. This highlighted the operational difficulties faced by Northvolt, which is viewed as a key player in the EU's energy transition, ultimately filing for bankruptcy protection in the U.S. on November 21, 2024.

The main reasons for Northvolt's collapse include:

1. Ambiguous development path leading to aggressive expansion

2. Rapid capacity expansion and underestimating the difficulties of technological development

3. A shortage of core technical talent

4. A decline in the appeal of the "green" concept

Two major challenges facing European companies in developing the EV sector:

1. Reliance purely on government subsidies and trade barriers will struggle to break through China's technological barriers in the electric vehicle sector

2. Insufficient subsidy measures and talent attractiveness make it challenging to compete with the United States

Possible strategic shifts in Europe

Northvolt's bankruptcy signifies the shattered dream of Europe achieving complete autonomy in the new energy vehicle supply chain. Moving forward, the EU must reevaluate its development strategy for the new energy supply chain.

Is the green economy transition feasible? European companies may need to embrace joint ventures, placing compliant production processes locally while moving high-pollution processes to East Asia or other regions.

Analysis of the pros and cons of tariffs on China: Reliance on trade for high-tech goods will face import obstacles, while locally produced cooperative models may become more appealing.

Obstacles to Chinese EV exports

November 2024 marked the first month of the full implementation of the EU's counter-subsidy tariff policy, with the export volume of Chinese pure electric vehicles decreasing by 6% year-on-year, marking the first negative growth of the year. However, the EU market's sluggishness has also impacted the local new energy vehicle market. According to the European Automobile Manufacturers Association (ACEA), the sales of pure electric vehicles in the EU fell by 9.5% in November 2024, with particularly weak markets in France and Germany.

Despite trade barriers set by major exporting countries, the surge in demand for Chinese electric vehicles in Southeast Asia and South America has somewhat offset the impact of export volume contraction. At the same time, the domestic market in China remains strong. In November 2024, China's production and sales of new energy vehicles reached 1.566 million and 1.512 million units, respectively, representing year-on-year increases of 45.8% and 47.4%.

Impact on nylon industry

One of the important raw materials for electric vehicles is engineering plastics, which represent a significant downstream demand in the nylon industry:

Engineering plastics account for 20% of downstream demand for nylon 6 chips and 52% of demand for nylon 66 chips.

Nylon 6 industry chain has a diversified downstream demand structure and relatively balanced supply and demand, but occasional issues of overcapacity still exist.

In contrast, nylon 66 industry chain suffers from supply-side pressures, with capacity utilization remaining low at around 50%. Obstacles to electric vehicle exports will lead to a decline in demand for engineering plastics, exacerbating the difficulties faced by the nylon 66 industry chain.

Conclusion

The upcoming transformations in the EU's electric vehicle policies will have far-reaching effects on China's nylon plastic industry. In the context of export obstacles for electric vehicles, the nylon industry needs to monitor changes in global market demand and optimize supply and demand structures to respond to potential shocks and challenges.