Germany wants to use less Chinese material in its cars

Germany wants to reduce its dependence on China, its most important trading partner, and that includes imported materials for semiconductor chips and electric vehicle batteries.

Calling China “simultaneously partner, competitor and systemic rival”, German Chancellor Olaf Scholz has released a rather high-profile strategy document asserting its value and outlining how it will protect its interests.

Germany said it would diversify its supply chain to spread the risk more widely.

“The goal is not to sever our relationship,” Chancellor Scholz said on Twitter.

“However, we want to avoid critical dependencies in the future. By [the strategy] we are responding to a changing China and taking a more aggressive stance.”

“It is a priority for us to reduce such risks quickly and at a cost acceptable to the German economy, especially if such risks concern products that are important for health, the energy transition or technological innovation,” the strategy document reads.

The strategy document specifically mentions Germany’s dependence on China for various metals and rare earths and lithium batteries.

It said the German raw materials partnership would “benefit all countries involved”, with the aim of “supporting our partners in maintaining more value creation in their own countries”.

“By doing so, we not only promote prosperity in the home country, but also the long-term competitiveness of companies there by acquiring expertise and innovation, independent of the mere extraction of raw materials.”

It is not the only country looking to reduce its reliance on raw materials for electric vehicle batteries, with the recently passed US Inflation Reduction Act incentivizing automakers to produce EVs and batteries locally.

Germany said it “does not pursue separation from China” in the technology sector, as “the creation of a separate technosphere is not in our interest”.

However, it says it is intensifying international cooperation in the field of technological innovation and aims to strengthen its cooperation with “partners who share our values”.

Germany said it was not only reducing reliance on China as a way to reduce risk, but also in response to concerns about backsliding in the Asian powerhouse on civil and political rights and curbing ties with research institutes and government agencies.

It also argued China’s economic strategy “aims to make it less dependent on other countries, while making international production chains more dependent on China”.

“In terms of foreign policy, China is pursuing its own interests more resolutely and is trying in various ways to reshape the existing rules-based international order,” the document reads.

“This affects European and global security,” he added, noting that the country’s relations with other countries “have deteriorated significantly as a result of this robust approach”.

It also details a range of geopolitical concerns, including China’s growing influence in the Indo-Pacific region, its strengthening ties with Russia, and its second largest spending on defense.

However, it says that despite their systemic rivalry, the two countries can work together – provided the terms are fair.

China is a critical market for German automakers.

Volkswagen was one of the first foreign car manufacturers to establish a joint venture with a Chinese partner and build a factory there in the 1980s.

Fast forward to the 21st century and it still enjoys a significant market share in China.

While BYD ranked first among automakers in China last year when it comes to retail sales, with 1,804,624 vehicles, if you combine the sales of the two domestic Volkswagen joint ventures, the total is 3,022,537 vehicles.

BMW and Mercedes-Benz also have joint ventures in what has become the world’s largest automotive market.

The market has become more competitive, however, with Chinese automakers having taken some of the lessons over the years and launching increasingly sophisticated vehicles with comprehensive modern technology.

Not only that, Chinese car makers have expanded their global presence including in Europe itself.

In addition to Chinese-owned brand vehicles such as Lotus, Polestar and Volvo, the European electric vehicle market is filled with Chinese names such as Aiways, BYD, GWM (through its Orana brand), MG, Nio and Xpeng. Some of these companies, such as MG and GWM, also sell combustion-powered or hybrid vehicles.