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Home»Finance»Navigating New Roads: China’s EV Giants and the GCC’s Economic Shift
Finance

Navigating New Roads: China’s EV Giants and the GCC’s Economic Shift

April 3, 2024No Comments6 Mins Read
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Navigating New Roads: China’s EV Giants and the GCC’s Economic Shift
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Amid the challenges posed by climate change and the pursuit of global carbon neutrality goals, the electric vehicle (EV) industry is experiencing rapid growth. Chinese EV makers, boasting advanced technology and significant manufacturing capacity, are swiftly expanding their exports, with more than 1 million EVs exported in 2023, marking a 99.1 percent increase from 2022. This is an opportune time for the industry. Driven by Gulf Cooperation Council (GCC) countries’ energy diversification initiatives, the region is emerging as a pivotal EV market. As demand grows, Chinese EV companies are becoming more significant in GCC markets, signifying an expanding and more robust clean energy partnership between China and the GCC.

Despite being a late bloomer, China is now leading the global EV industry, thanks in part to the Chinese government’s strategy and policy. The market is now ahead of traditional automakers in Japan, Germany, and the U.S., having produced nearly 60 percent of the world’s electric vehicles (EVs) in 2022. By the fourth quarter of 2023, Chinese automaker BYD had overtaken Tesla in sales as the world’s leader. Notably, China’s EV industry is a product of the country’s push for indigenous innovation and global expansion. On the one hand, the price war caused by fierce competition and overcapacity in China’s automobile market in recent years has forced EV manufacturers to go abroad. On the other hand, the Chinese government’s strategic plan for the development of the EV industry actively promotes the expansion of Chinese EV companies into international markets and their integration into the global value chain. This initiative forms a crucial part of China’s overarching aim to position itself as a mature, high-tech industrial hub leading in global innovation. Engaging in this sector allows the country to capture a significant share of the rapidly growing global demand for clean transportation and to cement its leading position in the global green economy.

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As the world tries to shift away from fossil fuels, GCC countries are making moves to diversify their economies which aligns well with China’s global ambitions in the EV market. To that end, China has found willing partners in the Gulf region. The economies of the GCC countries have been heavily reliant on revenues from fossil fuel exports, where demands are expected to decline in the long run. In 2021, revenue from these exports accounted for 40 percent or more of the GDP in each GCC state. Global oil demand is projected to decline in the latter half of the 2030s, falling to 24 million barrels per day (b/d) by 2050. Consequently, it becomes both logical and imperative for GCC countries to actively engage in an energy transition process to diversify their economies.

While the transition goals vary among the GCC countries, the overall strategy is defined by two interactive themes: domestic power sector decarbonization and export-oriented clean energy development. In both aspects, the EV industry is expected to play an important role. GCC countries have plans to decarbonize the automobile and transportation industry by accelerating private and public uses of EVs sixfold by 2030. The GCC EV market is expected to reach $10.42 billion by 2029. Meanwhile, GCC countries are developing export-oriented EV manufacturing capabilities. Dubai, for instance, has established a new manufacturing hub dedicated to the local production of EVs, with plans to export to countries like Egypt, Tanzania, Senegal, Mali, and Kenya. To meet these ambitious goals, both domestic decarbonization and export-oriented efforts necessitate collaboration with external partners in technology development and industrial capacity enhancement, areas where Chinese automakers have a definite advantage.

Recognizing the opportunities, Chinese EV makers are rapidly moving to capitalize on this evolving market in the GCC countries. Almost all major Chinese EV makers have now developed plans for expansion into the region, with some already establishing a presence. Last Year, BYD announced a partnership with the Jordanian distributor, Mobility Solutions Auto Trade Company. In June, Saudi Arabia’s Ministry of Investment signed a $5.6 billion deal with Chinese EV maker Human Horizons to collaborate on the development, manufacture, and sale of vehicles. In December, the Abu Dhabi government secured a $2.2 billion strategic investment in Chinese automaker NIO, increasing Abu Dhabi’s share in NIO to 20.1 percent.

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While the GCC countries are also cooperating with western EV makers such as the Lucid Group and Canoo Inc., Chinese EV companies possess two strategic advantages compared to western firms. On one hand, they offer advanced technology at competitive pricing, benefiting from their inherent supply chain which lowers costs in logistics, labor, raw material, and transportation. For example, BYD has a massive integrated supply chain network covering everything from battery manufacturing to cargo ship operations. A recent report by investment bank UBS revealed that 75 percent of the components of the BYD Seal (its flagship EV sedan) were made in-house, compared to 46 percent for the Tesla Model 3. On the other hand, GCC’s state-capitalist economies present an implicit obstacle to the entry of Western companies, whereas they offer a more navigable landscape for Chinese corporations. Additionally, for Chinese EV companies already established in Europe, their European Union homologation significantly simplifies the process of obtaining certification for the Middle East.

The growing presence of Chinese EV makers in GCC countries indicates a convergence of interests. For GCC countries, the expertise and economies of scale in EV manufacturing that Chinese companies can offer are much needed for implementing cost-effective solutions to achieve their ambitious goals. Additionally, the expertise of Chinese EV manufacturers in developing supply chains and expanding manufacturing capacities can play a pivotal role in advancing GCC’s economic diversification strategy. This partnership can help GCC countries develop capabilities in export-oriented renewable energy and actively engage in foreign markets, potentially allowing the GCC countries to achieve a level of political dominance in global energy markets, comparable to their current dominant status as net oil and gas exporters. 

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For Chinese EV makers, the increasing demand for electric vehicles (EVs) and related manufacturing infrastructure in the GCC countries presents a lucrative opportunity. Faced with domestic competition, Chinese EV makers view the GCC as not only a promising market for revenue growth, but also a strategic move in line with the Chinese government’s objective of internationalizing its EV industry. As a result, more Chinese EV companies are likely to be drawn to the GCC countries, leveraging these opportunities to expand their international footprint and capitalize on the growing demand.

Chinese EV makers’ involvement in the GCC represents a new frontier for their energy partnership, complementing existing renewables cooperation between China and the GCC countries in areas such as solar and wind energy. This relationship, anchored in the energy sector, creates opportunities for collaboration across various economic areas, including technology, finance, agriculture, tourism, and real estate. This will likely lead to greater integration between the economies of the GCC countries and China. Additionally, this growing economic interdependence could potentially influence regional strategic dynamics. Such changes might have implications for the geopolitical influence of other major players, including the United States, and could contribute to a more pronounced role for China in influencing the future direction of GCC countries’ energy and foreign policies.

Chinas Economic GCCs Giants Navigating Roads shift
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