New Silk Road for electric cars mostly boosts China export
With the green light for electric vehicles on rails in China, the New Silk Road seems to experience a boom in cars on the rails. But for now, it is mostly electric cars from China to Europe that seem to make use of the new opportunity, as manufacturers in Europe have stopped using rail through Russia, the main transit country on the route to China.
In September this year, the news that everybody had been waiting for finally came. China will accept electric vehicles on the rails. Previously, it had restricted overland transport of this type of commodity, as the cars contain lithium batteries, and these are considered as a dangerous substance. Unlike other countries, China stuck to its policy for years, until this fall.
Within a month, Xi’an, Zhengzhou and Chengdu all launched new rail services transporting energy vehicles from China to Europe. But according to Ilja Gorbunov, multimodal manager at CEVA/GEFCO, it is a little too late. “I think all EU/US car manufacturers have applied an internal policy not to transport their cars via the northern route. From my point of view, the northern route of the New Silk Road for electric vehicles will be used only by Chinese brands.”
Away from the northern corridor
In spring this year, after the start of the war in Ukraine, large car manufacturers that were once solid customers of rail freight between Europe and China withdrew from the New Silk Road. This concerned at least BMW, Audi and Porsche. With this decision, the companies took a stance against Russia, and as Russia is a main transit country on the corridor, their supply chain moved away from the rails.
GEFCO, which was incorporated by CEVA around the same time, took the same decision for the same reason, and has not changed its policy ever since. The company has investigated whether the Middle Corridor was an option for the automotive industry, but there was little interest in this alternative, explains Gorbunov. “This product is at this stage not attractive from a transit time and cost perspective.”
For the Chinese automotive industry, this concern could not be further away. The industry has been waiting for this moment, and the export demand has been there for a while, explained Jet Young from Nurminen Logistics during a webinar about the New Silk Road last Friday. Indeed, Chinese battery electric vehicle sales more than doubled in H1 2022 relative to H1 2021, to more than two million. according to PwC.
This boost and the opening of overland traffic in China is a huge opportunity. “Due to capacity restraints in ocean shipping, there has been a huge backlog of vehicles that could not be shipped out of China. With the revision of the Chinese legislation, they can now be shipped by rail, and a lot of manufacturers right away made use of this. In my opinion, this demand will last for a while”, said Young.
Indeed, there has been an uprise in the demand for China-made electric vehicles in Europe. Although Tesla remained the number one in sales in the first half of 2022, the number two and three are both Chinese brands: BYD and Saic. The German brand Volkswagen still appears in the top, ranking fourth, followed by the South Korean brand Hyundai/Kia (figures from Center of Automotive Management).
The uprising of Chinese brands on the market has been foreseen for a while, also by GEFCO when it was still active on the northern corridor. As Alice Defranoux, then working for the company, explained in April last year: “In 2021, the bulk of electric vehicles is produced in China: 49 per cent. This is compared to 27 per cent in Europe, 17 per cent in the US and 7 per cent in Japan and Korea.
She mentioned that at that point, the Chinese production was for the largest part for the domestic market, but she also noticed that there is a demand from the European market, not only for finished cars, but also for car parts, such as the batteries. Based on these observations, she and many others called upon of the Chinese government to open up the New Silk Road for electric vehicles.
Does this mean that all manufacturers have jumped onboard the train? Probably not, or not yet. Chinese manufacturers that are known to have set up a supply chain by rail are NIO, Hongqi, Xpeng and Lantu. But there are also European brands with factories in China that are now shipping their finished vehicles to Europe, like Smart, Volkswagen and Polestar.
Another trend that is expected is the rail shipment of car parts, as European car manufacturers often import car parts, especially lithium batteries, from China. But, this is not yet to happen by rail, as the regulation allowing for the electric vehicles still excludes the car parts, and only allows for finished vehicles. Sources within China Railways have suggested that legislation towards this end is in the making, but until that time, the New Silk Road for electric vehicles will mostly benefit the Chinese market.
European Silk Road Summit 2022
Don’t forget! The 2022 edition of the European Silk Road Summit, taking place in Duisburg on 7 & 8 December, is just around the corner! Topics addressed during the webinar will be highlighted during the event, which takes place in the ‘Mecca’ of the European Silk Road, where it all started-Duisburg.
On 7 & 8 December, rail professionals from the Eurasian corridor will gather for a monumental two-day event full of trending topics and networking. LCL, e-commerce, cars on rail and the European-Chinese perspectives on the Silk Road will all be highlighted. Do you want to secure your ticket? Then don’t miss time and get it here after checking the programme and speakers.