De-risking or De-coupling: Recent "Glocal" Trends in the New Energy Vehicle Sector

May 23, 2023 | BY

Susan Mok

Speculation is growing about the potential extent of U.S. and China decoupling, which brings increased costs and regulatory restrictions. Thinking creatively about supply chain solutions, including building overseas factories local to the end consumer, may mitigate those effects, write Scott Yu and Frank Jiang of Zhong Lun Law Firm

Summary

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  • The era of traditional globalization may be coming to an end as regulations and costs increase
  • "Glocalization" provides an alternative way forward, whereby factories are sited overseas avoiding cross-border issues
  • This approach has already been adopted by a number of automobile manufacturers and appears to be spreading
  • Both Chinese and foreign manufacturers of new energy vehicles can reap benefits from this approach, despite potential drawbacks including loss of subsidies and increased regulatory scrutiny

The global market for New Energy Vehicles (NEV) has been expanding exponentially in recent years, especially against the backdrop of green energy and carbon neutrality. The NEV market penetration rate in China grew to 13.4% in 2021 from 2.7% in 2017, and reached a record high of 21.6% in the first half of 2022. On top of that, China has emerged as a frontrunning supplier and exporter of NEVs, with Chinese NEV players spearheading the entire supply chain. In 2022 alone, 679,000NEVs were exported from China, reflecting an increase of 120% in comparison to the previous year.

While traditional globalization is facing setbacks amid geopolitical friction and intensified market competition, multinational automakers are localizing their production and sales to respond to the needs and preferences of local customers

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