China EV Pole Position

Jan 09, 2024

UPDATED: Last year China overtook Japan as the world’s biggest car exporter. Chinese exports have nearly quintupled since 2020 to approach 5 million last year. More than half of the electric vehicles (EVs) on roads worldwide are found in China. In 2022, new EV sales in China grew by 82%, and the country provided 35% of global EV exports. The US, Japan, EU and UK electric vehicle markets have lagged in mass market adoption compared to China.

For years, Tesla has been synonymous with electric vehicles, enjoying a dominance in the sector that carmakers the world over have desperately been trying to shake. Days into 2024, a Chinese rival has succeeded in doing just that.

Leveraging V2X (vehicle-to-everything) technology, the robot parks itself precisely, automatically docks into an EV's charging port and, using a mechanical arm, charges it up, without human assistance. When the robot's battery runs out, it can recharge itself as well.

Subscribe now

China’s electric vehicle leadership

By Edward White and Peter Campbell (amended)

For close to a century, Toyota prided itself on its ability to constantly trim the costs of making its complex, highly engineered vehicles. But when Takero Kato, the head of the Toyota division tasked with building electric vehicles, travelled through China in 2018 he was shocked by what he found.

“For the first time, I came face to face with the competitiveness of Chinese components,” he told the company’s internal newspaper, Toyota Times, in November.
“Laying eyes on equipment that I had never seen in Japan and their state-of-the-art manufacturing, I was struck by a sense of crisis,” he recalled. “We’re in trouble!”

Kato was right to worry. Last year China overtook Japan as the world’s biggest car exporter. Data from Shanghai-based advisory firm Automobility show Chinese exports have nearly quintupled since 2020 to approach 5 million last year.

In the final quarter of 2023, BYD, the Shenzhen-based company backed by Warren Buffett’s Berkshire Hathaway group, outsold Tesla for the first time, sending a powerful warning signal to the global industry.

BYD’s sales come mostly from the domestic market, which it dominates. But the group is among several Chinese EV makers turning their sights to foreign shores. China’s entrants – from publicly listed BYD to state-owned Chery – plan to use new regional operations in places such as Hungary and Mexico to enter Western markets with cheaper electric models, securing their global dominance and challenging incumbents such as General Motors, Ford and Volkswagen.

“No one can match BYD on price. Period,” says Michael Dunne, chief executive of Asia-focused car consultancy Dunne Insights. “Boardrooms in America, Europe, Korea and Japan are in a state of shock.”

While the US government has responded with subsidies to encourage domestic manufacturing, the prospect of millions of low-cost, high-tech cars made by Chinese companies hitting European shores poses a dilemma for legislators there.

A flood of cheap Chinese car imports could be disastrous for Europe’s carmakers, with the EU already considering import tariffs to limit the damage.
But restricting lower-cost imports could stymie the development of the electric vehicle market as Europe tries to limit fossil fuel emissions and works towards outlawing combustion-engined vehicles by 2035.

Three-quarters of Chinese cars exported today have petrol or diesel engines, notes Bill Russo, former head of Chrysler in north-east Asia and founder of Automobility. But it is the rise of affordable Chinese EVs that is making carmakers nervous and “prompting protectionist governments to consider trade restrictions”.

Electric vehicles: China’s dominance presents a challenge to the West

Chery – plan to use new regional operations in places such as Hungary and Mexico to enter Western markets with cheaper electric models, securing their global dominance and challenging incumbents such as General Motors, Ford and Volkswagen.

In her State of the Union address in September, European Commission President Ursula von der Leyen complained that China was flooding the global market with cheap EVs and that Beijing was making prices “artificially low” via huge state subsidies. The EU has launched a probe into China’s industry, a move that could result in raised tariffs on Chinese imports.

In the US, where EVs account for a much lower proportion of car sales than Europe, lobby groups such as the Alliance for American Manufacturing have urged the Biden administration to stand vigilant against the Chinese car groups.

“A flood of Chinese imports has devastated several of America’s domestic industries in the past, notably undercutting American solar and steel manufacturers,” a spokesperson for the alliance warned last year. “It’s the same formula for disaster that we’re seeing play out with EV batteries”.

However, experts warn that even if China’s carmakers were confined to their home turf behind a wall of tariff protections, they would still be able to compete with US and European manufacturers on price.

A key cost advantage for BYD, the company that industry leaders acknowledge poses the biggest threat, comes from its expertise in producing lithium-based batteries, the most expensive single part of an EV. The group, which evolved from a cellphone battery maker in the 1990s and 2000s, has become a world leader in the field. (see next article)

According to Bernstein research, BYD batteries are among the lowest cost in the world while also having close to the highest energy density, which results in better performance in the cars. Tesla and Toyota are customers of BYD’s battery division. That has helped it undercut its Western rivals.

BYD’s Atto 3, its cheapest model, sells for €38,000 ($62,000) in Europe, while the Tesla Model 3 is priced around €43,000 in major markets such as Germany and France. The brand, which already sells in more than 50 countries, has five models on the market in China that sell for less than the equivalent models from Elon Musk’s group.

Chinese carmakers have enough unused capacity in their domestic factories to make significant inroads to major overseas markets before they break ground on a single regional hub. BYD exported nearly 250,000 cars last year and – even without the US or European markets – management have told investors they believe they can increase that by more than tenfold over the coming years.

“China still builds and buys more EVs than the rest of the world combined,” says Dunne. “Chinese EV makers are sitting on enough capacity to supply 75 per cent of global EV demand. That should keep Western automakers awake at night.”

As Ford prepared to close its ageing factory in Saarlouis, Germany, last year, a thought occurred to executives: Why not find another carmaker to take over the site? At its door were several Chinese carmakers, including BYD, that were looking for an easy toehold in Europe’s competitive car market.

The talks faltered. A potential buyer walked away. Last month, BYD announced it would erect a gleaming new factory in Hungary, “the heart of Europe”, to cater to its growing ambitions.

Yet while Chinese carmakers are already encroaching on European territory, gaining a foothold in the $US1.5 trillion ($2.2 trillion) US sector is the grand prize, especially given the surplus of manufacturing capacity over demand in China itself.

“It isn’t just ‘the mighty Chinese making great profits at home, and now they’re stepping into the US market’,” says Dunne, the consultant. “They understand that sitting back in China is not an option. They have to come to North America. They have to find a way in. One of the ways in is to establish a base on America’s southern flank.”

BYD and several other Chinese carmakers are scoping the Mexican market to find new manufacturing sites to better target American consumers, as well as other countries in the region.

Chinese groups already stand at a distinct disadvantage in entering the US – especially in the nascent EV sector – compared with rival carmakers from South Korea, Japan and Europe.

Joe Biden’s Inflation Reduction Act aims to dole out billions in subsidies for EV development to non-Chinese groups to reduce US exposure to Chinese technology in key supply chains. There is also a trend, difficult to quantify but likely to be significant, of consumer wariness about buying China- made products.

Yet experts think companies like BYD could still one day crack the US market, even accounting for trade barriers and the rise of anti-Chinese sentiment in the US.

The competitive factor, as in Europe, is cost. The lower-price segment of the market has largely been abandoned by the “Detroit Three” of General Motors, Ford and Chrysler-owner Stellantis, which have concentrated instead on pick-ups and sports utility vehicles.

Dunne notes that the average price of a new car in the US is about $US48,000. “Imagine [Chinese carmakers] come in with a $US20,000 product. The current tariff of 25 per cent knocks it up to $US25,000 or $US26,000. They are still in a very good position.”

But others point out that cost advantage is not set in stone. Once groups like BYD start manufacturing outside China, they will not enjoy the same levels of state support as they do inside the country, says Jorge Guajardo, a former Mexican ambassador to China and now a partner at Dentons Global Advisors.

“The subsidies cannot easily be exported; they are energy, state and local taxes,” he says. “There are not that many examples of Chinese manufacturing abroad. In countries which are competitive in their auto sectors, as is the case in Mexico, the Chinese will have to face a type of competition that they’d be hard-pressed to face without the subsidies.”

Western governments are increasingly on guard against China’s incursion into their markets.

Security risks

The Biden administration has privately cautioned Mexico about the imminent wave of Chinese investment. Congressional representatives wrote in a recent letter they were worried Chinese companies would use Mexico as a “back door” into their market. The EU anti-dumping and subsidy investigation, meanwhile, will set out its conclusions by November.

At the same time, officials in the US and Europe are also sharpening their focus on the perceived security risks of having China-made components in critical infrastructure such as energy and telecoms. Such concerns will now be applied to Chinese vehicles as well as batteries and other clean technologies, experts say.

For their part, Chinese car executives are pushing back at what they regard as Western protectionism. They have called for fair treatment, arguing that foreign carmakers have long profited from selling into China’s huge consumer market.

They are also trying to position themselves as “global” companies to counter Western consumers’ misgivings around Chinese groups. William Li, founder and chief executive of Shanghai-based EV group Nio, told the FT late last year that investors from outside China hold more than 80 per cent of the company’s shares. The company has maintained a Silicon Valley office since its founding in 2015.

“We’ve hoped to become a global start-up since our inception,” Li told the FT last year. “The problem we’re solving is also something the whole world is faced with together.”

Western policymakers considering blocking China from their clean tech supply chains will need to consider the impact on their net-zero ambitions, says Cory Combs, associate director at the Beijing-based Trivium China consultancy.

He adds that while governments are justified in seeking to diversify supply chains, Western countries risk “pushing themselves into a corner” by inhibiting their own climate transitions without sufficient mitigation strategies in place.

“We’re quickly approaching a make-or-break moment ... I wonder if that trade-off is being thoroughly considered in a lot of capitals.”

BYD surpasses Tesla

By Rishi Iyengar

BYD, a Shenzhen-based EV giant, sold 526,000 fully electric vehicles to Tesla’s 484,000 in the last three months of 2023, according to figures released by both companies this week, outpacing the U.S. carmaker headed by billionaire Elon Musk for the first time ever.

BYD’s rapid ascent, while no surprise to industry experts, is a product of China’s yearslong push to build up its automotive manufacturing base and stake out a position in the global car market. That effort has largely been successful—China surpassed Japan last year as the world’s biggest automobile exporter, according to multiple industry estimates; market research firm Canalys expects EVs will have made up around 40 percent of those exports. Beijing has poured billions of dollars and immense resources into EV manufacturing, and BYD—which stands for “Build Your Dreams”—has been one of its foremost champions.

“The government in China went all in on EVs,” said Erica Downs, an expert in Chinese energy markets at Columbia University’s Center on Global Energy Policy. “This was an industry that they wanted to develop, and they made sure that they had the different building blocks needed for success in place—so there were subsidies to EV manufacturers; there were subsidies to EV buyers; and they’ve been working on making sure there is adequate charging infrastructure.”

That strategy has long rattled Washington and Brussels, where tech competition with Beijing dominates foreign-policy concerns and policymakers fear that an influx of Chinese-made vehicles could strain their domestic markets. To curb China’s technological advancement in strategic sectors such as semiconductors and artificial intelligence, Washington has imposed export controls and unveiled new legislation, such as the Inflation Reduction Act, aimed at strengthening domestic capabilities and attracting more manufacturing to U.S. shores. Under the Biden administration, boosting the U.S. EV sector has been a key prong of that strategy.

Worried about China’s EV exports, Washington is reportedly mulling hiking up tariffs on Chinese EVs, the Wall Street Journal reported in December; they already face a 25 percent tariff. “There’s real concern in the United States about having Chinese EVs come into the market and dominate and put domestic producers at a disadvantage,” Downs said.

Similar fears have also swept the European Union, which launched an investigation into Chinese EV subsidies last fall as concerns grew over Beijing’s EV ambitions. Over the last three years, Beijing’s global EV exports have soared by a stunning 851 percent—with the bulk of the cars going to Europe. Brussels’s probe, which is still ongoing, could result in additional tariffs on Chinese exports.

“Global markets are now flooded with cheaper Chinese electric cars,” European Commission President Ursula von der Leyen declared when the probe was first announced. “And their price is kept artificially low by huge state subsidies.”

Beijing has two key advantages in its quest to lead the global EV race. One is the sheer size of its own sector: China is home to the world’s biggest automotive market, by both manufacturing output and annual sales. The industry is only set to grow, with the country’s domestic production projected to soar to 35 million vehicles by 2025, according to the U.S. Commerce Department.

Eager to harness this market, even Tesla has spent billions of dollars building a “gigafactory” in Shanghai, where it produced more than half of its cars in 2022. Other legacy companies such as Volkswagen and Volvo have also made major investments and even entered into joint ventures with Chinese counterparts, which in turn has helped China enhance its own carmaking chops.

“You have to be there to capture the market. It’s very hard to decouple,” said Xiaomeng Lu, a director in the Eurasia Group’s geotechnology practice. “It just defies logic for them not to be there, and I think that’s why this particular sector is kind of the glue among the European companies, American companies, and the Chinese market.”

The second advantage is China’s grip on global battery supply chains. After a decades-long push, Beijing overwhelmingly commands the supply chains for the critical minerals powering EV batteries and other clean energy technologies, including graphite, lithium, and cobalt. That dominance is particularly pronounced with rare earths, the powerful elements underpinning offshore wind turbines, missile guidance systems, and much more. In the rare-earth sector, 85 percent of processing and 92 percent of magnet production are currently controlled by China.

“Right now, Europe and the United States aren’t even in the game when it comes to rare earths, battery cell manufacturing, rare-earth mining and refining,” said Tu Le, the managing director of the consultancy Sino Auto Insights.

BYD is a prime example of how Chinese companies have leveraged these dynamics to gain an important edge. Before emerging as an EV giant, the Chinese firm was primarily a battery manufacturer, and it still makes its own batteries—a background that has given it a deep expertise and major leg up in the global EV market.

“They have a real competitive advantage there,” said Colin McKerracher, the head of transport and automotive analysis at BloombergNEF. “Not only do they have a cost advantage from the vertical integration that they have by both making the batteries and the vehicles, but they are also making better batteries than a lot of the other groups out there, just in terms of cost and in terms of performance and safety.”

And while market power and rare-earth dominance both constitute levers that China could pull to make life difficult for Western companies, its own slumping economy means it would take a significant emergency for Beijing to break that glass.

“The Chinese economy is weaker, so I think really exerting force would probably alienate countries that they’re really trying to build bridges with,” Le said.

The interconnectedness of the global automotive supply chain also means that it’s hard to cut off access without unpredictable global knock-on effects that could hurt everyone. “I think [the Chinese] realize that if they take out the big hammer, they’re going to hit themselves in the foot,” said Lu of the Eurasia Group.

The big question now facing BYD is one that eventually comes for all successful Chinese firms: Can it parlay its domestic success into global dominance? The company has already made inroads in cost-sensitive markets such as India and Southeast Asia and will look to expand further if it isn’t stymied by Western protectionism and concerns around Chinese tech.

A battle with Tesla is shaping up here as well—both companies are seeking manufacturing expansions around the world, with BYD announcing new factories in Hungary and Brazil, while Tesla has announced a new facility in Mexico and is reportedly mulling an India expansion. Things could get more complicated if countries are forced to pick sides.

“Even if there are major tariff barriers erected in developed-country markets, BYD’s product portfolio means that it can expand significantly in developing-country markets, where its supply chain vertical integration gives it some major cost advantages,” said Paul Triolo, a China analyst and tech policy lead at the Albright Stonebridge Group.

Tesla’s heavy dependence on China, paradoxically, could end up evening the scales. “There’s risk with having 52 percent of my manufacturing come from one place,” said Le of Sino Auto Insights. “Maybe that balances out or zeroes out the growth that BYD has outside of China.”

For now, however, experts say the immediate geopolitical impact of BYD’s latest achievement will largely be limited to a major public relations victory for China. The electric car race is somewhat analogous to the smartphone industry, with Apple and South Korea’s Samsung duking it out at the top and everyone else trying to catch up.

“I don’t think there’s any real risk here for U.S. competitiveness. The U.S. has Tesla; China has BYD. They’re the two leading EV companies in the world,” McKerracher said. “They are so far ahead of everyone else that it’s not like either of those are being left behind.”

Robot EV charging

According to Alex Wu, NaaS Technology's president and chief financial officer, the robot eliminates the trouble of plugging heavy charging cables into EVs and waiting in a queue for a charging pile.

"China has the world's most developed EV charging market, a mature EV charging ecosystem, advanced EV charging solutions, and cost-effective charging and energy storage products," said Wu.

"Intelligent and unmanned EV charging will create a whole new experience and open up a massive market for smart charging, especially when autonomous vehicles drive into reality."

The company, China's first Nasdaq-listed EV charging service provider, had connected over 515,000 chargers by the end of 2022.

The company also claimed that the charging robot was independently developed by its team, whose members include former employees of Bosch, BMW and other globally reputable carmakers and technology companies.

NaaS is not alone in developing charging robot technology, as Volkswagen and Hyundai have recently revealed robot designs, albeit with different approaches to mobile power sources.

However, China seems to be a step ahead — in Hefei, East China's Anhui province, a total of 400 mobile charging robots have been put into use. Car owners can place an order through a WeChat mini-program that orders a charging robot to find EVs and replenish their cars.

Gotion High-tech, the developer of the charging robot, said that more efforts will be made to increase the number of robots to more than 1,000 by the end of this year.

Data from the Ministry of Industry and Information Technology showed that by the first half of this year, the number of charging points nationwide hit 6.928 million, a year-on-year increase of 74.1 percent.

But industry experts said that problems still exist with the failure of some charging piles and there can be difficulty in finding a charging pile.

Tong Zongqi, an official of charging and replacement at the China Association of Automobile Manufacturers, said that EV charging robots have become a new charging method with the boom of NEVs in the country.

"But in terms of commercialisation, there are still no clear standards or paths for operation, asset management and commercial services of such robots. Further exploration and development are needed," Tong said.

Young Minds

Discussion about this post