China's Electric Vehicle Industry

China's Electric Vehicle Industry

The rise of China’s electric vehicle (EV) companies is one of the most successful examples of industrial policy in modern times.china ev Extensive state interventions accelerated and magnified technological advances in battery technology and consumer acceptance of the new vehicles.china ev The result is a domestic industry that has become dominant in the global market, even as multinational carmakers have struggled to adapt and abandon their internal combustion engine offerings.

The success of Chinese EV makers is not without controversy, however.china ev The European Union objects to generous Chinese subsidies that allow them to sell cars for much less than their global competitors, and it wants to impose a quota on EV exports from the country.china ev The United States has been hesitant to allow the free entry of Chinese EVs, fearing that they will put American jobs and manufacturers at risk.

To mitigate such concerns, China has committed to helping its EV makers deal with trade barriers and build overseas supply chains.china ev Last week, the nation’s Commerce Ministry posted a letter signed by nine government agencies and central bank offices vowing to support Chinese EV makers with this effort.china ev

Aside from focusing on the EV sector, the Chinese government has used its experience with supporting other industries through a range of policy tools.china ev The country has a proven track record of facilitating rapid growth for industries through financial subsidies, land use agreements, public procurements and tax breaks.china ev

It has also adroitly leveraged its strengths in manufacturing, research and development and innovation.china ev The Chinese battery industry, for example, accounts for 70% of the world’s production of key raw materials like rare earth.china ev This gives its players a strategic advantage in the global race to develop more efficient and cost-competitive batteries. Some, such as BYD, which is backed by Warren Buffett’s Berkshire Hathaway, also have vertical integration that allows them to control the entire battery supply chain, from raw materials to finished packs.

Another advantage is the Chinese EV industry’s proximity to critical natural resources, which reduces the need for costly imports and boosts economies of scale.china ev As a result, EV production in China costs about half as much as in the United States, allowing it to compete with prices in Europe and other advanced markets.china ev

The resulting competitive price of Chinese EVs, combined with the speed of global infrastructure deployment and growing consumer demand for electric mobility, makes it likely that Chinese brands will continue to make inroads into international markets, even as Western manufacturers try to respond to their challenge.china ev This is especially true in emerging markets, where many consumers are willing to settle for a less expensive model that comes loaded with all the bells and whistles.china ev Among the latest examples: a mid-sized SUV from China’s SAIC-GM-Wuling, Nio or Xpeng starts at around 288,900 yuan, while Tesla’s Model Y is more than double that amount. But it is still not clear whether emerging markets can sustain such a rapid influx of Chinese EVs.

Tags:china electric car | china electric vehicle market | china ev battery supply chain