[Author: Jianhao Ni]

Nowadays, China is undoubtedly one of, if not the leading country in buying and selling EVs, with 6.8 million units sold in the country in 2022 alone. For comparison, the US sold 800.000 units in the same year. And this trend is not even slowing down: the pandemic did not significantly hinder the industry’s growth and the market observers’ forecasts are “always too low”, as said by Tu Le, managing director of Sino Auto Insights, a business consulting firm that specializes in transportation.

This dominance did not take too long to extend to foreign markets, boosting Chinese exports and manufacturing coupled with the renewed global push for green technologies. But not everything is going well. Recent discussions in Brussels and Washington have focused on imposing tariffs and trade barriers to protect national firms.

But how did we come to this? How did China emerge in the auto industry? How did the country come to dominate EV production?

In 1992, a letter was delivered to the Vice Premier of China, Zhou Jiahua 邹家华 suggesting the State official to skip the development of traditional fossil fuel auto industries, and jump directly into the development of electric vehicles, considering that the West was already doing significant research on high-capacity batteries.

The author of the letter was Qian Xuesen 钱学森, an iconic figure in the development of modern China, having directed the Dongfeng ballistic missile program, the development of the Long March rocket series, and the creation of the Chinese space program. In his letter he also expressed confidence regarding the feasibility of such a policy, citing: “Not long ago, Zhongshan City, Guangdong won the bid to build a hybrid-nickel storage battery pilot test base, which shows that China’s hydride-nickel storage battery vehicles can now be developed. And the distance of a car with this energy is far greater than that of a lead-acid storage battery. The one hundred kilometers of charging can reach 250-300 kilometers, which can be used in practical use”.

Here it is implied that China is currently at a comparable stage to other nations in the development of high-storage batteries. Based on this Qian Xuesen believes that leapfrog innovation is feasible for China to “strive to catch up from behind”.

To further reinforce his argument, he also noted that: “We also have the strength to develop even more advanced batteries. For example, Harbin Institute of Technology has Professor Wang Jisan as the general manager of the Zhuhai Yishi Culture Power Development Center, and they are researching new energy sources for automobile power”.

The optimism expressed here can be attributed to the achievements of the Chinese industry and technology during those years. China’s successes in overcoming technological barriers and engineering challenges, such as the development of modern ICBMs, nuclear weapons, and the launching of the first Chinese satellites, instilled abundant optimism in Chinese academia.

Qian Xuesen’s belief that “China has the ability to skip a step and directly enter the new era of automobiles” reflects this sentiment.

In hindsight, his vision was not wrong, if anything, it was visionary. Yet, the Chinese auto industry did not skip the traditional stage of diesel-fueled automobiles.

In the 2000s the Chinese auto industry was in a strange position, the industry was efficiently producing internal combustion cars, yet the domestic brands were irrelevant in front of the dominance of German and Japanese brands. It was during these years that the Chinese industry realized that they would not be able to compete with legacy automakers in hybrid vehicles either, as the sector was already occupied by traditional western brands. This pushed the Chinese government and automakers to make a gamble, the risks were high and the future uncertain, but on the other hand, the rewards for such a success were palpable in the minds of the Chinese leadership. An edge in the new field of EVs would have guaranteed a slice of the market for the national industry and it would have also accelerated the efforts to contain pollution in the cities.

Multiple factors in the social economic structure of China contributed to the success of the project:

•           Necessary infrastructure and machinery already formed the industrial base for traditional automobile manufacturers in China, and thus could be readily converted into the future base for EV production.

•           The government was readily available to mobilize social and financial capital by making EV technology one of its focus points in the 2001 Five-year plan.

•           Battery manufacturers (fundamental for EV production) in China not only had the advantage of controlling the necessary raw materials, but they also had full control over the refining capabilities necessary to process the materials.

•           Even Tesla did its part: thanks to the entrance of the firm into the Chinese market, it forced domestic brands to compete and innovate, drive down costs, and direct more funds to R&D. A textbook example of the “catfish effect”.

What is the result of all this? China now has an enormous domestic market for EVs. According to US consulting business AlixPartners, over half of Chinese respondents considered an EV as their next car in 2021, two times the global average. An ever-expanding range of brands and models responded to these market sentiments, and the industry is not showing any sign of decelerating in their production or innovation. Additionally, Chinese brands like BYD are even considering further diversifying their production lines by building factories abroad like in Hungary.

However, given the current geopolitical dynamics, it is improbable that the US and the EU will permit Chinese brands to dominate their domestic markets. Therefore, the primary export destinations for Chinese EVs are expected to be emerging markets in Asia and Eastern Europe. Nonetheless, the significance of Chinese EVs’ success cannot be overstated. China has established a robust, enduring export industry and has reduced its reliance on foreign automobile imports.

Categories: Business Post


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