Chinese Electric Vehicles - Charging Up

Traditionally, global car manufacturing has been concentrated in three main regions: the United States, home of Detroit’s eponymous Big Three; Western Europe, from which motorsport originated; and Japan, the creator of modern vehicle reliability. Since the end of the Cold War, a new regional player has ever so slowly entered into the fray. China, once one of the most rural and underdeveloped communist countries in the world, now boasts a thriving middle class with an appetite for international consumer goods and a desire to own and drive personal vehicles. Seen as a source of relative freedom in an otherwise strictly controlled society, China’s over one billion strong population bought German and American cars in copious amounts to the point of even saving Buick after the 2008 economic crisis. However, as relations soured with Western trading partners and the emphasis on EVs have continued to grow, China responded by developing their own robust domestic automotive industry. Looking beyond China’s borders, companies such as Geely, XPENG, and BYD are emerging as true competitors within the global automotive EV industry, looking to supplant traditional OEMs in Europe and many developing countries. This has the potential to drastically change the automotive landscape globally, and in this article, we’ll explore how this has happened and what the future holds for EV competition. 

China's automotive market has undergone a remarkable transformation in recent decades, going from a relative backwater to the world's largest market and a global hub for electric vehicles in the span of just 20 years. First starting as a playground for legacy OEMs to produce cheaper models at large profit margins, the market then transitioned due to government protectionist policies. Soon upstarts like Chery, Geely and SAIC got the hang of low-cost production and innovative, localized designs. Indigenous firms grew to account for over 30% of the passenger vehicle market by 2010 as they churned out cheap, China-specific models at a furious pace. While legacy OEMs have maintained a strong presence in China, these upstarts have grown at an incredible rate, now becoming full-fledged competitors in a fraction of the time it takes to normally establish a successful new OEM brand. 

As EVs entered the Chinese public consciousness, the market situation evolved even more. Seeing an opportunity to leapfrog the established global automakers, China's government declared EVs a national strategic priority in 2010. Massive subsidies for domestic EV production and purchases soon followed, along with strict mandates for electrification. This potent combination of carrots and sticks, coupled with over $15 billion in government funding for R&D, sent China's EV market into hyperdrive. From 2013 to 2018, sales of EVs grew at a blistering 118% compound annual rate. China overtook the U.S. as the world's largest EV market in 2015 and has never looked back. Chinese consumers bought 1.1 million EVs in 2018, over 3 times the number sold in the U.S., and adoption has continued apace. Over 20% of new cars sold in China were EVs or plug-in hybrids in 2022, compared to around 5% in the U.S. Moreover, as of 2021, China had over 2.6 million public charging points, compared to just 104,000 in the U.S. Coupled with significantly reduced prices and economies of scale, Chinese EVs are shockingly advanced, making them comparable to the likes of Tesla and Rivian for a fraction of the price, and forcing legacy OEMs to grapple with a new competitor from the East.

But China's EV boom presents a double-edged sword for legacy automakers. On the one hand, a rapidly expanding market provides a tempting opportunity for growth amid stagnating sales in the West. Volkswagen, for instance, now sells nearly 40% of its output and over half of its EVs in China. But as foreign brands have become more dependent on China, they also face increased vulnerability to technology transfer demands, unfavorable JV ownership terms, and loss of market share to increasingly sophisticated Chinese competitors. And despite all that, the most pressing concern may be China's emerging dominance of the global EV supply chain. Chinese companies already have a stranglehold on the mining and processing of key battery metals like lithium, cobalt and nickel. Now all of these factors together have combined to create a precarious environment for legacy OEMs; one in which they may be undercut and outcompeted in home territories by Chinese domestic automakers financially backed by their government. And as Chinese EV makers increasingly set their sights on overseas markets, the question is no longer whether they can compete with the global giants, but whether the global giants can keep up with them.

This forces a momentous shift in thinking from automakers and governments worldwide seeking to protect local jobs and maintain profit margins. Chinese EVs are not inherently lower quality or worse than American, Japanese, and European EVs, and offered at hyper competitive price points. This, as well as some political posturing, is causing a reassessment of protectionist policies in the West. And this shift is driving innovation, infrastructure development, and the quest for domestic vertical integration in the United States in order to better position companies like Ford, Tesla, and GM to compete with China’s new exports. The endeavor will take years and billions of dollars of investment, and with changes in American and European political sensibilities, may become even more complex.

The AutoMobility Advisors team is here to prepare you and your company for what’s to come with our newest whitepaper out soon entitled Chinese Electric Vehicles - The Middle Kingdom Charges Up. AMA will also be hosting a webinar at 12pm ET on December 12th to discuss these topics. If you want to learn more about these resources, reach out to the AMA team or sign up for the webinar on Linked In. 

Learn more about how the AutoMobility Advisors team can help you and your business seize the amazing opportunities to serve the new mobility market. Click on the link below and get in touch, we'd love to talk with you!

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