China’s world-dominating electric vehicle sector achieved two major milestones last year. First, China surpassed Japan as the world’s largest car exporter, thanks in part to affordable Chinese electric vehicles. And second, electric vehicle giant BYD briefly overtook Tesla as the leader. the biggest seller in the world of battery electric cars in the last quarter of 2023. (Tesla has since regained first place.)
But the threat of an influx of cheap electric vehicles is spooking foreign governments. The European Union has launched a anti-subsidy investigation against Chinese electric vehicle companies last year, which could lead to higher tariffs for Chinese electric vehicles. The United States, which considers Chinese cars as a threat to national security– warns that “excess capacity» in China could overwhelm global markets.
But at the Fortune Innovation Forum in Hong Kong last week, Roger Atkins, founder of Electric Vehicles Outlook, an electric vehicle consultancy, noted that legacy car exporters had found a way to deal with protectionist backlash.
“We’ve been here before,” Atkins said. “Japan experienced a surge in exports to the United States and Europe in the 1970s and 1980s. The Europeans and Americans imposed tariffs, then the Japanese got around this problem by setting up factories production in these places.
Atkins then cited BYD’s new factory in Hungary as an example of how the Chinese automaker is now expanding its global manufacturing presence. (BYD is also building factories Thailand And Braziland is considering new manufacturing facilities at Indonesia And Mexico.)
Christopher Beddor, deputy director of China research at Gavekal, saw parallels with previous campaigns by Beijing to encourage the solar and wind energy industries. “China is doubling down on industrial policy,” he said.
“Central management will say: we want to target a certain industry. Everyone is focused on this, it’s run in a campaign style,” he later explained.
Beijing is now starting to worry about the overcapacity of the system, with an official having promised in early January to take “strong measures» to respond to new electric vehicle projects that were not supported by demand.
This push and pull policy is part of China’s industrial model, Beddor said. “(Officials) move forward, (then) at some point you recognize that they went too far. They are removing it,” he said.
Beijing began offering tax and infrastructure incentives in the early 2010s, helping to foster up to 500 electric vehicle companies at any given time. This number has since fallen to around 100 companies.
China is now reducing its support for the sector, which could lead to further consolidation in the sector as electric vehicle companies, many of which have yet to turn a profit, exit the market.
Yet Paul Gong, executive director of automotive research at UBS, told the Forum last week that “fierce competition” in the sector – between startups, historical car manufacturersand even tech giants…has been beneficial to the industry.
Through market competition, “Chinese automakers have really reduced the cost of electric vehicles to the same level as internal combustion engines,” he said. “It’s this market force that has given rise to the game of innovation (and) efficiency.”
BYD and Tesla
Gong, at the Forum last week, also discussed the differences between BYD and Tesla, both vying for the position of the world’s top seller of electric vehicles.
After the Tesla Model 3 was taken down five years ago, Gong said the UBS team was “shocked at how far ahead Tesla was in terms of technological leadership.” Yet a similar teardown of a BYD car a few years later revealed that the company’s level of technological sophistication was approaching that of Tesla.
“There are few technology gaps, just different priorities,” he said. Tesla prioritized top speed and autonomous driving, while BYD focused on space and 5G connectivity, he continued.
Still, Gong noted a crucial difference: A BYD car, comparable to the Model 3, costs 15% less than production in Tesla’s Shanghai Gigafactory.
Unlike Tesla, BYD manufactures its own proprietary battery, the Blade Battery, and therefore does not need to rely on an external supplier like CATL or LG Energy Solutions. (The battery can represent up to 40% of the cost of an electric vehicle.)
“We were shocked by how quickly BYD caught up,” Gong said.