How China Became The World’s Largest EV Maker
…and set itself at the front of tomorrow’s technologies
Next year, America should hit 1.9 million EV sales — doubling the number of EVs on the road. The president has an EV target of 50 percent of car sales by 2030. And the new technologies for this electronic platform mean they are ushering in a fundamental change in the meaning of “car” — not just a transportation device but an extension of your online existence.
On the road to the triumph of the EV — as it were — America’s leading EV maker may have made a strategic blunder.
Even though Tesla has just delivered a record number of vehicles, it has lost its top spot to China’s BYD company.
China’s BYD (“Build Your Dreams”) has just taken over from Tesla as the world’s number one producer of EVs. It is backed by Warren Buffet.
Back in January 2023 I reported the unsettling news that BYD surpassed Tesla to become the world leader in electric car sales. BYD tripled its sales to deliver 1.86 million units in 2022, most of them to customers in mainland China. A significant number of them were plug-in hybrids, as BYD has a full mix of EV types, but there were almost a million pure-EV cars among those sales numbers. BYD’s cars are less expensive than Tesla’s and tend to offer longer battery range. Most BYD models are priced between $15,000 — $29,000, a bargain compared with Tesla and other competitors.
China is now the world’s electric vehicle leader, with 64% of total production and 59% of global EV sales in 2022.
BYD starts off with an incredible advantage over Tesla: it is not just a competitor to Tesla, it is the supplier of the most critical component of the vehicle — the battery.
Batteries account for around 30% to 50% of the cost of an EV. Chinese companies now “dominate labor and manufacturing infrastructure, as well as mining of critical materials required to make EVs,” according to Morgan Stanley: “up to 90% of the Ev battery supply chain relies on China.”
While the country doesn’t necessarily have the most natural resources for battery materials, it has the majority of the refinery capacity in the world when it comes to critical components like cobalt, nickel sulfate, lithium hydroxide, and graphite.
The only flaw in China’s approach is that the electricity that powers its exquisite charging station network is produced by burning coal. That may soon be overtaken by renewable energy, but even if it takes some time, the amount of coal burned for the EVs is less than the amount of gasoline that would otherwise be needed in an internal combustion engine.
China also has an inbuilt price-of-labor advantage which means that it can produce EVs which are 50 per cent cheaper than the West.
This was one of the attractions to Tesla when it was looking around for global production facilities.
The other was the ingenious policy of the Chinese government — in order to spur EV production in China — to offer economic incentives not only to native Chinese companies but to any foreign companies that would build in China.
This is a huge difference from the American approach, which seeks to bolster American industry by offering incentives to native firms.
The difference in approach is possible because the government of China is seeking to create a new industrial segment, whereas America is seeking to protect an historic industry.
The realization that the new and expanded approach was needed, however, is sheer brilliance on the part of the Chinese government.
Beyond financial incentives, says an MIT Technology Review, local Chinese governments actively courted Tesla to build production facilities in the country. Its Gigafactory in Shanghai was built extremely quickly in 2019 thanks to the favorable local policies. “To go from effectively a dirt field to job one in about a year is unprecedented,” says on analyst. “It points to the central government, and particularly the Shanghai government, breaking down any barriers or roadblocks to get Tesla to that point.”
The ramp had already been built. In 2001 EV technology was introduced as a priority science research project in China’s Five-Year Plan, the country’s highest-level economic blueprint.
Today, China is an indispensable part of Tesla’s supply chain. The Shanghai Gigafactory is currently Tesla’s most productive manufacturing hub and accounts for over half of Tesla cars delivered in 2022.
But the benefits have been mutual; China has gained a lot from Tesla as well. The company has been responsible for forcing Chinese brands to innovate and try to catch up with Tesla in everything from technology advancement to affordability. And now, even Tesla needs to figure out how to continue being competitive in China because domestic brands like BYD have overtaken it.
As a result of all this, China now has an outsize domestic demand for EVs: according to a survey from the US consulting company AlixPartners, over 50% of Chinese respondents were considering battery-electric vehicles as their next car in 2021, the highest proportion in the world and two times the global average.
The new generation of Chinese car buyers don’t see Chinese brands as less prestigious or worse in quality than foreign brands. They have grown up with Alibaba, they have grown up with Tencent, they effectively were born into a digital environment, and they are much more comfortable with Chinese brands than their parents.
Countries like India or Brazil might be able to replicate the Chinese approach, if they handle the massive industrial policies through the right policy tools, including credits, subsidies, and land use agreements. China’s experience suggests that EVs could allow developing countries to become major players in the new EV world.
There is one other element that they would need, which has been recognized by both China and by American union leadership.
Both are pushing vocational schools to produce the workers that the electric car and semiconductor industries want to hire.
China has a serious youth under-employment problem. The unemployment rate for young people ages 16 to 24 climbed to records above 20% in 2023 before authorities suspended the release of data. But the demand for automotive manufacturing workers was one of the highest skill sets required in the economy.
Companies like BYD are helping to fill the training gaps. BYD engineers help construct the courses, parts of which also take students to learn on-site at the company. At least 10 different vocational education schools are in talks for or have launched training institutes with BYD. Among them, a “BYD Field Engineer College” was launched on September in collaboration with vocational schools in Henan province, whose capital city of Zhengzhou is home to a new BYD factory. Based on its 2023 strategic plan, BYD will need a large number of field engineers in manufacturing and after-sales service; its workforce has tripled to 630,000 in June of this year.
As in North America, though, cultural perception can get in the way. Vocational education is seen in China as something as far less desirable than those developed through higher education.
Higher education, however, is often the same label as “unemployed”.
Between the pillars of the US and China, Tesla is in a good position to continue to be competitive around the world. Its market share will drop, due to the sheer blizzard of incoming new brands of EVs, but its volume of sales should continue to climb at a healthy pace.
Disclaimer: I am not a market analyst so do not take any of this as market advice! It just seems like a reasonable consequence.
In the meantime, self-driving issues have forced Telsa to recall nearly all the two million vehicles it has on the road in the US, due to its Autopilot feature. The “recall” however, is an over-the-air software update that will give Tesla drivers more warnings when they are not paying attention to the road while the Autopilot’s “Autosteer” function is turned on. This goes to the point made at the beginning of this article: EVs are not cars. They are part of the digital network. They just happen to have wheels.
This experience is not a crushing blow to Tesla — it is a competitive advantage that it could use in its vehicles in China and elsewhere, to give them an edge. The software edge is also a huge part of the valuation calculation that puts Telsa into the top ranks of the world’s car makers, despite its low volumes.
I have been very critical of Tesla in the past, but in this case: Whatever does not kill you, makes you stronger.
It looks like Tesla’s experience in China is setting it up well for expansion throughout the world.
Next stop: India and Brazil!
And EVs continue to climb the evolutionary ladder.
There is one lesson Musk has learned.
In a 2011 interview, Musk burst out laughing when the reporter suggested BYD could be a potential rival for Tesla in the electric vehicle space. “Have you seen their car?” Musk replied. He added that he didn’t see BYD as a competitor at all.
And he hired them to make the most critical part of his car: the battery.
Then BYD went all the way and surpassed Tesla in every aspect of car-making.
When you fund the competition and leave your product in their hands, there will be push-back.
Why could he not have seen this coming, you ask.
You might as well ask why Twitter is down 90% below his purchase price.
Some of his business decisions have been Trump-level, others have been good. For most of us, that should be enough.
Musk did not show China the path; they were already heading towards EVs. At best, he gave them a short cut. But he also learned things along the way.
And it’s a better world because of the interaction.
Written by Barry Gander
A Canadian from Connecticut: 2 strikes against me! I'm a top writer, looking for the Meaning under the headlines. Follow me on Mastodon @Barry
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The biggest bottleneck in the U.S. is charging infrastructure. The uncoordinated hodgepodge of charging stations will continue to limit demand here. You can bet China has a much better plan and is building charging stations everywhere.
China is also researching new battery technologies to bring down cost and increase range. Tesla has been innovative, but it is difficult to beat China in manufacturing at scale. Musk can gloat, but Xi already knows he has won.