Friday, December 3, 2021

China’s Masterplan: Beat America, and Everyone Else, in Electric Cars

In 2015, China overtook the U.S. to become the world’s largest electric car market and has since maintained that rank. The Chinese government has vigorously promoted the production of electric cars in line with its “Made in China 2025” plan by which Beijing wants the country to become the dominant player in future technologies. To achieve this, the state has used a combination of subsidies and restrictive market policies.

Chinese domination

Beijing started subsidizing electric vehicles from 2009, luring entrepreneurs to set up e-car manufacturing centers. In 2015, the government told automakers that they will receive subsidies only if they use batteries manufactured by companies approved by the state. Since all the companies on the list were Chinese, the entire electric car manufacturing industry in the country ended up dependent on local suppliers.

Foreign companies who had set up battery production units quickly realized that they were at a disadvantage. “It was incredibly frustrating for us… We were building new factories in China, and suddenly we had to watch our automaker partners going off to join lesser rivals,” a former executive at one foreign battery maker said to The Wall Street Journal. Since the battery accounts for a significant portion of the total cost of manufacturing an electric car, China’s battery domination ensured that supply chains involved in car production were tilted in favor of the country.

China has big plans to dominate the electric car market. (Image: pixabay / CC0 1.0)

The Chinese government is currently removing all subsidies for local manufacturers and now encouraging foreign firms to establish production units in the country. But this is not expected to dent China’s prowess in the electric car market. Why? Because China is the biggest electric vehicle market in the world. It can now afford the entry of international players, knowing fully well that it has good control over the market.

In 2018, the annual sale of electric cars in China touched 1 million units. By next year, this number is expected to be around 2 million units. China essentially accounts for almost half of all global sales of electric cars. As such, every major manufacturer will have to pivot in favor of Chinese policies if they wish to profit from the market. This essentially puts the e-car industries of the U.S. and other nations at a disadvantage.

The traditional auto industry has been dominated by the West for much of history only because it had established an excellent supply chain network. China has done the same with the electric car industry. Neither the U.S. nor Europe has the infrastructure to match China when it comes to e-car production volume and cost. According to a report by BloombergNEF, China will be the main battleground for electric car makers for the next 20 years, easily overcoming the advances of both Europe and the United States.

China has built a huge infrastructure for electric car manufacturing that is unmatched in the world. (Image: pixabay / CC0 1.0)

Indian competition

India is also a major competitor in the electric vehicle industry. Though the country neither has the large-scale, high-end infrastructure of China nor the technological expertise of the West, India has one advantage compared to the U.S. and Europe — price. According to a report by the US-based Rocky Mountain Institute, the price of electric vehicles in India will match that of its fossil fuel counterparts in seven years before it happens in the United States.  

“Markets like India that use smaller and lighter EVs are expected to become competitive well before markets where larger vehicles dominate… Electric two- and three-wheelers are expected to become competitive on a capital cost basis by 2023, and will account for over 80 percent of such passenger vehicles sold by 2030 (in India),” the report says (QZ).

India has a strong e-rickshaw and e-scooter market. Since both these vehicles are smaller and cheaper to manufacture than cars and other large vehicles, India will be able to mass-produce batteries and electric vehicles on a larger scale and maybe at a cheaper price in the future. In fact, a report by Bloomberg last year estimated that the number of e-rickshaws in India was bigger than China’s entire electric passenger car market.

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Max Lu
Max Lu is an author who specializes in Asian geopolitics.

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