China Schools the West on EVs
- Chinese EV makers like BYD are outperforming Western rivals on both price and quality.
- Foreign automakers have lost significant market share in China, as local manufacturers now dominate over two-thirds of the market.
- The EU is adopting China’s strategy of mandated knowledge sharing, aiming to access Chinese EV know-how while imposing tariffs to protect local producers.
In April this year, China’s BYD hit a first--it sold more cars in Europe than Tesla. Of course, one reason for this was EV fans’ reaction to Elon Musk’s political endeavors, but another was that BYD’s EVs were simply better and more affordable. And now Western carmakers want to learn from BYD and other Chinese sector players how to make their electric cars more attractive—and affordable—for buyers.
Caixin Global reported this week that non-Chinese carmakers were “tapping into local expertise and supply chains in a bid to regain lost ground.” The reason is that local carmakers have come to completely dominate the Chinese car market with their EVs, eating into foreign majors’ market share. It’s not just Tesla. It’s everyone that’s in danger of losing market share to Chinese manufacturers of electric cars—just two decades after they taught those Chinese car manufacturers how to make good cars.
The Financial Times related these developments in an in-depth analysis from April. It cited a German car engineer joking about how 20 years ago, Chinese cars were pretty much copy-paste versions of the European flagship models. Now, European car companies are trying to develop features that their Chinese rivals already have in their vehicles. As with wind and solar equipment, Chinese EVs are both better and cheaper than the European—and American—alternatives.
This is an obvious problem for the West, which has realized that Chinese competition is dangerous for local players in more than one industry. In response to that danger, the European Union shunned originality in favor of import tariffs on Chinese electric vehicles, essentially sentencing itself to forever subsidies for local EVs because carmakers have struggled to lower costs below a certain point that is still higher than the costs for internal combustion vehicles. Yet the carmakers themselves want to learn from the Chinese—so the EU has obliged, taking a page out of China’s playbook.
For decades, Chinese industrials have learned how to do things better by mandating expertise sharing from foreign companies with ambitions for the Chinese market. Now, this is exactly what the EU wants to do with BYD and its sector players: require them to provide access to their know-how to European car companies.
Since 2020, non-Chinese automakers have lost a third of their market share in China to local manufacturers. This is just five years in which Chinese makers of electric cars have managed to improve their technology so much that over two-thirds of car sales in the country come from local manufacturers, according to Caixin. The Germans are second, with a 13.2% share, followed by the Japanese, with a share of 9.4%, and U.S. carmakers with a market share of 5.8% in China.
Of course, an easy explanation of how this happened would be one that focuses on Chinese state subsidies for all things energy transition, notably including the electrification of transport. The Chinese government has literally thrown billions at carmakers to make EVs. It has also encouraged more buyers to go electric through various incentives. But this is not the whole story.
The whole story must include the fact that Chinese carmakers simply became very good at making electric cars while in Europe, their peers wondered how many women to appoint to their boards and how to cut their emissions. China is currently phasing out its subsidy programs for EVs. Their goal has been accomplished; EVs have gone from niche to mainstream. Europe, meanwhile, tried to phase the subsidies out, and sales immediately crashed—because the cars were too expensive for what they offered. This is the root cause of the problem with EV uptake. And it’s Chinese carmakers that can help solve it.
It would be wise to bear something in mind, though. Chinese industries sometimes overdo the growth thing, and it all ends in tears. First, it was the property sector. Now, it could be the EV makers’ turn. A large BYD dealer in Eastern China just went bust. Chinese EV makers may well need the international market as much as European carmakers need Chinese EV expertise. It could be a match made in Heaven.
By Irina Slav for Oilprice.com