More than 50% of all cars sold in China last year were electric vehicles, making China by far the largest EV market in the world.
The exponential growth of EVs and new energy vehicles (NEVs) is having a positive impact on the air quality in major Chinese cities. Shanghai, Guangzhou and other major Chinese cities have reported notable improvements in the Air Quality Index (AQI).
Chinese EV makers are rapidly expanding overseas. Approximately 80% of all EVs sold in the world last year were made in China. Many EVs from legacy automakers like Ford, Nissan and Kia are made in China or rely on Chinese suppliers for key components like batteries. China accounts for 75% of the world’s battery cell manufacturing capacity.
The Chinese government has subsidized its EV industry with over US$200 billion in the past decade. The investment was part of China’s program to achieve carbon neutrality by 2060.
The government also uses subsidies to boost the development of batteries, wind turbines, solar panels and other green tech. The country develops more renewable energy capacity than the rest of the world combined.
The explosive sales of EVs are transforming the Chinese and the global automobile industry. Sales of most legacy (internal combustion engines) car makers are cratering, in some cases by over 10% a year.
Several foreign makers of internal combustion energy (ICE) vehicles in China are closing factories and showrooms. Even prestigious brands are struggling. Porche is closing 35 of its 138 dealerships in China.
The China EV industry has been built from the ground up, and entirely with Chinese production technology. The industry is vertically integrated and outsourcing is kept to a minimum. Vertical integration leads to considerable advantages in quality control, speed, and cost. Chinese EVs are, on average, half the price of EVs produced in foreign markets.
China’s top-selling brand BYD has taken vertical integration to a new level. The car giant controls everything from mining source materials to shipping cars across the world. The company owns lithium mines, makes battery packs, and operates an EV insurance company that covers all parts of the EV supply chain.
Earlier this month the company launched the BYD Shenzhen, its fourth car carrier. The vessel has a capacity of 9,200 electric cars.
Global disruption
The electrification of mobility, the biggest disruption in the history of the automobile industry, is shaking up the global car industry. Nearly all legacy car makers are struggling while Chinese EVs are rapidly expanding globally, opening factories abroad or taking over existing factories from legacy makers.
BYD, which recently acquired a Ford factory in Brazil, is building new plants in Hungary and Turkey. China’s Chery Auto started producing EVs in Barcelona with Spanish joint-venture partner EV Motors. Earlier, Great Wall Motors purchased General Motors plants in Thailand and India.
Japanese makers are also in retreat. Several Japanese automakers have scaled back or ceased operations in China, the result of intensified competition from local manufacturers and the rapid shift toward EVs. Mitsubishi withdrew from the Chinese market and Nissan halted production at its Chinese plant. Honda faces declining sales in China and is reducing its production capacity.
According to unconfirmed media reports, Chinese EV makers also have their eyes on Germany, the epicenter of European car production. Volkswagen plans to end production at its Dresden plant in 2025 and its Osnabruck plant in 2027. Chinese companies BYD, Leapmotor and Chery Auto are said to be exploring options to acquire the German plants.
Production facilities within the EU would enable Chinese car makers to circumvent European Union tariffs on EVs imported from China and strengthen their presence in the EU. Last October, the EU Commission announced tariffs on Chinese cars of up to 37% in addition to the existing 10%.
Raising the cost of Chinese EVs in the EU is ironic given European concerns about the environment, but it is a repeat of the earlier car wars with Japan. In the 1980s, several European countries and the US resorted to “Voluntary Export Restraints” to give Western carmakers time to catch up with Japan’s “Just-In-Time” production technology.
In October last year, Brussels raised the stakes with Beijing. It announced new rules that would require Chinese EV makers building factories in the EU to transfer technology to European partners. The unexpected demand is a notable role reversal: In the 1980s, foreign companies investing in production technology were required to share their technology with their Chinese partners.
For Chinese EV makers, with what appears to be an insurmountable lead, transferring or sharing technology would not pose a problem.
EV industry watchers like John Bozella, president of the Alliance for Automotive Innovation, and Sam Evans of the Electric Viking blog, believe that Chinese EV makers are 10 to 15 years ahead of the rest of the world. It could build EVs in the EU with five-year-old technology.
Much will depend on the German elections in February. Blocking Chinese production in Germany would be problematic. German car makers have operated factories in China for decades. Volkswagen, long the top-selling brand in China, earns 50% of its profits in China. The Chinese market has also been crucial to Germany’s upmarket brands Mercedes Benz and BMW.
Energy shift
Chinese companies addressed one of the last concerns consumers have had about EVs: the range and durability of EV batteries. CATL, the world’s largest battery maker, announced the production of an EV battery that will last 15 years or one million miles.
CATL offers a 10-year or 600,000-mile warranty and guarantees that the battery will have 85% capacity retention after the warranty expires. The batteries can be repurposed for home energy storage.
The exploding EV market has led to a decline in demand for petroleum products. According to China National Petroleum Corporation (CNPC), China’s refined oil consumption peaked in 2023 and is now expected to decline in the coming years. Gasoline demand is declining together with the number of gasoline stations.
Oil giant Shell plans to close 1.000 of its gas stations in China. The company built an EV charging station in Shenzhen with 258 chargers and plans to install 70,000 public charging stations in the country by 2025.
Volkswagen is working with EV maker Xpeng to build a network of more than 20,000 charging stations in 420 Chinese cities. The latest (600-watt) systems can charge car batteries in under 8 minutes.
Chinese EV makers export mostly mid-sized sedans but produce a wide range of EV vehicles, from micro cars with a price tag of under $10,000 to high-performance “supercars” priced at over $200,000 as well as electric bikes.
In Shanghai, the number of electric light motorcycles reached over 10 million in 2022, which means that one in every 2.5 people owns an e-bike.
To be sure, EVs are no panacea for all of the world’s environmental problems. But together with exponential growth in green power generation, the world is fast approaching the post-carbon energy era.
China is the epicenter of this green transition. Apart from leading in electrifying mobility and producing green technology like solar panels, China generates half of the world’s green energy.
Western media are in the habit of pointing at China as a cause of global pollution while neglecting to mention that Western companies for decades have been outsourcing their “dirty” production to China (or that the Chinese population is twice that of the US and Europe combined).
Green partnership
In its tussle with China over green tech, including EVs, the EU Commission spent nearly a year studying the Chinese market before concluding that China has “overcapacity” in green tech and that subsidies give it an “unfair advantage.”
The Commission could have simply looked at China’s national environmental policies which prioritizes green tech, just like the EU prioritized agriculture.
Despite its environmental concerns, the EU continues to subsidize its agricultural sector. According to the European Environment Agency, agriculture is the largest source of pollution in Europe, primarily due to its ammonia emissions, which contribute to air pollution across the continent and are mainly caused by livestock manure and fertilizer usage.
Between 2023 and 2027, the EU subsidized its agricultural sector with 264 billion euros. The EU exports about 230 billion euros in agricultural products annually, more than its imports of 180 billion euros. About 6% of European agricultural “overproduction,” worth about $16 billion annually, is exported to China.
Having China upgrade European car manufacturing can be beneficial to both parties. China can expand its global footprint, and Europe can speed up its green revolution. Moreover, Europe gets access to production technology that will define 21st-century mobility. After decades of outsourcing, auto manufacturing is the last vestige of Europe’s mass production of consumer goods.
