China rocked the auto world twice this year. First, its electric vehicles stunned Western rivals at the Shanghai auto show with their quality, features, and price.
Then came reports that in the first quarter of 2023, it dethroned Japan as the world’s largest auto exporter. [emphasis, links added]
How is China in contention to lead the world’s most lucrative and prestigious consumer goods market, one long dominated by American, European, Japanese, and South Korean nameplates?
The answer is a unique combination of industrial policy, protectionism, and homegrown competitive dynamism. Western policymakers and business leaders are better prepared for the first two than the third.
Start with industrial policy—the use of government resources to help favored sectors. China has practiced industrial policy for decades.
While it’s finding increased favor even in the U.S., the concept remains controversial.
Governments have a poor record of identifying winning technologies and often end up subsidizing inferior and wasteful capacity, including in China.
When it comes to powering electric vehicles, China’s dominance is clear. The U.S. lags behind in most steps of the battery-making process.
But in the case of EVs, Chinese industrial policy had a couple of things going for it.
First, governments around the world saw climate change as an enduring threat that would require decades-long interventions to transition away from fossil fuels.
China bet correctly that in transportation, the transition would favor electric vehicles.
In 2009, China started handing out generous subsidies to buyers of EVs.
Public procurement of taxis and buses was targeted toward electric vehicles, rechargers were subsidized, and provincial governments stumped up capital for lithium mining and refining for EV batteries.
In 2020 NIO, at the time an aspiring challenger to Tesla avoided bankruptcy thanks to a government-led bailout.
While industrial policy guaranteed a demand for EVs, protectionism ensured those EVs would be made in China, by Chinese companies.
To qualify for subsidies, cars had to be domestically made, although foreign brands did qualify.
They also had to have batteries made by Chinese companies, giving Chinese national champions like Contemporary Amperex Technology and BYD an advantage over then-market leaders from Japan and South Korea.
To sell in China, foreign automakers had to abide by conditions intended to upgrade the local industry’s skills.
State-owned Guangzhou Automobile Group developed the manufacturing know-how necessary to become a player in EVs thanks to joint ventures with Toyota and Honda, said Gregor Sebastian, an analyst at Germany’s Mercator Institute for China Studies.
Despite all that government support, sales of EVs remained weak until 2019, when China let Tesla open a wholly-owned factory in Shanghai.
“It took this catalyst…to boost interest and increase the level of competitiveness of the local Chinese makers,” said Tu Le, managing director of Sino Auto Insights, a research service specializing in the Chinese auto industry.
Back in 2011 Pony Ma, the founder of Tencent, explained what set Chinese capitalism apart from its American counterpart.
“In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share,” he said, according to Fast Company, a technology magazine.
“In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China—execution is.”
Thanks to that competition and focus on execution, the EV industry went from a niche industrial policy project to a sprawling ecosystem of predominantly private companies.
Much of this happened below the Western radar while China was cut off from the world because of Covid-19 restrictions.
When Western auto executives flew in for April’s Shanghai auto show, “they saw a sea of green plates, a sea of Chinese brands,” said Le, referring to the green license plates assigned to clean-energy vehicles in China.
“They hear the sounds of the door closing, sit inside, and look at the quality of the materials, the fabric, or the plastic on the console, that’s the other holy s— moment—they’ve caught up to us.”
Pictured above is an NIO Electric SUV.
Read rest at WSJ
I predict that the day will come when auto makers will not have nearly the capacity needed to meet market demands for internal combustion engines. The average American family can not afford an electric vehicle and between inflation and the shortage of rare earth mineral the price of EV’s will continue to sky rocket. The mandates to ban cars with internal combustion engines can only last as long as the politicians can remain in power that put these restrictions in place. The auto companies’ executives have been convinced that EV is the wave of the future. It takes a very long time for auto manufactures to tool up for a particular product. They are not going to be able to meet the demand for what will actually happen in the future.
EV’s and normal cars will co – exist, like vegetarians and normal people.
Liberals will make a statement with their cars, and the rest of us will drive something that makes sense. Conservative politicians must make the point that we could lose our freedom to chose an affordable, dependable car or truck. Car companies should straddle the fence until demand becomes clearer.
Biden, DNC,UN,CFR Etc. selling out America to China
Switch Western car peretrences back to ICE engines.
EVs are too problematical and irrevaent to climate changes, so dud anyway..
That will stunt Chinese auto plans,