Why China is THE Future of the EV Industry
The world is shifting to electric vehicles. This of course is not breaking news as EV brands like Tesla have been popular for over a decade. But Chinese EV manufacturers BYD, NIO, and Xpeng have been producing amazing cars for the past few years and are now on a quest for international expansion. Just look at this graph which predicts the future of the EV industry and the projections are astounding!
We are still in the infancy stages of the EV shift and there is a lot of potential for the future. But the future of the EV industry runs through CHINA and here is why:
China’s lead in electric cars is unable to be attacked, questioned, or defeated. With cheaper supply chains, better tech, and cheaper costs, the Global North simply can’t compete with China.
The above quote is from Andy Xie, and independent economist from Shanghai who previously served as a the former chief economist for Morgan Stanley in Asia Pacific. Andy has an impressive track record of analyzing the economies of the United States and China and predicts what will most likely happen in the future:
“The Global North is likely to erect barriers in the name of national security. While the Global South will welcome Chinese EVs to ease its dependence on imported oil, lower transportation costs, and boost productivity. Without a technological edge, EV makers in the Global North will have a hard time overcoming China's cost advantage.”
While Western governments play checkers and try to compete with China in the EV space, China’s government has been playing chess and already has the entire future of the EV industry in checkmate. That’s a bold statement and you might be thinking, wait a minute, if China controls the EV industry, then what about Tesla?
With a market cap exceeding $550 billion dollars, Tesla is the absolute king of the EV market, but many people don’t realize the development of China’s EV industry has been deeply intertwined with Tesla’s rise as the biggest EV company.
And here is where China’s genius strategy comes out in full force. When the Chinese government handed out subsidies to build up the EV market in China, it didn’t limit them to domestic companies. Instead, China’s government had the vision of creating the entire EV ecosystem in China. If China gave foreign companies the same subsidies local Chinese companies received, foreign companies like Tesla would become a valuable part of the Chinese ecosystem and as a result there would be no chance for the company to ever leave it.
Elon Musk leveraged this to his advantage and the reason Tesla is the company it is today is because of China. Tesla and the Chinese government came together in 2019 to build the Tesla Gigafactory in less than 12 months which represents a supreme competitive advantage over most developed countries. If the US or another Western ally would try to build a mega factory it would take 3-5 years to complete and cost many times more. Tu Le, of the consulting firm Sino Auto Insights shares:
“To go from effectively a dirt field to job one in about a year is unprecedented. It points to the central government, and particularly the Shanghai government, breaking down any barriers or roadblocks to get Tesla to that point.”
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 more than half of Tesla cars delivered in 2022. So while American brand Tesla continues to be an industry leader in EV one should never forget none of its accomplishments would have been possible without its close relationship with China.
But welcoming Tesla into China’s ecosystem has also benefited local Chinese manufacturers. There is a popular phrase in the West, “iron sharpens iron” and this means that having a competitor will force you to adapt, improve, and become stronger.
With Tesla bringing the latest and great technologies to China, local Chinese EV makers have been forced to become more innovative and improve faster to keep up with the competition. Now the fruits of their labor are starting to be seen. Just look at the latest figures from BYD and it will absolutely shock you:
BYD sold 1.86 million vehicles in 2022, that’s more than the previous 4 years combined.
BYD accounts for 2 in every 5 new-energy car sales in China in the first quarter of 2023
BYD sold 550,000 cars globally in the first 3 months of 2023. That’s more than all of the passenger vehicle registrations in the UK combined
BYD is aiming to sell 3 million vehicles this year
If you’re skeptical about China’s dominance and how they will control the future of the EV industry don’t forget that China controls the supply chains for most of the metals and minerals needed for battery materials. In fact, the most important part of an electric vehicle is the battery cells, which make up roughly 40% of the cost of the EV vehicle.
When we look at the critical components of the EV battery including cobalt, nickel sulfate, lithium hydroxide, and graphite, most of these resources are found in mines in South America and Africa however the majority of these materials are then sent to China where it controls the refining process. For example, 80% of the world’s refined cobalt comes directly from factories in China, once again giving China an unprecedented amount of leverage in the future supply chains needed for the advancement of the EV industry.
Given these facts, it’s easy to conclude that all roads for the future of the EV industry, pun intended, run directly through China.
China has to keep innovating to save the world from arrogant G7.