The electric car revolution is coming, but it won’t be led by the United States. Instead, China will take the lead.
My research on electric vehicles, dating back a decade, convinced me that a global shift in mobility, from gas-powered vehicles to electric vehicles, is imminent. Change is happening in China, the world’s largest auto market, with 23 million cars sold in 2018. When Western countries reach the peak of car ownership, there are still hundreds. Millions of Chinese families don’t own a car.
Many of them buy electric cars. By 2015, electric vehicle sales in China had surpassed those in the US. In 2018, China’s sales reached 1.1 million cars, accounting for more than 55% of all-electric vehicles sold globally and three times the number of Chinese customers purchased two years earlier. Electric vehicle sales in the United States that year were just 358,000.
A key component of the price of an electric vehicle is its battery cost – and China already produces more than half of the world’s electric vehicle batteries. Battery prices continue to fall; Industry analysts now think that within the next five years it will be cheaper to buy an electric car than a petrol or diesel car. Forecasts predict that the Chinese will produce up to 70% of the world’s electric vehicle batteries by 2021, even as demand for electric vehicle batteries increases.
Great Government Support
China has a nascent but ambitious auto industry. It has never been able to match the efficiency and quality of established automakers in producing petrol cars, but electric vehicles are easier to build, giving Chinese companies a chance to compete.
As a result, the Chinese government has chosen to highlight electric vehicles as one of the 10 core business areas in its “Made in China” effort to promote advanced industrial technology. Government efforts include using billions of dollars to subsidize the production of electric vehicles and batteries and incentivize businesses and consumers to buy them.
The government is also aware that electric vehicles can help solve some of China’s most pressing energy and environmental problems:
Massive air pollution is suffocating its major cities, national security officials are concerned about the amount of oil the country is importing, and China is now the biggest contributor to emissions.
Dozens of Chinese automakers have been trained to take advantage of these subsidies. One big company is BYD, which stands for “Build Your Dreams”, which is headquartered in Shenzhen. More than a decade ago, billionaire investor Warren Buffett bought about a quarter of the company for $232 million, a stock now worth more than $1.5 billion.
The company’s initial plan to export vehicles to the United States proved premature and failed. Instead, BYD began focusing primarily on the Chinese auto market, as well as building electric buses for the global market it currently dominates. If BYD’s plan to produce electric cars fails, many other Chinese companies are willing to accept the delay.
Along with government subsidies to ensure BYD and its competitors have plenty of customers, new government regulations are coming into force. The Chinese government now requires all automakers that sell in China, whether at home or abroad, to achieve a certain percentage of their sales. electricity, thanks to a complex credit formula. The mandate will become tighter over time, perhaps requiring every company to achieve at least 7% of electricity sales by 2025. Major foreign automakers have large investments in China and cannot afford to abandon the market. For example, Volkswagen now sells 40% of its production in China, which is one of the main reasons the company is trying to develop electric vehicles.
Most Chinese automakers have not yet entered the export market. Electric vehicle industry analyst Jose Pontes explains that there are three reasons for their reluctance:
First, the Chinese market is large enough to absorb its current output. Second, many car manufacturers in China are completely unknown in the West, so customers will be hesitant to buy from a foreign brand. And third, their vehicles are not yet subject to the stringent safety regulations in the United States and Europe.
However, all these obstacles can be overcome with time and money. It is very likely that Chinese electric car manufacturers will enter the low- to the middle-income Western market, as Volkswagen did 60 years ago.
If – or when – that happens, cheap and efficient electric cars could spread across the West from China, surpassing Tesla and other US and European EV efforts. Only efforts by Western governments to protect domestic automakers with tariffs and other trade barriers can derail this development.