China’s EV Success Story Built on Price Wars, Tesla Factor

China’s EV Success Story Built on Price Wars, Tesla Factor
Subsidies aren’t always the magic bullet other nations claim
Cash helped propel innovation but laggards fell by the wayside
China became a world leader in electric vehicles by showering companies with public cash. It’s a charge increasingly heard in the US and Europe, and a refrain that’s central to the escalating trade war.
If it were only that simple, China would have champions in every industry, from aircraft to semiconductors. The unique rise of China’s EV makers, which are rapidly taking over the world despite Western politicians’ efforts to block them, holds lessons for other countries about how industrial policy can succeed.
While Beijing plowed in plenty of money after identifying EVs as crucial for the environment and the economy, to a large degree it was a foreign company that kickstarted the domestic industry - an argument against the protectionism that China has insisted on in many other sectors. Although former government minister Wan Gang pushed the country early on to leapfrog the dominance of foreign brands by investing in electric cars, when Tesla Inc. started manufacturing locally in China in 2019, it sparked genuine enthusiasm among consumers and fueled the build-out of an entire EV supply chain.
Innovation became the catch cry and scores of EV makers blossomed, each trying to outdo the other on design, software and other high-tech features. Many fell by the wayside, leaving survivors leaner and hungrier. In 2024, China’s EV market is characterized by bruising price wars and intense competition.
The policies employed by China’s leaders are now being emulated by Western governments, which are trying to make their own EV makers more competitive, including with subsidies. Yet it’s clear that Beijing’s willingness to let companies fail while boosting the overall new-energy vehicle sector is what’s made a difference. In contrast, its decades-long commitment to manufacturing homegrown aircraft to take on Boeing Co. and Airbus SE hasn’t seen Commercial Aircraft Corp of China Ltd. make many viable inroads into that global duopoly.
In EVs, China hasn’t sought to “create specific national champions,” said Gerard DiPippo, a senior geo-economics analyst at Bloomberg Economics. “It wanted winners but didn’t want to pick them. It was more of a ‘let one hundred EV makers bloom’ approach.”
That strategy has seen carmakers like BYD Co. offer electric hatchbacks that have rotating touchscreens from just 73,800 yuan ($10,200). Li Auto Inc.’s L-Series has rocketed to the top of electric SUV charts thanks to its spacious interiors and top notch in-car entertainment. While Apple Inc. gave up on its EV project, Xiaomi Corp. founder Lei Jun has fans queuing up to buy the smartphone maker’s recently released SU7 EV.
Some of these automakers may even have a shot at becoming the next Toyota Motor Corp. - BYD, which produced more than 3 million cars last year, overtook Tesla in the fourth quarter as the world’s largest seller of EVs - and China’s economy is getting a lift at the same time.
Innovation in EVs has also rippled into surrounding areas, including batteries and supply-chain optimization.
The government effectively excluded foreign battery manufacturers from the market for a time when the industry was still developing, creating a “whitelist” of approved cell makers that could supply local EV manufacturers. But the list was abolished in 2019 and in the first four months of 2024, BYD and Contemporary Amperex Technology Co. Ltd., or CATL, had a combined global EV battery market share of 53.1%, according to Seoul-based SNE Research. And at a recent press briefing, a Commerce Ministry official boasted that electric carmakers in the Yangtze River Delta near Shanghai can get all the parts they need within a four-hour window.
With China’s government having called time on growth driven by real estate and infrastructure, the EV industry is delivering. It’s on track to contribute 2.7% of gross domestic product by 2026, Bloomberg Economics estimates. That’s nine times as much as in 2020, although still not enough to fill the gap left by China’s burst housing bubble.
Longer term, automakers could contribute even more - but there are obstacles to their global advance. US tariffs of 100% effectively shut them out of that market and the European Union this month announced plans that take duties as high as 48%. Both have cited Beijing’s financial backing for the industry and the overcapacity it’s encouraged.
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