Chinese EV dominance is clear but should we be worried?

During the last quarter of 2023, BYD, the largest Chinese player (and a maker of both batteries and EVs), overtook Tesla in global EV sales, selling 526,000 battery-only vehicles (BEV). For the whole year, Shenzhen-based BYD sold 3 million ‘new energy vehicles,’ which include BEVs and plug-in hybrids (PHEVs). The brand-name BYD is inspired by the slogan ‘Build Your Dreams’ and its buses and taxis operate in cities as diverse as London, Santiago, Helsinki, Hong Kong and Mexico City. BYD now sells 10 models cheaper than the entry-level Tesla 3 model. BYD uses lithium-iron phosphate technology for its batteries, rather than the nickel manganese cobalt kind initially chosen by many Western EV manufacturers. Except for some high-end performance EVs, most manufacturers are now switching to lithium, where BYD holds a commanding lead in experience and expertise.

China’s EV industry has a storied past. EV technology was introduced as a priority science project in its 2001 Five-Year Plan. In 2007, Wan Gang, an automobile engineer who had worked at Audi in Germany for a decade, became its minister of science and technology. Wan is credited with China’s decision to go big on EVs. Between 2009 and 2022, the Chinese government handed out subsidies of about $29 billion, spanning the entire EV chain from upstream battery technology and electric motor and drive components to downstream demand. China says that all central subsidies were phased out by the end of 2022, though state and local governments remain free to offer subsidies for customer adoption.

From China’s point of view, the sequencing of subsidies has resulted in significant adoption of carbon-free modes of transport, keeping it well on track to meet its 2030 targets. According to China, demand-side subsidies are necessary to offset the ‘unpaid’ carbon cost imposed by hydrocarbon vehicles. The rest of the world views these subsidies as a way to ‘dump’ Chinese EVs in their markets. The European Commission has begun an anti-subsidy investigation of Chinese EVs. American President Joe Biden ordered the US commerce department to probe any potential national security threat posed by Chinese-made “connected electric vehicles."

And so, even as China dominates the global EV industry, we can expect an increase in frictions associated with world trade in EVs. Unlike the battle for advanced semiconductor chips and other critical technologies, this appears to be an old-fashioned trade battle between the West and China, where upstarts have upstaged incumbents from US, Japan and Germany. The production cycle for a new model from Chinese manufacturers like BYD, Nio and XPeng is 36 months, a full 12 months shorter than most Western manufacturers. The Chinese lead in lithium technology also grants both time and cost advantages. And China’s large home market allows for significant economies of scale in production. This combination keeps the cost and quality of Chinese EVs difficult to beat.

From a standing start, India has made dramatic strides in two-wheeler and three-wheeler EVs. Commercial 3-wheel EVs (E3Ws), for instance, are already at about 25% of new sales. However, this E3W trend masks the fact that most sales are still of the earlier e-rickshaw standard, rather than the modern L5 standard. Mahindra and Piaggio dominate the L5 E3W market. In 2023, 2-wheel EVs (E2Ws) constituted 56% of the total 1.5 million EVs sold in India. Ola Electric and TVS Motor are leaders in India’s E2W market. In general, it seems likely that market forces combined with government encouragement will take care of the E2W and commercial E3W segments and their evolution. India’s market for E4Ws, comprising passenger cars and taxis, is still in its infancy. So too India’s market for larger commercial EVs. Approximately 400,000 passenger cars are sold each month in the country. Of this, about 8,000 are E4Ws (just 2%). Tata Motors, led by its model Nexon, has an estimated 65% share of our E4W market. MG Motors, owned by Chinese automaker SAIC, is a distant second with a 15% market share. Electric-bus sales account for about 4% of overall buses sold. Given a dramatic increase in municipal orders, the electric bus segment is poised to grow. JBM Auto and Tata Motors dominate this segment.

Even though BYD has entered the Indian market with two models with a very long-range, Chinese E4Ws and e-buses do not pose an immediate threat to Indian players. Last year, the Indian government rejected a proposal by BYD to build a $1 billion plant with a local partner. Given the cost and material advantage of lithium batteries, India has leapfrogged to this power-pack technology; several factories have begun production. Time, though, will tell if quality and scale advantages elude India—in which case, the Chinese threat will become real.

P.S: “The present is theirs, the future, for which I really worked, is mine," said inventor Nikola Tesla.