China's EV industry has already won
Now that we all collectively hate Tesla, this is probably a good time to bring up how the US helped the Chinese EV market succeed to its own detriment
This post was originally featured on the AI Supremacy Substack as a collaboration post. For more insights into the EV market in general, please head over to that post!
In 2003, two Silicon Valley engineers Martin Eberhard and Marc Tarpenning set out to create the future of electric vehicles. After a series of investment rounds and years of development, their company, Tesla, released its first electric sports car in 2008. Since then, the company has grown to be a household name, not only in the US but across the globe.
At the same time, on the other side of the world, a similar story was unfolding. In 2002, the Chinese government announced that it would “invest 880 million yuan (US$106 million) over the next few years to speed up the development of electric vehicles as a new springboard to profitability for China's auto industry.” Following the announcement, BYD, a battery manufacturer founded in 1995, acquired failing car manufacturer Qichuan Motors in 2002 and began working to fulfill the government’s aim. After several failed attempts to build a marketable EV, BYD went on to develop the world's first dual-mode hybrid electric vehicle, the F3DM, in 2008.
Over the next decade and a half, BYD also became a household name across the world. But there are key differences in the BYD and Tesla stories when it comes to product design, branding and growth. For one, you’ve probably never heard of BYD’s billionaire founder and CEO Wang Chuanfu, despite knowing probably a little too much about Tesla’s CEO. You’ve probably known about Teslas for at least 10 years, whereas BYD really only entered the global consciousness in 2023 when it finally launched in major European markets.
BYD’s cars also tend to be aimed at a more everyday audience. Their branding is focused on versatility, affordability and practicality, while Tesla has positioned itself as a more premium, futuristic brand. The difference shows in the price points. A brand new sleek looking Atto 3 SUV will set you back around £35,500 ($39,000), whereas Tesla sedans start at around £40,000 ($51,000).
Regardless of these differences, BYD has been billed as Tesla’s no.1 global competitor. By the end of 2023, BYD had overtaken Tesla as the world’s top selling EV brand, and by the end of 2024, BYD’s revenues overtook those of Tesla for the first time. However, despite what car magazines and national media outlets would have you believe, the image of the electric car market as a “BYD vs Tesla” showdown is not quite an accurate one.
Firstly, the Chinese EV market isn’t just BYD. At its peak, there were around 500 EV companies in China, that number coming down to around 100 in 2024. These businesses give China a 76% share of the global electric vehicle market, despite the cars being all but banned in the US.
Secondly, the Chinese government does not see the goal of supporting the development of the EV industry as overthrowing Tesla or any other western competition. Their ultimate goal is to create a future-proof industry that will ensure jobs, growth, and development for at least the next 30 years. This is specifically outlined in the Chinese government’s Made in China 2025 plan, which encompasses not only EVs, but also robotics, consumer goods, and manufacturing processes. The goal is not to have one successful EV company, but to have Chinese EV companies dominate the global market.
To this end, the government isn’t just willing to prop up any old business just because it fits in the right category. The party-state specifically wants to foster competitive, resilient companies that can stand on their own two feet. For EV companies, this means existing in a dog-eat-dog world with no room for rest or error. Of the 137 EV companies active in 2024, only 19 are predicted to be profitable by the end of the decade. The recent collapse of Jiyue – an EV brand backed by Baidu and Geely – proves that good production cannot make up for poor business practices and reckless CEOs.
But despite these blips, China's elites are still confident that China’s dynamic EV industry will be the one to dominate the global market, and continued to invest heavily in the sector throughout the 2010s and early 2020s. Now several of China’s EV companies are a global phenomenon, with brands such as NIO and XPeng going public on the NYSE, with Li Auto choosing the NASDAQ.
Today, the EV market in China is so big that even companies like Xiaomi, who are making more than enough money off phones and electronics, have decided to enter the fray, and with good reason. In 2022 alone, 10 million EVs were sold across the globe, with 6.7 million units or 64% being made in China. Around 2 out of 3 of those vehicles were sold on the Chinese market.
Perceived threat
But as with any news of China’s success comes a wave of backlash fueled by fear. The realisation that China’s EV industry has become the dominant global player has suddenly caused shockwaves across the Western world, with US president Donald Trump going as far as to state that there will be a bloodbath if China is successful in building a car factory in Mexico to skirt around tariff laws.
This sudden aversion to Chinese EVs has even captured the EU, where BYD has found itself rejecting EU claims that subsidies help reduce the price of China-made cars. Despite protestations, the EU has imposed a range of tariffs on Chinese EVs: 17% for BYD, 18.8% for Geely, and up to 35% for other brands.
Accusations that the Chinese EV market benefitted from ‘unfair’ subsidisation may be true, but seem spurious considering Tesla has received huge subsidies from US lawmakers to stop the company from going under.
I’m aware that I may offend many a Tesla lover with this part: the company would not be standing without copious subsidies from both the US and UK governments, as well as profiting from a mismanaged environmental credit scheme that allowed it to offset its lackadaisical approach to producing cars.
But this is the nature of EV development, a field that 20 years ago was completely novel and even dismissed by some as impossible to achieve. In China, the industry was heavily dependent on government investment to get going, with many companies taking advantage of government grants and subsidies. It is true that the Chinese government explicitly supports the development of a Chinese EV industry. The Chinese government has spent at least $60 billion to support the fledgling electric-car industry, including research-and-development funding, tax exemptions and financing for battery-charging stations, and there are currently over 400 Chinese EV companies of various sizes and success rates.
Arguably the EV industry would not exist at all without subsidisation, a point that developed governments aiming to reach net zero emissions would surely be willing to accept. The contestation of the introduction of affordable electric vehicles seems a bit suspicious when concern only arises at the same time that it becomes clear that China will become the dominant player in the global EV game.
This apparent contradiction smacks of hypocrisy even more when coupled with the fact that European and American politicians, companies, and investors were more than happy to support the development of that industry not that long ago. In fact, as we will see, without heavy investments of money, technology, and strategy from developed countries in the west and Asia, the Chinese EV market would not have risen to the heights it has reached today.
And so, the west really only has itself to blame.
Follow the money
BYD had a significant headstart compared to other Chinese car companies. For one, the owner, Wang Chuanfu, was a savvy chemistry graduate who was able to take advantage of China’s reform era by moving to Shenzhen at just the right time in the 90s. He had a knack for reverse engineering his way to success, buying up used cars and figuring out how they worked.
Secondly, BYD was already a successful tech company whose rechargeable batteries were already powering major electronics products, and had attracted investment from US investment firms like Himalaya Capital (put a pin in that point).
It was at this point that large American investors started to notice the EV startup space in China. Seeing the promise in the burgeoning sector, Berkshire Hathaway became one of the principal investors in BYD in 2008, an investment that has paid off heavily:
In late 2008, Berkshire Hathaway ponied up the aforementioned $232 million for a roughly 10% stake in BYD… It has proved to be money well spent. As the EV market has exploded in China, BYD has developed into a major player in the world’s largest car market; it sold more than 130,000 electric passenger vehicles in 2020.
By late 2018, 10 years after cutting that $232 million check, Berkshire’s stake in the company had swollen to roughly $1.6 billion. Since then, that figure has climbed exponentially amid the Chinese EV market’s rapid expansion and a remarkable fourfold increase in BYD’s Hong Kong–traded shares last year: Berkshire Hathaway’s 8.2% stake in the automaker held a market value of $5.9 billion at the end of 2020.
As the messiah of investing, Buffet’s investment in an unknown, fledgling far-flung company did not go unnoticed, and spurred other investors both in the US and worldwide to explore the Chinese EV market as well. BP invested in a company called PowerShare in 2019, an online platform that provides hardware and software solutions for electric vehicle (EV) charging.
When Li Auto had its IPO it immediately raised over $1 billion, despite the fact that the US senate was doing its best to prevent or delist Chinese companies from American exchanges as part of the trade war. And the fact that the company’s own accounting firm said that Li Auto lacks “sufficient competent financial reporting and accounting personnel with appropriate understanding of US GAAP” (GAAP stands for “generally accepted accounting principals,” and it’s a common set of standards by which companies have to define their financial reporting). The company also added that “Li Auto had to admit there’s “a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis.”
But the draw of making big money, as always, trumps any political or even potentially economically ruinous fallout from poor investing decisions.
NIO capital fund, a mutual fund established in 2019, raised $200 million from sovereign wealth fund to global insurance firms, pension fund, family foundations, multinational corporations. One of those investors was BP, who put in $10 million. As recently as 2023, multi-national Stellantis, which owns brands such as Chrysler, Fiat and Peugeot, invested over $1.5 billion in Chinese electric vehicle startup Leapmotor, which equates to a 51% stake in the company. It followed German carmaker Volkswagen’s $700 million investment in China’s Xpeng in July. EV specific ETFs have been springing up, which allows investors to capitalise directly on the trend.
Ordinary Americans are also investing in Chinese companies en masse, although they may not realise it themselves. If you have a personal investment account, or a pension in a large fund, or any assets reliant on the stock market for growth, you’re also helping to fund the Chinese EV industry. The reason many Chinese EV companies have decided to do their IPO in the US rather than in China is because of the huge amount of foreign investment in western markets, particularly by small, everyday stock holders:
Surveys show that 55 percent of Americans own stocks, mostly relying on professionally managed pension funds, mutual funds, or exchange-traded funds (ETFs) to run their current investments and retirement accounts… The MSCI Emerging Markets Index, which guides more than $1.7 trillion in investments in 26 developing countries, completed a major inclusion of locally listed Chinese stocks at the end of November, which increased China’s total weight to more than 34 percent of the index as of January 2020…
S&P Dow Jones also has an emerging market index that now has approximately 37 percent of its investments allocated to Chinese companies…. When these added allocations are enacted, China’s projected weight in emerging market indexes will rise toward 40 percent or more by the end of 2022.
Put together, the newly increased portfolio investments in China have a tremendous impact that essentially contradicts current U.S. government policy… while China would otherwise face substantial pressure on its capital account, investment shifts that are virtually on autopilot from Americans and other global investors will materially contribute to relieving those pressures. Not only that but the efforts of the U.S. government to impact the Chinese economy through tariffs and other policies will also be counteracted by these portfolio flows.
Win-win cooperation
But it’s not just the money. While financial investment from abroad has undoubtedly helped the industry grow, China’s EV industry has arguably benefitted more from exposure to foreign technology through collaboration with global firms.
In 2002, when the government launched its bid to become a leader in the EV industry, not only did they state that companies developing EVs would be able to apply for special grants and subsidies, they also explicitly state that they will engage in “technological exchanges involving electric vehicles with the United States, Germany, Japan, France and Italy, to help push domestic development of such vehicles.” And so they did.
In 2009, Dongfeng Motor Group, China’s 3rd largest automaker, partnered with Detroit Electric Holdings to research, develop and sell electric vehicles in China.
In 2009, LA car producer Miles Automotive Group assembled and tested its car in China, and was the first US car manufacturer to to outsource its assembly to China.
In 2010, General Motors (GM), the largest foreign automaker in China, aimed to sell more than 3 million cars in 2015, focusing specifically on hybrids, plug-ins and EVs.
In 2010, Northern California-based electric-vehicle-maker, Zap, announced it had acquired 51 percent of the popular Chinese electric-motorcycle-maker, Jonway.
In 2015, Silicon Valley’s oldest and best known investment firms, Sequoia Capital, invested in what was then called a Chinese rival to Tesla, NextEV.
I could go on, but I think you get the picture. Throughout the 2000s and early 2010s, (large, well established) American firms were happy to partner with Chinese firms, with no resistance from the US government or anyone else.
Of course, it wasn’t just US companies promoting Chinese EVs. In 2010, BYD and German firm Daimler joined forces to develop new cars, following BYD’s other deal with Volkswagen in 2009. In 2011, Wuhan was chosen as the pilot city for Japanese company Nissan’s electric vehicle introduction in the country. The UK had absolutely no problem accepting Chinese made electric buses to meet its own emission requirements.
For a little bit of context, in terms of foreign policy, China wasn’t seen quite as the superpower threat that it is today, and that’s partly due to leadership. Between 2003 and 2013, Hu Jintao was the party general secretary and though the domestic situation got wobbly from time to time, it was known as a period of stability in foreign policy. Relations with the US were particularly good, and as Hu was known more as a technocrat he was very focused on his ‘scientific outlook policies’ which encouraged cooperation with foreign firms to boost domestic knowledge. China was still a developing country, it still had not eradicated absolute poverty, and it had only just joined the WTO.
And this is also why investors from all over the world felt particularly comfortable investing in Chinese firms, believing that they could bring excellent returns, with no idea what the repercussions could be. China stealing from the US and other developed countries wasn’t an established narrative at this point. Remember that there were people who still believed that if they helped China in the global market they would integrate politically and become a peaceful, developing nation that could basically work to produce things for everyone else.
A place of greater reliability
Chinese companies do not yet completely dominate the market. Legacy carmakers like Volkswagen and BMW are pivoting with success and actively incorporating EVs into their long-term business plans.
But Chinese companies are not taking their foot off the pedal. Despite fears that China will undercut the US automotive industry, it is worth mentioning that Tesla has a Gigafactory in Shanghai, proof that even ‘mortal enemies’ can see the benefits of relying on going to the source when it comes to auto manufacturing.
This points to the bigger problem with the US’ protectionism strategy – if domestic companies can’t find the support they need back home, they’re going to go where the funding is, even if that means crossing enemy lines. It’s also not the only US company to take its tech to China for production purposes. Take for example the US tech start up Amprius, which in 2015 partnered with the city of Wuxi to build a lithium ion battery factory:
Funding for new batteries from young startups like Amprius has dried up in the U.S. Venture capitalists have shied away after big investments years ago in cleantech startups failed to live up to the early hype. And the U.S. government mostly will only provide small grants for basic research and development these days.
But if a battery startup wants to find enough money to build a factory, odds are it’s going to end up in China, or somewhere else in Asia. For example, battery startup Boston Power, founded in 2005 in Massachusetts, headed to China years ago to raise money and build batteries.
Chinese investors are also grabbing up U.S. battery technology. Auto parts maker Wanxiang bought up both U.S. battery maker A123 Systems, and U.S. electric car maker Fisker Automotive out of bankruptcy.
Cities like Wuxi are encouraging the shift by providing low cost financing for the technology’s development. Energy tech startups LanzaTech and EcoMotors are also following this strategy of partnering with a Chinese company to fund a factory.
LanzaTech being an American company, and EcoMotors a British one. So not only are Chinese companies receiving investment from the US, US companies are still actively seeking collaborations with Chinese cities to fund and mass produce their technology.
The list goes on forever. Korean company LG partnered with Chinese investors to build a battery plant in Nanjing. Back in 2013, Chinese firm Wanxiang “won U.S. government approval to buy A123 Systems Inc, a bankrupt maker of electric car batteries that was funded with U.S. government money” for $257 million. The point remains the same. Foreign companies, many of them American, trust China enough to take their money and set up shop there, and thus are the architects of the very industry they are trying to demonise.
Global domination
And now it’s Chinese firms’ turn to expand operations overseas. BYD’s Turkey factory is due to start production in 2026, while its plant in Uzbekistan has already started producing cars. It has already broken ground on a factory in Thailand.
Shockingly enough, even EU countries (yes, the same EU that slapped 20%+ tariffs on Chinese EVs) are competing to be the next megafactory host. Countries like Hungary, Poland, Italy and Spain are offering subsidies, tax breaks, and other incentives to tempt brands like Cherry, BYD and SAIC to set up shop.
Some manufacturers are even looking to muscle into the luxury market. Xiaomi is aiming to sell 10,000 high-end versions of its SU7, though apparently it still won’t cost more than €70,000 ($75,000). And other firms are looking to improve their tech features too. Larger firms like XPeng and Geely are exploring AI-powered autopilot systems. And now, BYD has announced that it is looking to introduce its solid state battery technology in all its cars by 2027, meaning better charging speed and performance for the EVs of the future.
So what’s the moral of the story? That soon we’ll all be driving BYDs and going to work at the Chinese car plant down the road?
I think, more simply, the moral is that the Chinese EV industry is proof that long-term planning for the country’s future by the government can have amazing results. The Chinese government has devised and executed a plan for over 20 years that is only now coming to fruition. There have been challenges and failure, but most importantly the vision has remained consistent, and those willing to enact that vision have been co-opted willingly and enthusiastically.
Those in charge of planning the futures of their own nations may want to take note.
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