More EVs are on the way. Why are they all mainly made in China?

This year has taught us that markets can change quickly. Long-held views are up for change if the market dynamics change quickly enough and if the economics are compelling. The adoption rate of EVs (and PHEVs) is taking many by surprise. But the other part of the story that is compelling is that most of the legacy brands are not really able to seize the moment; it is the emerging brands that are having their moment in the sun. This could be pivotal for dealers (and OEMs) across the country. The incentives are gone, the RUC rates are flawed, yet consumers are ditching diesel and petrol and buying EVs in droves. So why are nearly all EVs made in China?

It is because of clear headed thinking and a long-term plan—a 25-year plan to dominate the car industry. China is the world’s biggest car maker, the world’s largest producer of NEVs, and now the world’s second biggest car exporter, and this is how it got there.

The foundational piece of policy was informally called the 863 Plan, which was proposed by four leading scientists on 3^rd March 1986 (hence the name). The State High-Tech Development Plan sought to stimulate the China economy through the development of advanced technologies. The 863 Plan was not limited to the automotive industry; it incorporated computing, biotech, energy, and aerospace. Its aim was to reduce China’s dependence on foreign technology and build domestic capability. In order to make this happen, they aligned industrial policy and environmental policy with ministries, state-owned enterprises, and local government.

From this piece of legislation, early joint ventures (JVs) saw SAIC and FAW partner with Volkswagen Group and Toyota and GAC also with Toyota; Ford with Changan and JMC; and Nissan with Dongfeng. These initial JVs were focused on jobs and value creation. It wasn’t until the early 2000s that they started to shift their focus to battery electric vehicles.

China has for a long time provided the market conditions domestically to create a car industry. It was around 25 years ago that a then-fledgling domestic China auto market decided that if it were to become truly successful, it needed to leapfrog ICE technology. Where China’s EV success was solidified was long-term planning with a clear vision. A mix of carrot and stick for investors, manufacturers, and consumers alike, it was proudly EV first. The far-sighted policy planners knew that ICE, as a propulsion system, had a limited lifespan—not 5 years or 10 years but probably a 25-year horizon.

The country and its policymakers decided there was no point in trying to catch up to legacy car makers with an engine technology that was well developed globally but also required vast oil reserves to service (China has oil reserves, but they are about #13 in the global rankings). China was perhaps a decade behind western markets, and perhaps more on electric vehicles (or New Energy Vehicles), as China often refers to non-ICE-powered vehicles. China joining the World Trade Organization in 2001 created a better opportunity to export vehicles. At the same time large cities and industrial areas were suffering from air quality issues, some severe.

Another key moment was the Beijing 2008 Olympics; China showcased EV buses as a way of moving athletes and attendees. At this time, Beijing’s industrial growth meant the city still had very poor air quality, which continued to decline for nearly a decade.

The third milestone was the “Ten Cities, Thousand Vehicles” Pilot 2009–2012. This program aimed to encourage the use of electric cars through demonstration projects in key cities. It involved cities participating in the program receiving substantial central subsidies and other preferential policies to develop their local electric vehicle markets. By the end of 2016, 88 cities had joined the program, which covered almost all electric vehicle markets in China. What was important about this program is that it focused on areas with the largest potential to reduce emissions—and so its focus was on buses, taxis, and large fleets rather than retail consumers. This is an important lesson for markets such as New Zealand at the early stages of adoption.

During my first visit to Shanghai around 9 years ago, the city had in place a Licence Plate Policy. This was supported by financial incentives for purchases of EVs and restrictions based on age and emissions of vehicles that you were able to drive into central Shanghai (central Shanghai being a vast area). NEVs were exempt from such restrictions, easily identifiable by their different color number plates. These Licence Plate policies nudged consumers to think carefully about their next car, and the policy was replicated in most large cities. This fourth milestone created the first wave of significant consumer demand.

Shortly after the Licence Plate policies there was increased focus on Battery Localisation. More carrots for OEMs to use locally produced batteries, and this in turn encouraged more local battery investment. About this time BYD and CATL started their path to become battery juggernauts. Both companies grew from making batteries for consumer electronics (BYD’s start was making phone batteries) before pivoting to vehicle batteries. Globally, China produces nearly 75% of all lithium-ion batteries. Some say this was the real strategic pivot point. By creating increased demand for batteries and developing local tech that was able to seek government R&D grants and tax breaks, we have ended in a position where now China dominates the NEV supply chain by value.

Broadly concurrently was the next milestone created by a combination of huge EV infrastructure for charging (including innovative solutions like Nio battery swap stations, which can change batteries in 90 seconds—there are around 1000 such stations nationally) and providing regulatory credits for building and selling EVs. These are largely like carbon credits and in part not totally unlike the aims and mechanics of our Clean Car Standard. Every OEM had a financial incentive to build more NEVs. Over time as the market grew, the value of these credits has slowly been removed.

Since around 2020, China’s auto industry has gone from strength to strength. It has gained scale and technological advances. It has also suffered intense local competition and requires product development and innovation at a crazy pace and has integrated intelligent systems to get closer to the holy grail of affordable self-drive vehicles. It has also increasingly focused on exports.

With incentives and tax breaks almost entirely gone, car brands and their senior teams around the world are left scratching their heads. How do they catch up?

The most frustrating part of all from an observer’s point of view is that Western politicians have been too small-minded to see what a missed opportunity they had and are still squabbling, working out what to do. American brands, for example, are retreating from electric due to political pressure—this does not bode well for the future of their car industry. Protectionism will not bring innovation and growth to the legacy brands—a long-term multi-faceted approach will. Western economies’ lack of long-term thinking is harming the car industry.  

Consumers in New Zealand, meanwhile, are moving to electric at a pace. They are seeing that going electric is cheaper, quieter, more economical, and greener than ICE, as well as being more convenient for many. It is a bonus for Kiwis that 86% of our electricity is renewable and emissions-free—a formidable feat that owes its debt to far-sighted politicians, policies, and innovation around a century ago.

Their brand choice, however, is putting pressure on the legacy brands. This is being replicated in many local markets. What those m-heads mean for brand market share locally is unclear—the landscape is changing, and distributors and dealers are all too aware of the pace of change.

Boost Auto is a New Zealand automotive consultancy based in Auckland. Founded by Anthony MacLean, a senior automotive executive with over 30 years of experience across the UK and New Zealand, Boost Auto works with car dealers, vehicle distributors, and OEM brands on sales performance, dealer network development, sales training, workflow automation, and market entry strategy. Boost Auto has supported brands including Ford, MG, JAC and Turners, and works with dealer groups including Colonial Motor Company, Ebbett, Andrew Simms and Tristram.