Before most people could realize the extent of what was happening, China became a world leader in making and buying EVs. And the momentum hasn’t slowed: In just the past two years, the number of EVs sold annually in the country grew from 1.3 million to a whopping 6.8 million, making the eighth consecutive year in which China was the world’s largest market for EVs. For comparison, the US only sold about 800,000 EVs in .
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The industry is growing at a speed that has surprised even the most experienced observers: “The forecasts are always too low,” says Tu Le, managing director of Sino Auto Insights, a business consulting firm that specializes in transportation. This dominance in the EV sector has not only given China’s auto industry sustained growth during the pandemic but boosted China in its quest to become one of the world’s leaders in climate policy.
How exactly did China manage to pull this off? Several experts tell MIT Technology Review that the government has long played an important role—propping up both the supply of EVs and the demand for them. As a result of generous government subsidies, tax breaks, procurement contracts, and other policy incentives, a slew of homegrown EV brands have emerged and continued to optimize new technologies so they can meet the real-life needs of Chinese consumers. This in turn has cultivated a large group of young car buyers.
But the story of how the sector got here is about more than just Chinese state policy; it also includes Tesla, Chinese battery tech researchers, and consumers across the rest of Asia.
In the early s, before it fully ventured into the field of EVs, China’s car industry was in an awkward position. It was a powerhouse in manufacturing traditional internal-combustion cars, but there were no domestic brands that could one day rival the foreign makers dominating this market.
“They realized … that they would never overtake the US, German, and Japanese legacy automakers on internal-combustion engine innovation,” says Tu. And research on hybrid vehicles, whose batteries in the early years served a secondary role relative to the gas engine, was already being led by countries like Japan, meaning China also couldn’t really compete there either.
This pushed the Chinese government to break away from the established technology and invest in completely new territory: cars powered entirely by batteries.
The risks were extremely high; at this point, EVs were only niche experiments made by brands like General Motors or Toyota, which usually discontinued them after just a few years. But the potential reward was a big one: an edge for China in what could be a significant slice of the auto industry.
Meanwhile, countries that excelled in producing gas or hybrid cars had less incentive to pursue new types of vehicles. With hybrids, for instance, “[Japan] was already standing at the peak, so it failed to see why it needed to electrify [the auto industry]: I can already produce cars that are 40% more energy efficient than yours. It will take a long time for you to even catch up with me,” says He Hui, senior policy analyst and China regional co-lead at the International Council on Clean Transportation (ICCT), a nonprofit think tank.
Plus, for China, EVs also had the potential to solve several other major problems, like curbing its severe air pollution, reducing its reliance on imported oil, and helping to rebuild the economy after the financial crisis. It seemed like a win-win for Beijing.
China already had some structural advantages in place. While EV manufacturing involves a different technology, it still requires the cooperation of the existing auto supply chain, and China had a relatively good one. The manufacturing capabilities and cheap commodities that sustained its gas-car factories could also be shifted to support a nascent EV industry.
So the Chinese government took steps to invest in related technologies as early as ; that year, EV technology was introduced as a priority science research project in China’s Five-Year Plan, the country’s highest-level economic blueprint.
Then, in , the industry got a significant boost when Wan Gang, an auto engineer who had worked for Audi in Germany for a decade, became China’s minister of science and technology. Wan had been a big fan of EVs and tested Tesla’s first EV model, the Roadster, in , the year it was released. People now credit Wan with making the national decision to go all-in on electric vehicles. Since then, EV development has been consistently prioritized in China’s national economic planning.
It’s ingrained in the nature of the country’s economic system: the Chinese government is very good at focusing resources on the industries it wants to grow. It has been doing the same for semiconductors recently.
Starting in , the country began handing out financial subsidies to EV companies for producing buses, taxis, or cars for individual consumers. That year, fewer than 500 EVs were sold in China. But more money meant companies could keep spending to improve their models. It also meant consumers could spend less to get an EV of their own.
From to , the government poured over 200 billion RMB ($29 billion) into relevant subsidies and tax breaks. While the subsidy policy officially ended at the end of last year and was replaced by a more market-oriented system called “dual credits,” it had already had its intended effect: the more than 6 million EVs sold in China in accounted for over half of global EV sales.
The government also helped domestic EV companies stay afloat in their early years by handing out procurement contracts. Around , before the consumer market accepted EVs, the first ones in China were part of its vast public transportation system.
“China has millions of public transits, buses, taxis, etc. They provided reliable contracts for lots of vehicles, so that kind of provided a revenue stream,” says Ilaria Mazzocco, a senior fellow in Chinese business and economics at the Center for Strategic and International Studies. “In addition to the financial element, it also provided a lot of [road test] data for these companies.”
But subsidies and tax breaks are still not the whole picture; there were yet other state policies that encouraged individuals to purchase EVs. In populous cities like Beijing, car license plates have been rationed for more than a decade, and it can still take years or thousands of dollars to get one for a gas car. But the process was basically waived for people who decided to purchase an EV.
Finally, local governments have also sometimes worked closely with EV companies to customize policies that can help the latter grow. For example, BYD, the Chinese company currently challenging Tesla’s dominance in EVs, rose up by keeping a close relationship with the southern city of Shenzhen and making it the first city in the world to completely electrify its public bus fleet.
The development of China’s EV industry has actually been deeply intertwined with Tesla’s rise as the biggest EV company.
When the Chinese government handed out subsidies, it didn’t limit them to domestic companies. “In my opinion, this was very smart,” says Alicia García-Herrero, chief economist for Asia Pacific at Natixis, an investment management firm. “Rather than pissing off the foreigners by not offering the subsidies that everybody else [gets], if you want to create the ecosystem, give these subsidies to everybody, because then they are stuck. They are already part of that ecosystem, and they cannot leave it anymore.”
Beyond financial incentives, local Chinese governments have been actively courting Tesla to build production facilities in the country. Its Gigafactory in Shanghai was built extremely quickly in thanks to the favorable local policies. “To go from effectively a dirt field to job one in about a year is unprecedented,” says Tu. “It points to the central government, and particularly the Shanghai government, breaking down any barriers or roadblocks to get Tesla to that point.”
Today, China is an indispensable part of Tesla’s supply chain. The Shanghai Gigafactory is currently Tesla’s most productive manufacturing hub and accounts for over half of Tesla cars delivered in .
LFP batteries are safer and cheaper, but initially they weren’t the top choice in cars because they used to have much lower energy density and perform poorly in low temperatures. But while others were ditching LFP technology, a few Chinese battery companies, like Contemporary Amperex Technology Co. Limited (CATL), spent a decade researching them and managed to narrow the energy density gap.
Today, the EV industry is again recognizing the benefits of LFP batteries, which made up one third of all EV batteries as of September . “That shows you how far LFP has come, and that’s purely down to the innovation within Chinese cell makers. And that has brought Chinese EV battery [companies] to the front line, the tier-one companies,” says Reid.
China has also had one key advantage in battery manufacturing: it controls a lot of the necessary materials. While the country doesn’t necessarily have the most natural resources for battery materials, it has the majority of the refinery capacity in the world when it comes to critical components like cobalt, nickel sulfate, lithium hydroxide, and graphite. García-Herrero sees China’s control of the chemical materials as “the ultimate control of the sector, which China has clearly pursued for years well before others even figured that this was something important.”
By now, other countries have indeed realized the importance of battery materials and are signing deals with Chile and Australia to gain control of mines for rare-earth metals. But China’s head start has given domestic companies a longstanding stable supply chain.
“Chinese-made EV batteries … not only come at a discount but also are available in much higher quantities because the manufacturing capacity has been built out in China and continues to be built out,” says Reid.
As a result of all this, China now has an outsize domestic demand for EVs: according to a survey from the US consulting company AlixPartners, over 50% of Chinese respondents were considering battery-electric vehicles as their next car in , the highest proportion in the world and two times the global average.
There are a slew of Chinese-built options for these customers—including BYD, SAIC-GM-Wuling, Geely, Nio, Xpeng, and LiAuto. While the first three are examples of gas-car companies that successfully made the switch to EVs early on, the last three are pure-EV startups that grew from nothing to household names in less than a decade.
And the rise of these companies (and other Chinese tech behemoths) coincided with the rise of a new generation of car buyers who don’t see Chinese brands as less prestigious or worse in quality than foreign brands. “Because they’ve grown up with Alibaba, because they’ve grown up with Tencent, they effectively were born into a digital environment, and they’re much more comfortable with Chinese brands versus their parents, who would still rather likely buy a German brand or a Japanese brand,” says Tu. The fact that these Chinese brands have sprinkled a little bit of nationalism into their marketing strategy also helps, Tu says.
Many countries are almost certainly now looking at China’s EV experience and feeling jealous. But it may not be that easy for them to achieve the same success, even if they copy China’s playbook.
While the US and some countries in Europe meet the objective requirements to supercharge their own EV industries, like technological capability and established supply chains, ICCT’s He notes that they also have different political systems. “Is this country willing to invest in this sector? Is it willing to give special protection to this industry and let it enjoy an extremely high level of policy priority for a long time?” she asks. “That’s hard to say.”
“I think the interesting question is, would a country like India or Brazil be able to replicate this?” Mazzocco asks. These countries don’t have a traditional auto industry as strong as China’s, and they also don’t have the Chinese government’s sophisticated background in handling massive industrial policies through a diverse set of policy tools, including credits, subsidies, land use agreements, tax breaks, and public procurements. But China’s experience suggests that EVs can be an opportunity for developing countries to leapfrog developed countries.
“It’s not that you can't replicate it, but China has had decades of experience in leveraging these [systems],” says Mazzocco.
For the first time ever, Chinese EV companies feel they have a chance to expand outside of China and become global brands. Some of them are already entering the European market and even considering coming to the US, despite its saturated market and the sensitive political situation. Chinese gas cars could never have dreamed of that.
Nevertheless, their marketing language and strategies may have to change for other markets. They will need to adapt to the different technical standards and preferred software services. And they will have to learn to accommodate different consumption habits and customer service requests.
“I think we take for granted that a company like Toyota or Honda is comfortable navigating different markets, but that’s taken decades of experience to build up for these companies, and it didn’t always look pretty for them,” Mazzocco says.
In the current geopolitical environment, these companies are also making themselves vulnerable by entering more countries that aren’t exactly maintaining good relations with China. Some of them may want to protect their own homegrown auto industries, and others may even see the entrance of Chinese brands as a national security risk.
For these and other reasons, the most growth potential will likely come from “emerging Asia,” García-Herrero says. That region will continue to need more EVs for its energy transition even after China’s domestic market becomes saturated.
This is why the benefits from China’s focus on EV supply are twofold: it both reduces China’s need for car imports from Western countries and creates another long-lasting export industry. Some countries, like Indonesia, are already courting Chinese investment to build EV factories there.
In , China exported 679,000 EVs, a 120% increase from the year before. There’s little reason to doubt the numbers will only grow from here.
"I drive an electric vehicle because I am poor," says Lu Yunfeng, a private hire driver, who is at a charging station on the outskirts of Guangzhou in the south of China.
Standing nearby, Sun Jingguo agrees. "The cost of driving a petrol car is too expensive. I save money driving an electric vehicle," he says.
"Also, it protects the environment," he adds, leaning against his white Beijing U7 model.
It's the kind of conversation climate campaigners dream of hearing. In many countries, electric vehicles (EVs) are considered luxury purchases.
But here in China - where almost half of all cars sold last year were electric - it's a banal reality.
At the beginning of the century, China's leadership laid out plans to dominate the technologies of the future. Once a nation of bicycles China is now the world's leader in EVs.
For Guangzhou's more than 18 million people, the roar of the rush hour has become a hum.
"When it comes to EVs, China is 10 years ahead and 10 times better than any other country," says auto sector analyst Michael Dunne.
China's BYD now leads the global EV market, after overtaking US rival Tesla earlier this year.
BYD's sales have been helped by a vast domestic market of more than 1.4 billion people and it is now looking to sell more cars overseas. So too are a raft of other Chinese start-ups that make affordable EVs for the mass market.
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So how did China build this lead, and can it be caught?
In tracing the origins of China's EV dominance, analysts often credit Wan Gang - a German-trained engineer who became China's minister of trade and science in .
"He looked around and said, 'Good news: we are now the largest car market in the world. Bad news: on the streets of Beijing, Shanghai, Guangzhou all I see is foreign brands'," says Mr Dunne.
At the time, Chinese brands simply couldn't compete with the European, American and Japanese car makers for quality and prestige. These companies had an unassailable head start when it came to producing petrol or diesel-powered cars.
But China did have ample resources, a skilled labour force and an ecosystem of suppliers in the motor industry. So Mr Wan decided to "change the game and flip the script by moving to electrics", according to Mr Dunne.
This was the master plan.
Even though the Chinese government had included EVs in its five-year economic blueprint as early as , it wasn't until the s that it started to provide vast amounts of subsidies to grow the industry.
China, unlike Western democracies, has the capacity to mobilise huge swathes of its economy over many years towards its aims.
The country's mammoth infrastructure projects and dominance in manufacturing are a testament to this.
A US think tank, the Center for Strategic and International Studies (CSIS), estimates that from to the end of , Beijing spent around $231bn (£172bn) developing the EV industry.
From consumers and carmakers to electricity providers and battery suppliers, everyone in China is entitled to money and assistance when it comes to EVs.
It encouraged BYD, for example, to switch from making smartphone batteries to focusing on producing EVs.
Ningde-based CATL - which supplies firms such as Tesla, Volkswagen and Ford - was founded in and now produces a third of all the batteries used for EVs worldwide.
This combination of long-term planning and government funding also allowed China to dominate critical supply chains in battery production.
It has helped build the world's largest public charging network with stations concentrated in big cities, which put drivers just minutes away from the nearest charger.
"If you want to manufacture a battery to put into an electric car today, all roads go through China," says Mr Dunne.
Some refer to this as "state capitalism". Western countries call it unfair business practice.
Chinese EV executives insist all companies, domestic or foreign, have access to the same resources.
As a result, they argue, China now has a thriving EV start-up sector, driven by fierce competition and a culture of innovation.
"The Chinese government is doing the same thing you see in Europe and in the US - providing policy support, consumer encouragement and infrastructure," Brian Gu, president of EV maker XPeng, tells the BBC.
"But I think China has done it consistently and in a way that really fosters the most competitive landscape that there is. There's no favouritism to anybody," he adds.
XPeng is one of the "Chinese champions", as Mr Gu puts it, driving the industry forward. Barely a decade old and yet to turn a profit, the start-up is already in the world's top 10 EV producers.
The company has attracted some of China's top young graduates to its headquarters in Guangzhou, where casually dressed staff sip flat whites and internet streamers sell cars live in the showroom.
A brightly coloured slide taking employees from the top to the ground floor would seem more at home in Silicon Valley than China's industrial heartland.
Despite the relaxed atmosphere, Mr Gu says the pressure to offer consumers better cars at lower prices is "immense".
The BBC was invited on a test drive of XPeng's Mona Max, which has just gone on sale in China for around $20,000.
For this price you get self-driving capability, voice activation, lie-flat beds, film and music streaming. Young Chinese graduates, we're told, see all these as standard features for a first car purchase.
"The new generation of EV makers... look at cars as a different animal," says David Li, the co-founder and chief executive of Hesai, which makes the Lidar sensing technology used in many self-driving cars.
Young Chinese consumers are certainly attracted to top-of-the-range technology, but a huge amount of government spending goes towards making EVs financially attractive, according to the CSIS study.
Members of the public receive subsidies for trading in their non-electric car for an EV as well as tax exemptions and subsidised rates at public charging stations.
These perks drove Mr Lu to go electric two years ago. He used to pay 200 yuan ($27.84; £20.72) to fill up his car for 400km (248 miles) of driving. It now costs him a quarter of that.
People in China also normally pay thousands for their vehicle registration plate - sometimes more than the cost of the car itself - as part of government efforts to limit congestion and pollution. Mr Lu now gets his green one for free.
"The rich drive petrol cars because they have unlimited resources," Mr Lu says. "An EV just makes sense for me."
Another proud EV owner in Shanghai, who wanted to use her English name Daisy, says that rather than charge her vehicle at a station, she changes her car's battery at one of the city's many automated swapping stations provided by EV maker Nio.
In under three minutes, machines replace her flat battery with a fully charged one. It's state of the art technology for less than the price of a tank of fuel.
The government subsidies at the heart of China's EV growth are seen as unfair by countries looking to protect their car industries.
The US, Canada and the European Union have all imposed substantial import taxes on Chinese EVs.
However, the UK says it's not planning to follow suit - making it an attractive market for firms like XPeng, which started delivering its G6 model to British consumers in March, and BYD, which launched its Dolphin Surf model this month in the UK, and is available for as little as $26,100.
This should be music to the ears of Western governments that enthusiastically back the transition to EVs, which the United Nations calls "pivotal" to avert climate disaster.
Several Western countries, including the UK, say they will ban the sale of petrol and diesel cars by . No country is better placed to help make this a reality than China.
"The Chinese are thinking about a future where they manufacture just about every single car for the world. They're looking around saying, 'Can anybody do it better than us?'" says Mr Dunne.
"Leaders in Detroit, Nagoya, Germany, UK, everywhere around the world, are shaking their heads. It's a new era, and the Chinese are feeling very confident about their prospects right now."
Despite the environmental benefits, there is still suspicion about what relying on Chinese technology could bring.
Britain's former head of MI6, Sir Richard Dearlove, recently called Chinese EVs "computers on wheels" that can be "controlled from Beijing".
His claim that Chinese EVs could one day immobilise British cities was dismissed by BYD's executive vice-president Stella Li in a recent BBC interview.
"Anyone can claim anything if they lose the game. But so what?" she said.
"BYD pays for a very high standard of data security. We use local carriers for all our data. In fact we do it 10 times better than our competition."
Nevertheless Sir Richard's concerns echo previous national security debates surrounding Chinese technology.
This includes telecoms infrastructure maker Huawei, whose equipment was banned in several Western countries, as well as the social media app TikTok, which is prohibited on UK government devices.
But for Sun Jingguo in Guangzhou, the message is simple.
"I think the world should thank China for bringing this technology to the world," he laughs. "I do."
Additional reporting by Theo Leggett, international business correspondent in London.
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