Why are Chinese EV companies becoming so successful?
In our previous blog on the Chinese market we took a deep dive on BYD. Whilst certainly on the path to success by European standards, BYD is not an anomaly when it comes to a successful Chinese EV business. Many Chinese brands are finding their success in manufacturing various components for the EV market, with China holding 77% of the world’s lithium-ion battery production capabilities as of 2022. The overall production capacity is expected to increase eight-fold by 2027, to a total production capacity of approximately 6,197 GWh, whilst maintaining a similar market dominance. The reason for this could be attributed to various different factors. Chinese manufacturers are well-known for doing everything possible to streamline production capabilities and reduce costs, but this has historically been associated with a reduction in quality, though Chinese manufacturers across the board are breaking this association with quality improvements. Some of these differences simply could not be achieved in other markets however, due to differences in manufacturing costs associated with labour, buildings and energy consumption, allowing the Chinese market to progress differently. For example, given the tight governmental control of the Chinese economy, it would make sense that there are less luxury-oriented Chinese EV manufacturers, as the domestic market simply isn’t oriented that way, unlike segments of the European Market and the US market.
With respect to other EV manufacturers around the globe, it would not be fair to associate the success of the Chinese EV industry solely to Chinese production capabilities and business savvy. Compared to Western businesses, the Chinese manufacturers benefit heavily from Chinese investment from the government, leading to accelerated advances in production capabilities, reduced production costs and ultimately leading to a benefit for Chinese consumers. This is in contrast to many governmental policies in the West that, although aim to benefit the EV market overall, often provide benefits directly to the consumer, as opposed to the manufacturer. Not only that, but market competition is rife already in Europe and the USA due to long-established automakers first choosing to develop hybrid vehicles, and then EVs. The consumer base varies between those looking to buy cheap vehicles, through to those that will drive their EV on various schemes, such as the Salary Sacrifice scheme we offer here at P + B, all the way through to luxury electric vehicles only a select few can afford. This in stark contrast with the domestic Chinese market, where price is much more of a driving factor, and this streamlined business approach is ultimately what is giving, and will continue to give Chinese automakers a competitive advantage in markets around the globe.
What allows China to build so quickly?
When you take a look at how long projects take to complete here in the UK, most of us will no doubt be wondering just how and why things constantly end up delayed and over-budget. Take HS2 as a prime example. In China however, it’s a completely different story. In just 6 – 7 years, China has managed to build over 10,000km of high-speed rail, which is a very impressive feat. This is achievable for many reasons, and it’s not quite as simple as manufacturing techniques that give China advantages that can be transposed to other places in the world.
One of the main differences lies in the system of government China has. Whilst projects here in the UK and across the West in general can require a lengthy approval process, bureaucratic process issues and lots of red tape, the same can’t be said for China due to the power structure which the government holds. For all the positives and negatives of the different form of government China has, it is true that this allows them to plan, construct and expand projects at a much faster rate than many other developed countries. The same of course is also true for Chinese companies in the automotive sector, not just infrastructure development. These industrial policies allow such companies to expand rapidly following success, giving them a competitive edge. The consequence downstream of this means economies of scale seldom reproduced in other countries, meaning when you do see Chinese products appear in international markets, they’re usually plentiful, and much cheaper than the competition.
What does China’s own domestic EV market look like?
It’s all well and good to discuss China’s manufacturing prowess, but it’s important to note just how China’s domestic market looks, in order to give some context on both vehicle and business decisions that we see the consequences of far beyond China’s borders.
For example, did you know that more than half of all electric vehicles on the roads across the globe are found in China? Contrast to EU and US markets, new EV sales in China grew by 82% in 2022, whilst China was also responsible for 35% of EV exports across the globe.
BYD outsold even Tesla in Q4 of 2023 in terms of electric vehicles sold. One of the key differences in approach from Chinese companies when compared to their Western equivalents, is many companies like BYD focussed on adopting EV related problems first, before necessarily deciding to design and launch their own EV to the general public to begin with. This is in stark contrast to Tesla, which decided to approach the situation with the complete opposite method and market itself as the market leader in EVs before focussing on what are now some of its other well-known applications, such as energy storage and charging infrastructure.
This focus on industries within the realm of EVs, but not selling vehicles directly to the general public, allowed Chinese companies to develop and improve their manufacturing processes prior to the large-scale manufacturing involved when bringing affordable EV’s to market. There’s no doubt that some of this improved cost-saving, technology development and manufacturing streamlining resulted in cost savings for Chinese businesses in the EV market, and ultimately these are felt by the consumer. Just because many of these Chinese EV companies are not yet household names, or certainly not in the West, do not think that they haven’t been around the block and haven’t faced their share of difficulties to overcome with innovation on constant improvement.
