EV industry contest revisits a truth: Free market competition rules
Published: Apr 23, 2023 09:06 PM
Illustration: Chen Xia/Global Times

Illustration: Chen Xia/Global Times

Development of electric vehicles (EVs) is thriving in China, with middle-class Chinese consumers, younger millennials and Generation-Z now seeing owning an EV as a status symbol and sign of being tech savvy. Affordability also factors in, despite the expiration of the government's EV purchase subsidies at the end of 2022. 

Many have feared that EV sales may plummet in China once government subsidies expired, but events have not transpired that way, as Chinese consumers have kept snapping up them. The reason: not only are EV options in China cheaper on average than internal combustion engine cars, but they are also more affordable than comparable vehicles sold in North America and Europe. 

Recent data released by the China Passenger Car Association showed that in March 2023, the country sold 1.587 million vehicles, of which, more than 543,000 were either EVs or plug-in hybrids, growing 21.9 percent year-on-year. Amazingly, the data reveals that EV penetration rate in China has now reached an eye-popping 34.2 percent - meaning that among every three vehicles sold in the country, at least one is an EV. No other country in the world comes even close.

Last year saw explosive EV growth as the country witnessed a total of 5.67 million new-energy cars sold across the nation, as elevated oil prices inspired Chinese consumers to switch to greener and cheaper electric models. The figure is five times higher than in the US, cementing China at the top of this new and important market. Now, fleets of Chinese-made electric sedans and SUVs are being exported to overseas markets, significantly helping the world's efforts to achieve green driving and also mitigating global climate change. 

Foreign media and research organizations in the West have said that China's vision and the government's supportive industrial policy has, in the first place, contributed to the country's rise as an EV powerhouse, as some pundits believe the country is at least 10 years ahead of the developed economies in leading the world's electric car transformation.

They are partially right. Making the best of the market system and fostering broad and fierce competition among industry players so that EV manufacturers are able to consistently innovate, cut production costs and reduce prices is the key to China's success. The same market logic explains why the country, during the past four decades, has shored up its unrivalled prowess in manufacturing. Protectionism through raising tariffs and erecting other prohibitive trade barriers - what the Biden administration is doing now to slow down China's rise - can hardly foster a competitive manufacturing sector in the US.

After years of so-called cut-throat market competition, a good number of leading Chinese players, including BYD, Nio, Xpeng, Li Auto, GAC Aion, Geely, Chery, SAIC-GM Wuling, Chang'an Auto and ARCFOX, have outperformed other brands and taken the lion share of Chinese market share. BYD' global sales have now surpassed that of Tesla - the US' trophy child for EV. 

Thanks to free market competition, EV producers in China have increased their focus on cutting production costs through constant research and innovations. In 2022, average retail price of EVs in China was nearing $31,800, much lower than the US market's $63,700 and Europe's $55,800. And, the average price tag of $31,800 is also lower than the average gasoline-powered conventional vehicle that sells at $47,700 in China, according to industry reports. 

As a result, Chinese buyers have a greater selection of EVs than anywhere in the world, and also at a much lower price. This explains why Chinese shoppers are increasingly fond of buying EVs, as well as the higher EV penetration rate in the world's largest auto market. All the more, Chinese manufacturers are filling higher-end EVs with advanced infotainment systems and other innovative functions to woo potential buyers all over the world. 

It is expected that China will constitute up to 60 percent of the global EV fleets by 2030, making the country the undisputable industry leader. At the same time, the country's dominance in advanced battery productions, led by CATL and BYD, means that China is likely to account for 70-75 percent of the global battery production supply chain. CATL now provides lithium-ion batteries for overseas companies like Volkswagen, BMW, Toyota, Volvo, Peugeot and Tesla. In comparison, US production of batteries makes up only 7 percent of the global total. 

To encourage sales of EVs, many Chinese cities have been creative by setting up battery-swapping stations where a machine plucks out the depleted battery and installs a charged one in just minutes, which is able to save drivers more time compared to waiting at the charging stations. Some Chinese cities give EV drivers the perk of driving at the lanes reserved for commuting buses. 

Foreign media are always curious why China is ahead of the US and Europe in adopting new and revolutionary technologies, whether it's e-commerce, mobile digital payment, high-speed railways and now EVs. The answer is endorsing full-fledged market competition, coupled with a set of pro-growth policies from industry regulators that reward new technology advances and their broad utilization. Now, Chinese automakers are competing to roll out faster, longer-range and more feature-drenched EVs. Yes, let free market competition decide the winners and losers. 

The Biden administration's adoption of the 2022 Inflation Reduction Act, by providing $7,500 in tax incentives or fiscal subsidies for each EV sold that is assembled within US borders, in order to stay clear of China-associated supply chains, is pure trade protectionism. Naturally, the cars produced under the government protection cannot compete with Chinese-manufactured EVs in both quality and prices. 

The author is an editor with the Global Times.