High-tech and feature-rich: Can China’s EVs take over the world?

BEIJING – It took just 30 seconds for self-confessed Xiaomi fan Ethan Zhang to place an order for the Chinese consumer technology company’s first electric vehicle (EV), the SU7, at its much-anticipated launch on March 28, 2024.

On May 25, he was among the first to receive the car, one of the more than 20,000 units delivered so far. The “pro” version he bought can perform autonomous driving and parking under the driver’s supervision and costs 245,900 yuan (S$45,600).

This is in addition to its other draws – a sleek design that many compare to a Porsche Taycan and personalised software developed by Xiaomi, whose electronics, from smart speakers to air-conditioners and power banks, are ubiquitous in Chinese homes.

While the car is available only in China for now, Xiaomi has set its sights on becoming a “top five” global automaker in 20 years, giving established names a run for their money.

Mr Zhang said: “EVs are a valuable opportunity for China to lead in the automobile industry, so of course we should support made-in-China products.”

Chinese consumers’ love affair with EVs appears to be going strong even amid a lacklustre economy. From January to June 2024, total sales of new-energy vehicles in China – which include EVs and hybrids – reached 4.34 million, a year-on-year increase of 35.1 per cent.

New-energy vehicle sales in China surged from 1 million to 8 million in just 3 years

Already, the country’s manufacturing dominance has helped it overtake Japan as the world’s biggest vehicle exporter in 2023.

This prowess in green technology, however, has put China’s EV industry in the cross hairs of the United States and Europe, as they worry about the impact on their own producers and over-reliance on a potential adversary. The US and China are strategic competitors, while the European Union views China as a systemic rival.

Amid ever-slimmer profit margins in China’s overcrowded domestic market, as well as a looming trade war, can Chinese EV makers find greater success internationally?

Industry insiders and experts believe the outlook is mixed. While there is little doubt that Chinese EV brands are now globally competitive, foreign car buyers, particularly in the West, may not perceive them as such, nor be drawn to the same high-tech features – such as autonomous driving and voice assistants – as Chinese consumers.

The EV race is far from over, as legacy automakers catch up and new fuel technologies grow the green transition pie.

The sheer number of green vehicle licence plates – which are given to EVs – on Chinese roads today can be seen as a visible symbol of the country’s widespread EV adoption, which really started to take off around 2021.

New-energy vehicles had a 31 per cent share of the Chinese car market in 2023, and their retail sales in April 2024 exceeded 50 per cent for the first time, versus their conventional-fuel peers.

Yet success was by no means guaranteed in the 2000s when the Chinese government decided to “overtake by changing lanes” – going all in on EVs rather than focusing on conventional-fuel vehicles. At the time, there was no Chinese motoring brand that could take on the foreign legacy automakers.

A national subsidy scheme for new-energy vehicles from 2009 to 2022 got the EV industry off to a slow start but it eventually boosted sales of these cars in the Chinese market, from 1,440 in 2010 to 8.1 million in 2023, according to data from the International Energy Agency.

Experts estimate that some US$200 billion (S$268 billion) in state subsidies for these vehicles has been doled out since 2009. They include sales tax exemptions, national buyer rebates and government spending on infrastructure such as charging stations. Other benefits include low-cost land, electricity and loans for the automakers.

Beyond government subsidies, there were other factors behind the success of the industry, a key one being the control of the supply chain of the lithium-ion batteries that power EVs, with Chinese firms buying up mines from Bolivia to Indonesia that supply the raw materials. Contemporary Amperex Technology (CATL), the world’s No. 1 electric car battery supplier, now controls around 37 per cent of the global EV battery market.

There were also massive cost reductions in EVs – brought about by tech advancements and lower cost of batteries – by both American pioneer Tesla and its Chinese competitors that ultimately led to mass market buy-in in the last few years. By 2022, EVs were costing less on average than conventional vehicles in China.

Car reviewer Zhou Haoran, who runs a YouTube channel called Telescope that showcases primarily Chinese cars, cited the example of the Wuling Hongguang Mini EV manufactured under a joint venture between SAIC Motor, General Motors and Guangxi Automobile.

The car was launched in 2020 with a starting price of 28,800 yuan. The conventional-fuel BYD F0, which ended production in 2015 and is of a similar size, started at 36,900 yuan.

The Wuling Hongguang Mini is now China’s best-selling EV.

“The lower the price, the cheaper the segment, the faster the adoption rate,” said Mr Zhou.

The petite city car is less than 3m long and does not really have any boot space. Its maximum speed is 100kmh, and it has a range of about 120km, which pales in comparison with most entry-level EVs. BYD’s entry-level Seagull EV has a maximum speed of 130kmh and a range of 300km.

It helps that EVs are cheaper to run than conventional-fuel vehicles, even as charging fees in China have been on the rise.

Tesla’s entry into the Chinese market also gave the entire EV industry an unexpected boost.

When it built its first factory in Shanghai in 2019, the first time a foreign firm was allowed to wholly own a car manufacturing plant in China, there were fears among Chinese firms that they might not be able to compete with the American EV giant.

But the opposite happened. Mr Zhou, who previously worked in public relations for Nio, said that at the time, he had prepared a briefing for the production vice-president of the Shanghai-headquartered EV company to say that Tesla’s move would be good for Nio.

“This was because Tesla had the volume – it would drive up the supply capacity of the entire supply chain and everyone would benefit from it, and that’s exactly what happened,” he said.

Other than high-tech features, the maturity of the EV market has also enticed local buyers.

Ms Quo Liu, a car buyer in Beijing, said: “I feel that Chinese EV brands have made good progress – there are abundant choices available, with great functionality, at different price points.”

Ms Liu in July 2024 put her money down for a BYD Sea Lion 07 – a mid-sized, battery-powered sport utility vehicle (SUV) released in April that starts from 189,800 yuan.

Among other features, the Sea Lion has an advanced driving system with fully automatic parking and lane-keeping assistance. It is seen as a budget alternative to Tesla’s Model Y, the best-selling car of 2023.

She settled on BYD because of the size of the automaker – it is the global leader in EV manufacturing – which means it would offer more convenience and peace of mind when it comes to after-sales maintenance. Space, comfort and value for money were other factors, she said.

“Autonomous driving capability might be one consideration, but it’s not among my top priorities,” she added.

Chinese automakers have now conquered the world’s largest EV market – their own – with Tesla the only foreign player scoring a top-10 share of it.

And their next target is the world.

Already, China has been the world’s leading exporter of pure-electric vehicles by quantity since 2018. It sent 1.5 million units of these vehicles, both domestic- and foreign-branded, abroad in 2023, according to data from the UN Comtrade Database.

Its biggest export destinations by value in 2023 were Belgium, the United Kingdom, Spain, Thailand and Australia.

Top destinations for EV exports from China in 2023

So confident are the Chinese in their exports that BYD is deploying its own fleet of ships to transport its cars abroad. Its first carrier went into operation in January 2024, and another seven ships will follow by 2026.

All things being equal, China’s EV makers should be able to replicate their domestic dominance abroad, said Singapore automotive expert Say Kwee Neng, citing the high-tech cars’ affordability and sleek designs that surpass what most legacy automakers have on the market today.

“But it’s not going to be equal, and this will muddy the (global) development of Chinese EV brands,” he said, alluding to the trade barriers that Chinese manufacturers face in entering key EV markets.

Alarmed at the prospect of China’s automakers squeezing out domestic players, the EU and US – the world’s second- and third-largest EV markets respectively – have erected trade barriers to slow a potential Chinese influx.

Cars sold by Chinese EV brands accounted for just 0.4 per cent of the EU’s EV market in 2019. But this reached almost 8 per cent in 2023, according to figures from the Brussels-based green group Transport & Environment.

In an April 2024 report, US-based research firm Rhodium Group found that BYD’s higher prices in Europe mean that the company makes about €13,000 (S$19,000) more in profit on each Seal U hybrid SUV sold in the EU than in China. This makes the EU market attractive to Chinese makers.

The EU in July imposed tariffs of up to 47.6 per cent on EVs imported from China. In the US, where Chinese players have a negligible presence, tariffs will go up to 102.5 per cent from August.

But Mr Stephen Olson, a visiting lecturer and non-resident fellow at the Yeutter Institute in Nebraska, said that despite the tariffs, the Chinese industry might be so competitive now that it can absorb the taxes and still have success in exporting.

The provisional EU tariffs, for example, will not prevent Chinese EVs from selling in Europe, but will just reduce the profit margin.

The European Commission has noted that prices of China-made EVs in Europe are typically 20 per cent lower than those of EU-made models. But some Chinese models may sell for more than their European equivalents – for instance, BYD’s Atto 3 Comfort, an SUV, sells for €5,000 more than a comparable Volkswagen ID.3 in Germany, the Rhodium Group report found.

The West and China have traded barbs over the issue, with the US accusing China of producing far more than its own market can absorb. A months-long EU investigation concluded that China’s EV makers benefited from unfair subsidies.

China has hit back at such criticisms of overcapacity, arguing that the US and EU also subsidise their own EV industries.

For instance, a June 2023 analysis by the European Parliament found that American rules under the Inflation Reduction Act have discriminated against foreign producers, including China. The report described the Act as a “gross violation” of World Trade Organisation statutes.

The Act, which was passed in August 2022, subsidises American consumers and encourages the sale of EVs and domestic automotive parts. It is US President Joe Biden’s signature law to drive a transition towards using cleaner energy.

Countering allegations of dumping, Beijing claims that Chinese EVs are generally priced higher in global markets than at home. Dumping occurs when a country exports a product at a price that is lower in a foreign market than in its domestic market.

China also argues that its scale, cost advantages and expertise in EV-making can help drive the world’s transition towards clean energy.

Data from the China Association of Automobile Manufacturers showed that in 2023, China’s new-energy vehicle production hit 9.59 million. Of these vehicles, 1.2 million were exported, or about 12 per cent. China’s Commerce Ministry has argued that in 2023, about 80 per cent of Germany’s automobile production was sold internationally, while Japan exported 50 per cent of its car production.

Political issues or no, Chinese automakers are taking no chances. They are increasingly carrying out production in or close to their target markets to circumvent tariffs and save on shipping costs.

And as access to more established markets grows increasingly difficult, they are looking to secure the first-mover advantage in countries where EV adoption is still in its infancy.

Factories producing Chinese EVs have been built or announced in a range of countries, including Spain, Hungary, Brazil, Mexico, Thailand, Indonesia and Uzbekistan.

Direct tariffs pose probably the most formidable obstacle in the US market. The move in May to nearly quadruple levies on Chinese-made electric cars to 102.5 per cent further reduces commercial incentive for Chinese makers to venture there.

Currently, the Polestar 2 is one of the few models from China available in the US. It is made by Swedish automaker Polestar, in which Chinese company Zhejiang Geely has a controlling stake. Polestar sold just 2,200 vehicles in the US in the first quarter of 2024.

Globally, even if Chinese EVs make it to overseas dealers, there is no guarantee that they will gain traction with consumers there.

This is an issue that top Chinese EV maker BYD is well aware of, as it seeks to grow its 17 per cent global market share of pure-electric vehicles. Market leader Tesla currently has a 20 per cent share.

A BYD spokesman told The Straits Times that the company has sought to understand driving habits and preferences in its overseas markets, and launch EV products tailored to local demands.

While Chinese consumers are attracted by smart technologies and personalised features in their cars, European car buyers generally prioritise safety features and vehicle functionality, said the spokesman. And South-east Asian customers “typically value cost-effective and flexible solutions”.

Mr Zhou, the Shanghai-based car reviewer, believes that for Chinese brands to make significant inroads into the lucrative European market, they will need to tailor-make their cars with the European consumer in mind.

For instance, SAIC’s MG4 hatchback (below) – which is by far the best-selling Chinese EV in Europe but sells only about 300 cars a month in China – has numerous physical controls, unlike typical Chinese EVs, which are often fitted with larger touchscreens and touch-sensitive buttons.

“MG as a brand is still not dead among the British and European public. People know that it was a prominent brand back in the 1980s and 1970s, so the brand familiarity helped them a lot,” Mr Zhou said. MG is a British marque founded in the 1920s.

But Mr Qie Haitao, a Xi’an-based car reviewer who has been in the industry for 20 years, argued that the strengths of Chinese EVs will attract foreign consumers in the longer term, as these features improve.

“I believe overseas consumers will slowly come around to accepting features from digitalisation to automation, just like they accepted how smartphones have changed our lifestyles,” said Mr Qie, who hosts a channel on cars on Douyin, a video-sharing platform.

While Chinese players have made great strides in EV manufacturing, their foreign counterparts are also catching up.

Tesla projected to lead race in pure-electric vehicles

Legacy automakers are partnering Chinese brands to develop and produce EVs. For instance, German auto giant Volkswagen bought a 4.99 per cent stake in Guangzhou-based EV maker XPeng in 2023, and will produce two electric cars with it by 2026.

And American-French-Italian automaker Stellantis will make low-cost EVs for the European market through a joint venture with Leapmotor, the Zhejiang-based EV maker which it has a stake in.

Mr Zhang Yansheng, chief researcher at the China Centre for International Economic Exchanges, a state-linked public policy think-tank, does not doubt that foreign automakers will be able to catch up with their Chinese counterparts.

Nor does he see this as a problem, even as he expects Chinese EVs to expand their presence in markets around the world.

“Regardless of whether it is a European, Japanese, American, South Korean or Chinese EV maker… I believe each can do well, and have its own markets for survival,” he said, noting how most car-producing countries have a preference for their home-grown brands.

While global dominance is far from assured, there is little question of Chinese confidence in their products.

Mr Qie, the Xi’an-based car reviewer who estimates he has driven about 200 EVs, said: “In certain areas, Chinese EVs have already surpassed their joint venture counterparts. My car’s internet connection speed is comparatively fast, and some brands like XPeng have also done well in autonomous driving.

“But, of course, when it comes to quality control and the details of manufacturing techniques, maybe there is still room for improvement.”