Summary
China has become the world’s largest car exporter by dominating electric vehicle (EV) production, surpassing traditional carmakers in Europe, Japan, and the U.S.
This shift stems from China’s heavy investment in battery technology, supply chains, and generous subsidies, enabling it to produce cheaper EVs, like the BYD Seal, compared to Western competitors.
Europe and America, reliant on outdated internal combustion engine expertise, have struggled to adapt to this disruptive innovation.
Many nations are imposing tariffs on Chinese EVs, but without robust domestic battery infrastructure, Western car industries face mounting challenges as the EV transition accelerates.
It’s not (or at least not just) about subsidies, cheap Chinese labor, etc. It’s a fairly classic tech disruption story. Globally, the established carmakers know the future is electric, but they’ve got existing plants, workers who are trained to build ICEs, long established suppliers who make ICE parts, and so forth. You can argue that executives are being paid big bucks to solve such issues, which is true, but it’s truly a hard problem. Especially when these are real factories and workers and industrial equipment you’re dealing with.
But why did the disrupters come from China? Everyone is pointing to state support and existing strengths in battery tech, which are supply side factors, but there are also reasons on the demand side. Chinese people have relatively few cars (300 cars per capita, versus 850 per Capita in the US or 603 in the UK). As people get richer and start buying cars, there’s a chance for EV makers to get in the door. This, by the way, is why it makes sense that the Chinese EVs are entering on the cheap end of the market, whereas Tesla, which started out selling to western consumers, entered on the premium end.
China has its own ICE carmakers, but they aren’t established enough (and politically connected enough) to really push back against the onslaught of EV firms. (China can hardly impose tariffs on itself…) And at this point, the smarter ones like Geely have decided to go with the flow.
300 cars per person?
China is also following the well-tread path of Japan and then Korea. Build up a cheap manufacturing base, move into more complex products, then eventually stand up heavy industry in automotive. But China’s experience with batteries through consumer electronics along with its natural abundance of rare earth minerals, alongside the general maturity of EV technology, positioned it well to take an electric automotive route where Japan and Korea previously went ICE.