In the previous text, we talked about the transformation of China's energy system and the gradual transition to renewable energy sources. In order to reduce pollution, one of the goals is to switch vehicles to environmentally friendly fuels.
When it comes to the electric vehicle (EV) market, China leads the way ahead of automotive giants like the US, Germany and Japan. Sales of new electric vehicles in China will increase by 82% in 2022, accounting for nearly 60% of global sales.
According to a report by the International Energy Agency, more than half of the electric cars on the world's roads are in China. China has achieved 35% of global exports of electric vehicles in 2022. while, Chinese automaker BYD sold more electric vehicles than Tesla in the fourth quarter of 2023. The question is, how did they do it?
The Chinese are a pragmatic people. If they see that they are late in the development of something, then they do not develop that technology, but move to its higher level. For example, payment cards never took off in China. All payments are made over the phone there today! They realized that they were late with the development of these cards and literally did not even want to implement other people's systems, but developed their own, which is slowly making its way here (payment by phone).
The same is the case with cars. They realized that it was very difficult to be competitive in the world market of cars using internal combustion engines, so they simply skipped them and turned heavily to the future and the development of electric vehicles. This path of development coincided with the country's goals to reduce pollution, so China as a country largely stood behind the development of the electric vehicle industry.
In this text, we will discuss three key reasons that have contributed to the growth of China's EV sector.
Development path of BYD and Geely
Electric taxi dashboard
China started its electric vehicle development later than the US. Although both countries had similar policies to encourage manufacturers and consumers, Chinese companies did not go directly into automobile development.
Elon Musk, CEO of Tesla, used the media to position his brand as a pioneer in EVs, which helped them to break into the Californian market and soon positioned himself on the domestic and global market as a leader in EV production.
Instead of taking a similar approach, directly targeting the auto industry, Chinese automakers BYD and Geely stayed under the radar and quietly experimented in their early stages. They started their development of electric vehicles by focusing on neighboring industries - namely, electric buses and motorcycles.
These products are less visible than cars, but they have the same challenges that car manufacturers have to take care of. What they learned from facing these challenges ultimately contributed to their rise in electric vehicle manufacturing.
For example, buses are heavier and carry more passengers than commercial cars. In addition, they realized that most buses run for about 18 hours each day. Because of this, they have higher battery and storage needs. And more powerful batteries take longer to charge. Targeting a neighboring industry, BYD began to push the boundaries of battery development technology back in 2009.
BYD introduced electric buses as its entry product to the North American market. The first major sale of electric buses as fleet vehicles in America was in 2013, and a little later (in 2015) they delivered buses to the Los Angeles metro system. BYD electric buses currently dominate the South American EV bus markets.
Geely, another major EV manufacturer, has started operations within another adjacent industry that has different challenges. They focused on developing motorcycles, which require lighter and more portable batteries than cars. Experimentation in this area has also enabled the company to become one of the leading battery manufacturers. Using a detour, these two Chinese companies have become EV giants by innovating at the two extremes of battery technology, which is key to the production of electric vehicles.
Development of electric vehicles in cooperation with the authorities
Development of electric taxi vehicles in cooperation with local authorities
Another reason why China's electric vehicle market has grown is that they recognized the challenges these vehicles presented early on and worked with local authorities to find solutions. It has been shown that government policy can have a significant impact to accelerate the development and sales of electric vehicles.
Many European countries are early adopters of tax incentives and registration discounts for EV purchases. However, research has shown that interest in purchasing electric vehicles in that early period remained very low. A possible explanation for this lack of acceptance is probably the short driving range and long charging time, which is clearly more important to consumers than environmental protection, a quieter engine and regular oil changes and services.
In 2009, the Chinese government also introduced a policy to subsidize the purchase of hybrid and electric cars and buses in 10 cities. Under the policy, subsidies per unit for passenger cars ranged from RMB 4,000 (approximately US$500) to RMB 60,000 (approximately US$8,000). But China has gone a step further than subsidies.
In 10 major cities, such as Beijing and Xi'an, Chinese electric vehicle manufacturers have worked closely with taxi companies to devise sustainable solutions that would improve car battery technologies. For example, EV companies not only determined locations for charging stations, but more importantly, tested different battery charging scheduling options that matched the current state of the vehicle.
Electric vehicles equipped with the best battery technology can operate for up to eight hours in the city center. In China, taxi companies that operate electric or hybrid vehicles usually have two fleets of cars - one for the morning shift and one for the evening shift. The morning shift ends around 18-19 hours, after the working day, but before the evening rush. This allows the morning fleet to be filled after 8 pm, avoiding peak times of high electricity consumption. The evening vehicle fleet returns to charging around 2-3 in the morning, which is also during the period of less electricity consumption of the city network.
This schedule, jointly designed by Chinese electric vehicle manufacturers and taxi companies, not only takes into account the limitation of electric vehicle batteries, but also helps to flatten the consumption curve of the city's power grid.
When a few years ago Mr. Josip was driving a taxi around Beijing and from a conversation with a taxi driver he learned from the driver that the electric vehicle they are driving has traveled over 600,000 km and is about 5 years old and that it is time for a replacement. See how the fleet of EV taxis in Beijing looks in the video.
Purchasing knowledge
Riding an electric taxi around Beijing
European, American and Japanese car manufacturers had a much better starting position in internal combustion engine technology. The Chinese auto industry has lagged significantly behind in this area. In 2002, Chinese automakers estimated that battery costs would account for between 30-40% of the total cost of producing an all-new electric vehicle. They realized that investing in batteries would allow them to leapfrog the competition by focusing on the technology that powers these new vehicles.
He estimates that China has 7% of the world's lithium reserves on its territory, which is insufficient for the serious development of EVs. It was clear to them that one direction in development must be investing in the world's main lithium mines, but also in lithium processing plants. China currently has nearly 60% of the world's lithium processing capacity for batteries, underscoring its dominant position in the lithium supply chain. This is how we arrived at the fact that in 2022, China is responsible for the production of about 75% of all lithium-ion batteries used worldwide. Moreover, the country is home to the vast majority of the world's lithium processing facilities. Although it currently imports a significant part of this metal. This means that Chinese battery companies control the bottleneck position in the supply chain, which gives them significant advantages for the development of battery vehicles today.
The second direction of development was aimed at acquiring the necessary knowledge from the automotive industry. Chinese companies have been collaborating widely - with other automakers as well as technology companies - to strengthen their vehicle manufacturing capabilities.
When BYD started its EV journey, it switched from making cell phone batteries (it also supplied Nokia and Motorola) to making batteries for cars through Yadi Electronics, which is now part of BYD. By purchasing Qinchuan Machinery Works, a small automobile manufacturing company, BYD established the automobile sector in 2002 and began to produce automobiles. BYD then collaborated with Daimler and Toyota to gain vehicle manufacturing know-how in exchange for sharing their own knowledge of battery manufacturing technologies. BYD is also now working closely with Foshan Plastics Group on optoelectronics, which manufactures electronic sensors that detect and control lights. In 2018, BYD partnered with Chinese tech giant Baidu to increase the software capabilities and service capabilities of its mass-market electric vehicles. The mutually beneficial agreement equipped BYD EV with Baidu map and intelligent driving software, while allowing Baidu to join BYD's open source platform and gain hardware knowledge and access to data. Similarly, Geely has deployed a system that includes everything from low-orbit satellites to smart hardware to collect and monitor data that could potentially improve EV battery performance. They have also partnered with Baidu, which builds cloud-based software that controls their vehicles, in a joint venture (Jidu Auto) aimed at producing intelligent electric vehicles. Geely then bought Australian automatic transmission manufacturer Drivetrain Systems International, which supplies Ford, Maserati and Chrysler, among others. They went on to buy carmakers Volvo and Lotus, among others, and partnered with five other firms — including Daimler Smart. This approach allowed BYD and Geely to quickly and efficiently assemble components around their core focus — battery technology — which in turn helped them emerge as the two leading electric vehicle manufacturers in China.