The Astonishing Surge of Electric Cars in China: A Tale of Innovation and Evolution
Unveiling the Electric Car Graveyard in China’s Eleventh-Largest City
Hidden away in the outskirts of China’s eleventh-largest city lies a peculiar graveyard, concealed from the public eye. However, this is no ordinary cemetery; its inhabitants are neither human nor lifeless. What you’ll encounter here are countless white rectangles, each a relic of its own era—a graveyard dedicated to electric cars.
Once upon a time, these electric vehicles (EVs) symbolized China’s ambitious automotive revolution. Take, for instance, the Changan Eado, which made its debut in 2015 with a modest range of just over 120 miles and a top speed of less than 90 miles per hour. During that period, it ranked among the top-selling electric vehicles in the country. However, at that time, China’s annual car exports were a mere 375,000 units, lagging behind India and the United States and dwarfed by Japan and Germany.
For the initial five years, progress in the Chinese EV market was gradual. However, while the rest of the world grappled with various challenges, China surged ahead, outpacing both India and the U.S., and it’s poised to surpass Germany and Japan to become the world’s leading EV market this year.
The Changan Eado has now become a relic, similar to an outdated iPod—functional but no longer in demand. Chinese consumers today have a plethora of EV models to choose from. Consider the BYD Han, which closely resembles a Tesla Model S but is priced at nearly half the cost. Then there’s the innovative Wuling Bingo, equipped with a built-in inflatable mattress, and the best-selling Hongguang Mini, a budget-friendly 4-seat micro-car priced at just $5,000. For those with extravagant tastes, there’s the Hongqi L5, China’s equivalent of a Rolls-Royce, famously used by none other than Xi Jinping.
Decoding the Remarkable Transformation: How China Became the EV Leader
How did China achieve this extraordinary transformation, progressing from merely 500 EVs on Shanghai’s streets in 2011 to becoming the global leader in electric cars? The answer to this question lies in a combination of factors, including government policies, environmental concerns, and innovative strategies.
The Drive for Electricity: China’s Environmental and Economic Imperative
In the early 2000s, China’s landscape looked vastly different from today’s. In April 2000, the streets of its most populous city, Shanghai, were dominated by bicycles, scooters, and a few buses. Car ownership was minimal, with only four million cars on the road for a population of 1.3 billion. This number paled in comparison to the United States, which had surpassed it in car ownership around 1910.
However, by 2005, car ownership in China had more than tripled, and its streets had transformed accordingly. This rapid increase in car ownership led to two significant problems: a burgeoning dependency on oil imports and a dire pollution crisis.
China’s voracious appetite for oil led it to consume over 13% of the world’s oil while having only 1.5% of the world’s proven oil reserves. Most of this oil was imported from the Middle East, making China vulnerable to supply disruptions and geopolitical tensions. This situation was exacerbated by the fact that much of the imported oil arrived via sea routes patrolled by the U.S. Navy, adding another layer of dependency and risk.
In tandem with its oil problem, China grappled with severe pollution. Air pollution, in particular, was a significant issue, affecting even the wealthiest coastal cities. One estimate suggested that 38% of China’s population lived in areas with air quality deemed “unhealthy” by EPA standards.
These twin challenges—oil dependency and pollution—spurred the Chinese government to promote electric vehicles as a solution. They realized that even if electric cars were charged primarily with electricity generated from coal, they would still produce fewer emissions than traditional internal combustion engines.
China had been trying to catch up with German and Japanese automakers by compelling them to collaborate with local companies. However, instead of merely copying foreign counterparts, Chinese engineers became reliant on them. Recognizing that they couldn’t win this way, the Chinese government decided to create a new race—one in which the head start enjoyed by competitors was actually a disadvantage.
Electric vehicles were the perfect fit for China’s economy. Unlike internal combustion engines, EVs relied on a greater amount of low-skill, low-cost labor rather than small amounts of high-skill, high-cost labor. Essentially, an electric car was a battery wrapped in some packaging, and batteries were commodities whose costs would inevitably decrease with scale. The challenge was sustaining these EV companies until they became profitable.
China’s solution was to stimulate the electric vehicle industry through aggressive purchases. After the 2008 financial crisis, Chinese cities embarked on a spree of buying electric buses and taxis, injecting life into the electric vehicle market. By 2014, Shenzhen had over 1,200 electric buses, and three years later, all 17,000 of its buses were electric.
Then came the subsidies—billions of dollars’ worth. At one point, buyers could save as much as $16,000 when purchasing an EV. However, these subsidies were not the primary driver of EV adoption. A 2016 survey revealed that 52% of respondents said they wouldn’t have bought an EV if it weren’t for the special license plate that came with it.
In many Chinese cities, new license plates were distributed through lotteries or auctions, making them scarce and expensive. For instance, winning the Beijing license plate lottery in 2016 had odds of one in 667. In Shanghai, license plates could fetch prices of $10,000 or more. Moreover, even with a license plate, drivers were often restricted to using their vehicles only on specific days of the week.
However, owning an EV had a significant perk: a special green license plate. No lottery or auction was necessary to obtain it. These green plates granted drivers the freedom to use their vehicles on any day of the week and, in some areas, allowed them to park for free. Consequently, these policies led to a surge in electric vehicle purchases, transforming the automotive landscape in China.
China’s Bold and Innovative Approach to EV Adoption
The rapid adoption of electric vehicles in China was not solely due to subsidies and license plate policies. A series of strategic decisions by the Chinese government also drove it.
In 2016, the Communist Party allowed capitalism to play a more significant role in the industry. Subsidies were gradually phased out, and local governments were prohibited from favoring one company over another. Additionally, Beijing instituted a credit system, mandating that every automaker sell a certain number of EVs for each conventional car produced. Those falling short had to purchase credits from their competitors.
Tesla, a company specializing solely in EVs, emerged as a major beneficiary of this credit system. In 2020, Tesla earned nearly $1.6 billion from selling credits, a substantial sum that significantly contributed to its financial success.
Furthermore, the Chinese government made a pivotal decision by allowing Tesla to build a massive factory in Shanghai without requiring a joint Chinese partner. This move, which marked a departure from decades of nurturing local companies, opened the door for Tesla to gain a dominant position in the Chinese market.
Tesla, with its strong brand and competitive pricing, triggered a price war in the Chinese EV market. This intense competition led to the consolidation of the market, with many smaller companies struggling to survive.
Today, electric cars account for about 40% of new car sales in China. BYD, one of China’s largest EV brands, sells more EVs than the second through seventh-place brands combined. It is poised to outsell Volkswagen in total car sales this year.
In contrast, foreign carmakers such as Ford, Honda, and BMW have seen their dominance in the Chinese market wane. Chinese-made cars are now exported to various countries worldwide, further solidifying China’s position in the global EV market.
America’s Electric Vehicle Challenge
As China continues to lead the electric vehicle revolution, the United States faces significant challenges catching up. The American government has introduced measures to encourage EV adoption, such as tax credits, but several factors make it a formidable task.
First, consumer preferences in the United States differ from those in China. American consumers typically require EVs with longer ranges, reflecting the country’s vast landscapes and car-dependent lifestyle. Chinese consumers, on the other hand, value factors like user interface design more than range.
Second, the United States lacks an established battery industry to rival China’s. China’s support for existing battery companies allowed them to flourish and cater to the growing demand for EVs. In contrast, the United States is starting from scratch in this regard.
Lastly, the most effective policies in China were coercive, involving restrictions on driving days. Such measures would likely be met with significant resistance in the United States, making it challenging to implement similar policies.
Moreover, China’s dominance in the EV supply chain, including lithium, nickel, and cobalt production, presents a significant hurdle for the United States. This global dependency on China for critical raw materials is a reality that cannot be ignored.
The Future of Electric Vehicles: America’s Tough Road Ahead
While the United States is attempting to catch up to China’s electric vehicle dominance, it faces several formidable challenges. These challenges include differing consumer preferences, a lack of an established battery industry, and the difficulty of implementing coercive policies. Despite these hurdles, the United States is making strides toward a more sustainable automotive future.
In conclusion, the rise of electric vehicles in China is a remarkable story of innovation, strategic policy decisions, and rapid transformation. China’s approach to electric vehicle adoption, driven by environmental and economic imperatives, has propelled it to a leadership position in the global EV market. As the world transitions to electric transportation, China’s experience offers valuable lessons for other countries, including the United States, as they navigate their own paths toward a greener automotive future.