22 Jan The Japan Times : China’s EVs may change the world in unimaginable ways

Media Source : The Japan Times

January 7, 2025

The nation’s electric vehicle revolution is reshaping the global automotive landscape

I was in China for a chunk of the holidays. My son was attending a baseball camp in Shanghai — a story in

itself — and the rest of the trip was family stuff.

As always, I was looking for changes since my last visit. One of my metrics is cars: I survey vehicles on the road for some insight into the state of the economy. (It’s crude, idiosyncratic and likely inaccurate, but it keeps me occupied.) A decade ago, for example, most of the beaters — older cars, especially popular among taxis — had vanished. The Shanghai Expo was partially responsible.

A year or so ago, I counted the percentage of luxury foreign cars — BMWs, Mercedes and Lexus — relative to other less pricey brands (VW, Buick or other ornaments I didn’t recognize). There were a lot — often over 50% — of expensive autos on the road.

This trip I didn’t recognize many of the hood/trunk ornaments or names of cars. There were still lots of pricey vehicles on the road but far more were locally manufactured, and according to serious, reliable statistics, they were electric (EV) or hybrid vehicles. In fact, according to official projections, this year EVs will outsell cars with internal combustion engines (ICE) for the first time, a development that puts China’s car market — the world’s biggest — “years ahead of Western rivals.”

That is the conclusion the Financial Times reached after surveying research by leading automobile analysts at banks and research groups. China’s domestic EV sales have been growing about 20% annually and are expected to reach 12 million cars this year, more than double the 5.9 million sold in 2022.

Meanwhile, sales of ICE-powered vehicles are projected to fall more than 10% in 2025 to under 11 million, about 30% less than 2022. If that forecast is correct, EV sales in China will reach 50% of total sales this year, a decade ahead of the target that was set in 2020.

The hunger for EVs has two critical consequences. First, the shift is hammering foreign car sales in China. According to Automobility, a Shanghai-based consultancy, Chinese manufacturers have a 63% share of domestic passenger vehicle sales, an increase of 27% from 2020.

Much of those shifting fortunes reflects the attention to which Chinese manufacturers have devoted to the EV market. China has about 100 EV brands and they claim about 80% of the new electric vehicle market. Five companies, BYD and Tesla among them, account for 60% of the market. They’re energetic and innovative. According to one assessment, Chinese car manufacturers planned to release some 90 new models in the fourth quarter of 2024 and about 90% of them were EVs.

That means that talk by foreign companies about conquering China to finance future opportunities is empty. Chinese companies are reaping the benefits of that vast market and using those sales to move up the value chain. Rather than expecting to dominate China, Western automakers need to prepare for an onslaught of Chinese EVs in their home markets.

Second, rising EV sales means that a lot of China’s ICE capacity is underutilized. This has produced a massive export push, expanding from 1.1 million to 4.9 million units from 2017 to 2023, allowing China to overtake Japan in 2023 to become the world’s largest automobile exporter. More than 75% of those exports are ICE vehicles that Chinese consumers turn up their noses at.

How do we explain this extraordinary reversal, a world in which China is emerging as the leading new EV power? For Chinese manufacturers and officials, the answer is simple: a hard-working, low-cost labor force combined with fierce domestic competition — remember those 90 new models — that squeezes out every inefficiency, government support and a comprehensive supply chain that dramatically lowers production costs.

Foreigners have other explanations. They charge that government subsidies afford Chinese manufacturers an unfair advantage. U.S. Ambassador to China Nicholas Burns explained that “The government of China and the provincial governments are subsidizing the Chinese EV manufacturers so there’s no level playing field, and they take the cars, they sell them below the cost of production into Europe or Brazil or the U.S.”

After a year-long investigation, the European Union concluded that Chinese EV makers “benefit from unfair subsidization, which is causing threat of economic injury to EU producers” and imposed tariffs. Similarly, last September, the U.S. imposed a 100% tariff on Chinese EV imports, a quadrupling of the previous levy.

China denies that its manufacturers enjoy an unfair advantage and insist that all its industrial subsidies are “reasonable and legitimate.” According to a Ministry of Commerce spokesperson, Chinese EV makers “formed their own unique advantages through fierce market competition, including innovation, industrial and supply chains and market.”

Once again, however, new car sales numbers tell only a part of the story — a small part. Just over a year or so ago, I wrote about the transformation of the automobile industry and how major players no longer saw themselves as carmakers, but were becoming “mobility” providers. Central to that shift are new technologies that integrate vehicles into vast digital networks, a transition that China — the world’s largest digital market with 1 billion consumers — is leading.

I didn’t take that analysis nearly far enough. Bill Russo, the head of Automobility, and his colleagues did. As they explain, mobility is the “most visible element and the most frequent touch points of the city service ecosystems.” It’s the “central nervous system” of cities and the enabler of all other activities. Things don’t get done without moving — someone or something — from point A to point B.

Chinese automakers are deeply integrating their products into the digital economy. These aren’t just cars, but intelligent connected vehicles — smart devices that collect information on users, the vehicle and its surroundings. “All the data generated from the vehicle and users can be uploaded to the cloud for analytics to better provide data-enabled services to users in vehicles.” In the process, “China is effectively transforming the traditional product-centric automotive industry business into a services-centric Internet of Mobility business model.”

In this world, the driving experience is no longer the main purchasing criteria. The product — the car — isn’t the biggest moneymaker; instead, it is the services attached to the connected vehicle.

This raises all sorts of questions — some quite troubling — about the data flows that are the enabler of that experience. For example, consider news that data from Tesla charging stations was used to track the man who committed suicide in a Tesla cybertruck in front of the Trump Hotel in Las Vegas last week — helpful for law enforcement, not so comforting for privacy advocates.

A key player in this process is Huawei, the Chinese telecommunications giant. It won’t be making its own car — like Apple, which also flirted with the idea, the company’s leadership has recognized its limits — but it has invested over $5 billion on EV-related research and development. It’s working with several Chinese EV manufacturers, supplying the hardware and software that make cars into connected vehicles. I can’t imagine that the U.S. government, or any of its allies, will be any happier with Huawei ensconced in a domestic auto market any more that it is about having Huawei in a domestic telecommunications grid.

The Automobility analysts go further still, arguing that these smart EVs will be integrated into broader ecosystems and will eventually play vital roles in urban energy systems. They see “a clear development trend extending from the core of smart EV technologies to the fringe areas of the smart grid.”

In this world, EV batteries can be considered discrete components and “Battery as a Service,” or BaaS, and related technologies can turn EVs into mobile energy storage units, with the capacity to not only draw power but feed it back into the grid as well. The ability to communicate with the larger energy network — don’t forget all that data — “enhances grid stability and increases penetration of renewable energy sources, reflecting a transformative shift where EVs contribute to a more resilient and flexible energy management system.”

Once again, the real issue and the most important concern is China’s ability to master a technology that rewrites the social and economic order. It’s a technological feat, a business success, a law enforcement tool, a victory for its political-economic model and a “soft power” coup — China as leader in green tech. None of that ever crossed my mind when I started counting cars.

Brad Glosserman is deputy director of and visiting professor at the Center for Rule-Making Strategies at Tama University as well as senior adviser (nonresident) at Pacific Forum. His latest book, with Gilbert Rozman, “Japan’s Rise as a Regional and Global Power, 2013-2023: A Momentous Decade,” was released over the summer by Routledge.

SOURCE: https://www.japantimes.co.jp/commentary/2025/01/07/world/chinas-evs-can-change-the-world/