Electrifying China’s Roads

By Alvin Mak

The Chinese electric vehicles industry is driving toward a more environmentally-friendly world.

Though oil might still dominate the world, such change has been enacted in the past decade that few can disagree with the prediction that soon enough, motor vehicles will exclusively be powered by electricity. 

The environmental consequences of our heavy reliance on gas-powered vehicles have prompted the beginning of the shift towards more sustainable mobility. Brands such as Tesla and BMW have been at the forefront of this transition, changing the equation between transportation and the environment. 

These transitions have clearly inspired others as well. More and more futuristic-looking electric-powered vehicles along with their high-tech charging stations have been appearing all over the globe. For example, both Audi and Mercedes have recently released their all-electric SUV models: the E-Tron and the EQC, respectively. 

One of the most significant regions embracing this shift is China. Accounting for 10% of all retail sales, the prominence of its motor industry owes much of its success to the sheer population of the country. In fact, it aims to have electric vehicles (EVs) make up a quarter of all car sales in China by 2025. 

The Chinese motor industry has somehow shifted to take advantage of the country’s massive potential. But with the COVID-19 pandemic limiting purchasing power, and ride-hailing startups like DiDi Chuxing taking away from auto sales, the current market is far from simple supply and demand. 

Regulation

China has received a fair share of criticism from the international community concerning its seeming disregard for environmental sustainability. Its infamously high levels of smog are generated by its astronomical driving population in addition to its industrial activities. 

The issue of air pollution in Chinese cities achieved such international notoriety that the government was thus prompted to roll out its famous road space rationing policy—the “Even-Odd” rule, where cars would be barred from roads based on the last number of their license plate. Even-ending licenses would be forbidden on one day and odd-ending plates would stay home the next. 

However, with China’s initial adoption of EVs, its government now possesses another method to leverage their climate sustainability efforts. As a result, not only are EVs exempt from “Even-Odd” policies, but they’re also 50% cheaper to register, exempt from consumption and sales tax, and subsidized by the state (all EVs with a range north of 250km are eligible for a $2600 subsidy)

Not to mention, the state is mandating the production of EVs. Each Chinese car provider is required that at least 12%  of their output constitutes electric vehicles, regardless of whether they are manufactured in-house or imported.

It is unsurprising that with such vast government regulation subsidizing and encouraging the production of EVs, the industry would be more than happy to continue growing in the country. 

Tesla and CATL

Any story on EVs would be fundamentally incomplete without the discussion of Tesla, and China’s narrative is no different.

Sales of Tesla cars in China have climbed by 161% since 2016. Spurring this along, the Tesla Model 3 has been ruled exempt from a 10% sales tax by the Chinese state, leading to the company’s 30% capitalization (and domination) of the entire Chinese EV market

As a result of the ongoing U.S.-China trade war, tariffs on American goods have almost doubled the price tags of imported Teslas. In response, Musk constructed a Tesla “Gigafactory” in Shanghai to build its highly-sought-after electric vehicles locally. Even without operating at full capacity, the newly opened production hub churns out over 3,000 cars a week, continuously pumping more product into the Chinese market. 

30% of all of the Gigafactory’s parts are currently sourced from China; the company plans on reaching 100% by the end of 2020. To achieve this, Tesla partnered with Chinese company CATL to source one of Tesla’s most important and technically complex parts: its battery. 

CATL is based in Ningde, China, specializes in manufacturing lithium-ion batteries for EVs. It has become the biggest battery manufacturer in the world in recent years. With 5,400 R&D employees and 143 PhDs among them, it is at the forefront of battery innovation and manufacturing and showing no signs of stopping, as evidenced by an added 50% toward R&D spending just last year

The results of such a fevered push toward optimization is evident, given the company’s recent announcement of a cell that lasts a mind-blowing 16 years

Through the company’s partnership with Tesla, CATL will dedicate itself to building Tesla’s Model 3 batteries. Some reports have indicated a potential resulting price drop between $600 and $1200 for the Model 3. 

NIO and XPeng

China’s EV industry also offers its own fleet of fresh competition for Tesla, with it’s most famous being NIO. 

The motor company specializes in electric vehicle innovation. Based in Shanghai, it has been leading the charge for Chinese EV companies. Its delivery of vehicles in June 2020 saw an increase of 179% from 12 months prior. The company boasts a 25.4% month-on-month growth rate in delivery numbers. 

The largest gripe most people have with electric vehicles is their infamously long charging times. To put things into perspective, it can take a Tesla between an hour to a whopping 12 hours to fully recharge its cell. NIO, on the other hand, pioneers EV ingenuity with its innovative NIO Power Swap feature, which cuts down charging times by a margin never seen before. Instead of having to wait an hour for a NIO ES6 to fully recharge itself, NIO Power Swap modules (scattered over 58 Chinese cities) are able to swap out and replace dead ES6 cells with fully charged ones in a mere three minutes

NIO has also made headlines by winning the “Best of Best” award in the 2020 Automotive Brand Contest with its ES6. It has also partnered with reputable brands such as Razer to deliver limited exclusives. This goes even without mentioning the development of the EP9—an electric hypercar which holds track records at the Circuit of the Americas and the famed Nurburgring Nordschleife

The company is proving its legitimacy day in and day out as a reputable producer of high quality EVs, but NIO’s domestic competitor, XPeng, is also a formidable challenger. 

Based in Guangzhou, the EV manufacturer managed to raise $400 million last year. XPeng’s EVs are equipped with voice-control systems and automatic parking. Both its G3 and P7 models are also fully compatible with third-party charging stations to cut down charging inconveniences. 

XPeng also opened an all new factory in Guangdong, which will be responsible for rolling out its newly-released P7 EV sedan model. The startup is looking to continue its growth into the Chinese EV market and to prepare for an IPO in the US. 

NIO and XPeng continuously demonstrate their eagerness to tap into the EV market. Yet, questions have risen regarding the sustainability of the industry – and rightly so, especially during a global pandemic. 

COVID-19

Overall motor vehicle sales dropped by 42.4% as the country faced the outbreak of COVID-19. The production of EVs in China fell by 60% in the first quarter of 2020. Sales of the alternative energy vehicles also plummeted by 56.4%

As people feel concerned about their incomes, their businesses, major discretionary purchases like buying a new car will no doubt be impacted,” said Rupert Mitchel, Chief Strategy Officer of Chinese EV company WM Motor.

Despite these doubts and shocking first quarter numbers, the Chinese EV industry is showing signs of a strong recovery. NIO achieved record sales in May 2020 even with the onslaught of the pandemic. The introduction of NIO’s upgraded ES8 SUV model resulted in an increase in sales north of 200%. 

VW Injection

If there is any indicator for a possible bright future for the market, it’s in Volkswagen’s sizeable injection of capital into the ecosystem just last month. 

The German motor conglomerate invested more than €2 billion (US$2.3 billion) to enlarge its presence in China’s EV industry. The company will also make a separate investment worth €1.1 billion (US$1.25 billion) in Shenzhen-listed battery cell manufacturer Gotion. The 26% acquisition will see a further development of the Chinese battery industry beyond CATL. 

VW also increased its holdings in an EV joint venture with Chinese motor company JAC Automotive Group. VW will consequently take a 50% stake in previously state-controlled JAC’s parent company Anhui Jianghuai Automotive Group to shift production efforts to Anhui—the future locus of Chinese EV production. 

Not only is VW’s capital investment likely to lead to the further stimulation of China’s EV industry, but the Chinese state is targeting to have EVs comprise 25% of 2025’s annual vehicle deliveries, a move which is likely to do the same. 

At the end of the day, it’s evident that China’s EV market is far from lacking in numbers. NIO and XPeng are a small sample of a plethora of companies that are diligently discovering new ways to make EVs in China more viable than ever. 

Battery R&D companies such as CATL are also simultaneously powering the advancement of these motor companies. Moreover, Tesla’s early-mover advantage introduced millions of Chinese people to the future of electric vehicles and ultimately contributed to the industry’s growth. 

These innovative developers, coupled with the EV-friendly regulation environment, together have the potential to propel China’s market for electric-powered mobility towards unprecedented growth. Not only will China grow to finally compete with traditional European car manufacturers, but its alternative energy vehicles will more importantly guide the world in taking a small, yet important, step towards climate friendliness and environmental sustainability – something the world desperately needs. 

Header image by Vlad Tchompalov on Unsplash

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