What’s inside Chinese electric cars and why they cost less

Chinese automakers promoting green cars as part of Xi Jinping’s eco-sustainable ambitions have enjoyed a series of state incentives that have little appeal outside the Great Wall of China. The transition to environmental protection comes at a high cost to all: industry, consumers, and governments (Chinese and Western).

esla was also the queen of electric car sales in 2023. But Elon Musk’s company is in danger of losing the crown. Before long, its rival BYD could wear it. The Chinese giant in the last quarter of 2023 overtook Tesla in electric vehicle sales, with 526,409 units sold compared to the U.S. automaker’s 484507.This is a historic achievement that underscores China’s strength in the field of New Energy Vehicles, or electric and plug-in hybrid cars. Of course, when looking at the full 2023 Tesla remains the world leader, with 1.82 million units sold versus BYD’s 1.6 million electric vehicles, mainly in China (+21.9 percent in 2023).

The realization of an (all-Chinese) dream

Dozens of innovative local brands have emerged in China in recent years, competing with foreign manufacturers struggling to adapt. BYD’s growth is therefore impressive and disturbing the sleep of its competitors. Globally, the Chinese company ended 2023 with 3.02 million units sold (up 62 percent over 2022), of which 1.6 million were electric and 1.4 million plug-in hybrids. And it is within the confines of the Great Wall that BYD finds its strength: the Chinese giant produces batteries for cars, cell phones, buses, trains, and solar panels on site.

BYD entered the automotive sector in 2003, after nearly a decade in the cell phone battery market. As the company name suggests (BYD stands for Build your dreams), BYD is the realization of founder Wang Chuanfu’s dream of becoming the number one green car manufacturer. A goal achieved in a short period of time, the key to BYD’s success is the production of lithium batteries using local resources. Beijing manufactures 77% of the world’s battery cells (7% in Europe as a whole), and China dominates 58% of lithium refining, 65% of cobalt refining, and 35% of nickel refining.

According to Bernstein analysts, BYD’s batteries are the cheapest in the world and have nearly the highest energy density, leading to improved vehicle performance. This is an attractive factor for buyers, given that batteries account for about 40% of the cost of an electric vehicle.

Chinese government concessions that few like

The Shenzhen-based company, promoting green vehicles that are part of Xi Jinping’s environmentally sustainable ambitions, has enjoyed a series of state incentives that worry Brussels. Thanks to state subsidies, it is the European Commission’s contention, companies can significantly reduce production and assembly costs, placing cars on the market at lower prices than competing manufacturers. Beijing also provides incentives for buyers. When Tesla a year ago decided to reduce the prices of its cars, triggering a race to the bottom for electric cars, the Chinese government unexpectedly decided to extend until 2027 the period of the provision of a tax break on the purchase of new energy vehicles. Beijing’s measures have alarmed the European Commission, which is launching an anti-subsidy investigation into electric vehicles from China, considering the introduction of tariffs to limit the damage to the European industry (conclusions will come next November).

According to Commission estimates, Chinese brands such as BYD, Nio, and Xpeng have already captured 8 percent of the European electric car market in 2023, up from 4 in 2021, and could rise to 15 percent in 2025. The volume could increase in the coming years thanks to a move by some Chinese companies that are already thinking of ways to circumvent the duties currently being studied by Brussels. The behemoth BYD has signed an agreement with Hungary to build a plant at the Szeged location in the south of the country while already looking to Mexico to target U.S. consumers.

The uncertain future of the automotive industry

Now the future of the global automotive industry is at the center of a battle between the United States, the EU and China fought over subsidies. At the moment, Germany has come out on top-despite opposition from many European countries-with the Commission’s green light to invest 902 million euros of public funds to build a battery plant for electric vehicles in the country, to be fully operational from 2026. In response to criticism from EU bloc countries, German Vice Chancellor Robert Habeck said that “the real competition we are facing is not between Germany or Italy, or between Denmark and the Netherlands, but between the EU and China or the United States.” The reference goes to Washington, which has passed the Inflation Reduction Act, a maxi subsidy plan aimed precisely at creating an electric car supply chain (not Chinese) all in North America by planking with the Canadians and Mexicans.

La possibilità che le aziende automobilistiche cinesi sbarchino negli Stati Uniti e in Europa ha allarmato i governi occidentali. Tuttavia, diversi analisti hanno rassicurato Washington e Bruxelles sul fatto che i gruppi automobilistici cinesi potrebbero perdere il sostegno statale di cui godono in Cina se producono veicoli elettrici al di fuori della Grande Muraglia. La transizione ecologica avrà un costo elevato per tutti: industria, consumatori e governi (cinesi e occidentali).

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