China’s lead in electric vehicles is unassailable – the Global North simply can’t compete
- China has the supply chains, better tech and cheaper costs that keep on falling
- Trade barriers would only force the world into two prices for one product – where the cheaper one is also likely to be better
The rapid expansion and innovation of China’s electric vehicle industry has made EVs more affordable for the world. As more EVs become cheaper than cars that use internal combustion engines (ICEs), the climate-friendly choice is also becoming an economical one.
As EV production costs fall in China, it is only a matter of time before the vehicles become much cheaper than ICE cars.
The EV industry is probably the first major modern industry that China is leading, similar to Japan’s leadership in electronics in the 1980s. The EV supply chain is mostly in China so its EV prices, other than reflecting the costs of imported materials, also reflect the cost of labour in China. Without a technological edge, EV makers in the Global North will have a hard time overcoming China’s cost advantage.
Countries in the Global North will find it very hard to compete against the rise in Chinese EVs. Their policy is still mainly to subsidise the buying of uneconomic EVs against the ICE alternatives. Their EV supply chains are incomplete and costly.
Given how the carmaking sector is critical to so many of their economies, they are likely to erect trade barriers against Chinese EVs. Some Western companies may continue to sell EVs made with Chinese components, as some already do. But it is likely that politics will catch up sooner or later with this loophole.
This is one industry in which China simply won’t lose its lead. Even if the Global North manages to set up an EV supply chain, costs could be twice as high as China’s. The world is moving towards two prices for one product – except in this case, the cheaper one is also likely to be better.
Legacy carmakers have argued that EV adoption in the Global South would be slow because of the poor charging infrastructure. But low EV prices are likely to stimulate solutions, especially as the mass adoption of EVs can insulate the Global South from the volatility in oil prices.
For many places in the Global South, transport is a relatively clean slate – and cheaper and more secure options are always attractive. Mass adoption of cheap and affordable EVs could greatly boost mobility, enhancing workforce productivity.
The relative simplicity of making EVs, compared to ICE cars, also opens up opportunities for emerging economies to join the game. The spread of the EV-making industry in the Global South would be a direct economic boost. China will also benefit as emerging EV makers in the region import batteries and other key components from China.
Within five years, China’s car market is likely to mostly comprise sales of EVs. The impact of this on global carmakers that have long relied on Chinese customers will be severe. Some may go bust.
Three decades ago, the Chinese government embraced the strategy of partnering global companies with Chinese state-owned enterprises to develop its carmaking industry. That strategy didn’t do so well. Instead, some private companies that rose in the electronics industry pivoted successfully to the EV market.
This should be a lesson about the effectiveness of industrial policy or political preference for state ownership. Private companies work best in a highly competitive and fast-evolving market.
Two decades ago, I wrote that 50 million cars would soon be on China’s newly built highways, seen as hyperbole at the time. There are now more than 250 million cars on China’s roads. And China is ready to supply the world with its EVs, sporting the latest technology and, soon, maybe even price tags from the 1980s.
Andy Xie in an independent economist