Why are EVs so cheap in China

MIT Technology Review

What does Chinas EV market look like now?

As a result of all this, China now has an outsize domestic demand for EVs: according to a survey from the US consulting company AlixPartners, over 50% of Chinese respondents were considering battery-electric vehicles as their next car in 2021, the highest proportion in the world and two times the global average.

There are a slew of Chinese-built options for these customersincluding BYD, SAIC-GM-Wuling, Geely, Nio, Xpeng, and LiAuto. While the first three are examples of gas-car companies that successfully made the switch to EVs early on, the last three are pure-EV startups that grew from nothing to household names in less than a decade.

And the rise of these companies (and other Chinese tech behemoths) coincided with the rise of a new generation of car buyers who dont see Chinese brands as less prestigious or worse in quality than foreign brands. Because theyve grown up with Alibaba, because theyve grown up with Tencent, they effectively were born into a digital environment, and theyre much more comfortable with Chinese brands versus their parents, who would still rather likely buy a German brand or a Japanese brand, says Tu. The fact that these Chinese brands have sprinkled a little bit of nationalism into their marketing strategy also helps, Tu says.

Can other countries replicate Chinas success?

Many countries are almost certainly now looking at Chinas EV experience and feeling jealous. But it may not be that easy for them to achieve the same success, even if they copy Chinas playbook.

While the US and some countries in Europe meet the objective requirements to supercharge their own EV industries, like technological capability and established supply chains, ICCTs He notes that they also have different political systems. Is this country willing to invest in this sector? Is it willing to give special protection to this industry and let it enjoy an extremely high level of policy priority for a long time? she asks. Thats hard to say.

I think the interesting question is, would a country like India or Brazil be able to replicate this? Mazzocco asks. These countries dont have a traditional auto industry as strong as Chinas, and they also dont have the Chinese governments sophisticated background in handling massive industrial policies through a diverse set of policy tools, including credits, subsidies, land use agreements, tax breaks, and public procurements. But Chinas experience suggests that EVs can be an opportunity for developing countries to leapfrog developed countries.

Its not that you can't replicate it, but China has had decades of experience in leveraging these [systems], says Mazzocco.

Chinese brands are now looking to other markets. What challenges are they facing?

For the first time ever, Chinese EV companies feel they have a chance to expand outside of China and become global brands. Some of them are already entering the European market and even considering coming to the US, despite its saturated market and the sensitive political situation. Chinese gas cars could never have dreamed of that.

Why is Biden blocking the cheapest, most popular EVs in the world?

You cant buy the Seagull in the US. But I bet you wish you could.

A small hatchback around the size of a Mini Cooper, the Seagull is a fast-charging electric car and claims a range of up to 250 miles (at least according to its home countrys generous tests); BYD, its Chinese manufacturer, claims it can go from 30 percent to 80 percent charged in a half-hour using a DC plug. Its hardly a luxury car but its well-equipped, with a power drivers seat and cruise control. If I were looking for an inexpensive commuter car this would be perfect, veteran car journalist John McElroy said after taking a drive.

The best part? Its base model costs about $10,700 in China. Thats about a third of the cost of the cheapest EV you can buy in the US. In South America, its a little pricier, but still fairly affordable, at under $24,000 for a top-trim version. Even in Europe, you can get an entry-level BYD for under 30,000.

These are absolutely screaming deals exactly the kind of products that could turbocharge our transition away from gas and toward electric vehicles.

And its just one of many BYD electric cars on offer, from the compact e2/e3 hatchback and sedan (think a Honda Civic or Toyota Corolla) to the full-size, luxe Han EV, a more expensive option nonetheless selling for under $33,000 in China (it costs more than double that in Europe). Many of the options have an aquatic themed name: the Seal, the Dolphin, the Sea Lion.

The problem for Americans? The Biden administration is hell-bent on preventing you from buying BYDs product, and if Donald Trump returns to office, he is likely to fight it as well.

Thats because the BYD cars are made in China, and both Biden and Trump are committed to an ultranationalist trade policy meant to keep BYDs products out. Theyve seen whats happened in other global markets that Chinese EV companies have entered. Shipments to Europe have increased astronomically; Chinese companies sold 0.5 percent of EVs in Europe in 2019 but theyre already over 9 percent as of last year. Companies like BYD make cheap, reasonably good-quality cars people are eager to buy.

In 2018, Trump imposed, and Biden has since continued, a special 25 percent tax on Chinese-made autos, on top of the ordinary 2.5 percent tax on foreign-made cars.

That has so far prevented BYD and its Chinese peers from trying to enter the US market. US customer tastes are different enough that Chinese manufacturers would probably prefer to make cars tailored to them but US policy has been so hostile toward cheap Chinese EVs that so far, the companies havent wanted to bother.

So, the result is that were left out of the bounty of cheap EV options created by BYD and others. If youre a consumer right now, the best place to be right now is China, because you have the best choice of EVs, Ilaria Mazzocco, senior fellow at the Center for Strategic and International Studies and an expert on Chinese EVs, says.

Still, Chinas price advantage is big enough that even the extreme Trump-Biden import tax might not be enough to deter companies like BYD from entering the US market. Even with the tariffs, Chinese cars might be cheaper than their rivals. Subsidies most likely wont be enough; Mr. Biden will need to impose [more] trade restrictions, climate journalist Robinson Meyer predicted recently. The Biden administration is already making noise about imposing even more draconian taxes or trade restrictions against these vehicles. Commerce Secretary Gina Raimondo has described Chinese-made cars as a national security threat, and recently announced an investigation into the vehicles data collection abilities and the possibility they could send movement data to Beijing.

On the one hand, Biden is offering Americans up to $7,500 per vehicle to buy EVs (provided they meet certain made-in-North America rules). On the other hand, hes imposing massive taxes to keep Americans from buying EVs. Its a bizarre policy that makes no sense from a climate perspective. Thats what makes it so fascinating.

The Chinese EV case is a good demonstration that however motivated the Biden administration might be by climate concerns, it is much more motivated by a desire to help American automakers, to win Michigans electoral votes this November, and to escalate a brewing cold war against China.

It has proven shockingly willing to sabotage its own climate policy if it gets to stick it to the Chinese in the process.

Theres almost an across-the-board apprehension about Chinese EVs, even though they would make an important contribution to [lower] CO2 emissions, Gary Clyde Hufbauer, a veteran trade expert at the Peterson Institute for International Economics, says.

The climate case for Chinese electric cars

John Keeble/Getty Images

The basic environmental argument for electric cars is simple: Burning petroleum in internal combustion engines produces CO2 emissions. Both because some electricity is generated through clean sources like wind, solar, and nuclear, and because electric motors are vastly more efficient than petroleum engines, electric cars emit less per mile traveled.

EVs are slightly more carbon-intensive to manufacture in the first place, but most estimates suggest the lower per-mile emissions of EVs quickly make up for the extra emissions involved in their creation. One recent study calculated the breakeven point at a little under 17,000 miles driven; another study put the number at 21,300 miles. Given that the average American drives 13,500 miles a year, EVs should break even within a couple years of use.

But is this still true for Chinese EVs? China still gets more than 60 percent of its electricity from coal, compared to less than 20 percent in the US. The US instead relies more on gas and renewables, leading to a cleaner grid overall. That means producing EVs and EV batteries in China should, on average, produce more carbon emissions than making them in the US or Europe.

So, does this mean that BYDs cheap EVs are bad for the environment, or at least no better for it than typical gas vehicles? Hardly. Its just sort of a ruse, Anand Gopal, a clean energy and transportation expert and executive director of policy research at the firm Energy Innovation, says. Close to 90 percent of the emissions of a fossil fuel vehicle [are] from the combustion of the fuel. Even if you have slight variations in the manufacturing emissions based on the region, an EV is just going to be massively better.

John Helveston, a professor of engineering at George Washington University who studies the development of electric vehicles, notes that the complex supply chain of even US-made electric cars makes the difference in carbon output of cars produced in different countries pretty minimal.

The biggest factor for China is that they control all the upstream material supply chain for lithium batteries, Helveston says. Even if your EVs battery is built by, say, Panasonic in a plant in the US, the raw materials for that are being processed and refined in China first. Its the same starting point everywhere.

Where exactly in China the EVs are built also matters a lot. We think of China as a really polluting country but its also a very big country, Mazzocco explains. The energy mix really depends on where you are. In western China, for instance, hydropower is very prominent, and aluminum manufacturers have taken advantage. Just because an EV is made in China doesnt mean its made with coal power.

EVs of whatever origin are getting cleaner over time as the electrical grid gets cleaner. This is happening more slowly in China but even there, electricity is getting cleaner. More and more of the energy running your EV will be coming from solar, wind, and other renewables, and less and less will come from coal or natural gas. That means EV adoption will do even more for the environment as the years go on.

If Chinese and American EVs are roughly similar in their environmental impact, they are not roughly similar in price.

Realistically, Helveston argues, BYD might not sell something like the Seagull in the US because its smaller than most cars Americans buy. Theyd probably build plants in the US instead, or its free-trade zone partners Canada and Mexico, to build vehicles tailored for Americans. If youre going to really enter a market, you have to make it locally, Helveston explains. US automakers like GM sell and make millions of cars in China to sell in China. BYD would do the same. Indeed, its already reportedly scouting sites for factories in Mexico.

If they ever were to set up shop in North America, BYD and other Chinese car companies would still have a major price advantage versus American EVs. They have years more experience and a much more successful track record of building batteries and EVs at low cost.

Part of why theyre so successful is theyve been thinking outside the box on cost reduction for a long time, Mazzocco says. They took the opposite of the Tesla approach: starting not with luxury vehicles but ultra-cheap cars fit for taxi fleets and not much else, and constantly improving their early inexpensive prototypes. The result is that Chinese firms have gotten extremely good at making inexpensive EVs, at a time when Ford, by contrast, lost $28,000 for every EV it sold in 2023.

Short of outright selling cars made by Chinese companies, you could imagine partnerships between experienced battery manufacturers like BYD and American EV makers. Id love to see GM and Ford make an affordable EV that has a Chinese battery, Helveston says. Id rather have that than GM and Ford sell cars for $10,000 more than they need to.

If you have more affordable EVs in the United States, no matter where you come from, Gopal says, thats better for the climate.

Still, the Biden administration reportedly wants to restrict Chinese car companies access to the US even if they do set up shop in North America. Bloomberg reported earlier this month that the Biden administration is formulating rules that would limit US sales of Chinese-made parts, even if theyre in vehicles ultimately assembled in the US or Mexico.

You could make a reasonable case that the tariff against Chinese cars is not itself the main factor holding back Chinese EVs from the US, because Americans will want bigger and more luxurious cars than companies like BYD now make. But blocking Chinese companies from building US-targeted cars in Mexico would prevent them from doing that kind of targeting, and cut Americans off from cheap EVs in a lasting way.

The nationalist case against Chinese electric cars

Sjoerd van der Wal/Getty Images

Why isnt the Biden administration salivating at the thought of BYD electric cars flooding the market? Theyre making green vehicles ultra-affordable and doing so at the cost of Chinas taxpayers not Americas. Isnt that what we want?

The pushback isnt about climate at all. Its political.

Over 166,000 people work in car or car-part manufacturing in the state of Michigan, per the most recent data we have; thats more than the margin by which Biden won the state in 2020. Michigan also has a competitive Senate race in 2024, as does Ohio, another car manufacturing hub. If allowing entry to Chinese cars alienates the US auto sector, the political consequences for Biden could be catastrophic.

Using taxes on imports to win elections is a long, proud presidential tradition. George W. Bush slapped tariffs on steel in 2002, in what was widely viewed as a bid for votes in Pennsylvania, Ohio, and West Virginia. To this very day, foreign-built pickup trucks and heavy trucks are unavailable in the US because of a 25 percent tariff Lyndon B. Johnson imposed in 1963, in retaliation for German and French tariffs on US chicken exports. The chicken tax has meant that even foreign companies like Toyota and Honda build trucks intended for the US market in the US. Compared to the chicken tax, the Biden administrations approach feels positively logical.

But the Biden administrations objections to Chinese EVs are also ideological. The Biden administration represents the victory of a protectionist, trade-skeptical wing of the Democratic party that was relegated to the sidelines during the Clinton and Obama years.

As Frank Foer detailed in his book The Last Politician, this faction was brought into the Biden coalition partly through his now-National Security Adviser Jake Sullivan. During the Trump years, Sullivan forged an alliance with the trade-skeptics and broke bread with Elizabeth Warren disciples, labor union officials, and intellectuals from left-leaning think tanks. Sullivan is also, notably, a major China hawk Foer describes him as agreeing with Donald Trump that China is eating our lunch leading to a hostility to trade with the country that meshed easily with that of trade skeptics who have for decades opposed exposing US manufacturing workers to foreign competition.

Sullivan has described this policy as a foreign policy for the middle class. While its possible to defend tariffs against Chinese cars in these terms, and United Auto Workers certainly support higher tariffs, the idea that this policy helps the American middle class overall is laughable. Less than one percent of Americans work in auto or auto-parts manufacturing. But over 90 percent of American households have a car, and surging car prices were a huge contributor to the 20212023 rise in inflation.

Barriers to importing cheap cars make inflation worse and reduce the real incomes of the middle class.

Not only are the administration and other left-leaning institutions opposed to Chinese EVs, but hardline conservatives at places like the Heritage Foundation are calling for outright bans on Chinese EVs as well. Their rationale is security, another theme the Biden administration evokes often. On Thursday, the Commerce Department announced it was beginning a process to investigate the national security risks of PRC-manufactured technology in [internet-connected] vehicles.

Helveston was skeptical of the idea that data collected by Chinese-made vehicles amounts to much in a world where Americans freely tell TikTok all of their interests and desires. Of all the things a Chinese firm could do to collect data on you, your vehicles are probably my least concern, he says. They have a lot of other avenues to learn about you through social media and other techniques. I think its good that theyre doing an investigation, Mazzocco adds, but the dangers are not just China.

Besides, the US could always craft more tailored rules regarding data collection in vehicles that could prevent the data from getting back to BYD headquarters in Shenzhen that fall far short of a draconian ban on even Mexico-made BYD cars, or short of the current 25 percent tariff. Banning an entire car company because of data worries is, to quote Frank Zappa, a bit like treating dandruff with decapitation.

Biden needs to decide if he likes beating climate change more than he wants to beat China

Lars Penning/picture alliance via Getty Images

There are a number of powerful forces pushing the Biden administration to crack down on Chinese-made EVs. They want votes in Michigan. They want to build a US-based supply chain for EVs, and are rightly worried that more experienced Chinese manufacturers are going to clean US manufacturers clock. Their policies seem to suggest they care more about cultivating the auto workers union than about ensuring cars are inexpensive.

But given the clear climate advantage of EVs over gasoline cars, and the clear advantages China has in making affordable EVs compared to American companies, its worth rethinking that set of priorities.

The US unemployment is 3.7 percent, which is about as low as its been since the early 1950s. We are not in a position where we desperately need to create new jobs. We are in a situation where we desperately need to transition away from fossil fuels. Its an ideal situation, in other words, for cheap foreign-made electric cars.

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