Features
9 nov 22

What do ‘price wars’ mean for the Chinese EV industry?

The first quarter of 2022 saw 2.4 million electric vehicles (EVs) delivered to customers in China, making the country the largest and fastest-growing EV market in the world. After Tesla’s price cut announcement in late October, the dynamics in the Chinese market reached a new high. 

How China became so tech-savvy in EVs and how the manufacturing capacity soared to millions of vehicles per year are two important questions underlying the current dynamics and the competition in the market. 

Eventually, reaching the technical know-how and high production capacity didn’t happen overnight but kicked-off decades ago, as APAC expert Baran Gumusel explained to Global Fleet: 

“The Chinese strategy during the transition to an open market was to set an obligation for foreign companies to form a joint venture. China wanted to access the internal combustion engine (ICE) technical know-how through this. But it didn’t take long for them to realise that trying to surpass a knowledge accumulated over 100 years was almost pointless.” 

So, China took advantage of its rare mineral supplies and focused on the next big thing: EVs. Over the years, the Chinese passenger auto market was kind of split into two between foreign and local companies. While foreign automakers like Volkswagen and Toyota grabbed around 60% of the passenger car market, local companies, including BYD, Geely and Xpeng, dominated the EV market, says Gumusel. Then, the evolution of the Chinese EV market entered a new phase in 2014. 

The Tesla era in China 

As the local EV industry and battery manufacturers grew, China didn’t waste time in establishing ties with the rising star on the other side of the ocean. Tesla delivered the first EVs to the Chinese market in 2014, but under high shipment costs, tariffs and taxes. In 2018, China’s National Development and Reform Commission lifted the joint venture obligation for Tesla, announcing an unprecedented privilege for a foreign EV maker. 

“While VW has been operating in China for around 40 years, Tesla is the first automaker to enter the Chinese market by bypassing the joint venture obligation. China didn’t need to learn anything more from Tesla but wanted to increase the local EV output. While doing this, Tesla used Chinese minerals and batteries,” says Gumusel. 

Only a year later, Tesla’s Shanghai Gigafactory began production, and in 2021, the Chinese battery giant CATL signed a supply deal with Tesla until 2025. 

The pandemic period vindicated the special relationship between Tesla and China. While most of the production and supply chain was temporarily halted, the Chinese government provided transportation for Tesla employees and set up all necessary hygiene measures in the gigafactory. While other foreign automakers were struggling, the Shanghai Gigafactory began production in March 2021, up to 3,000 vehicles per week, according to Cleantechnica. 

Like Apple sweeping the smartphone market in the early 2010s, Tesla continued to penetrate the Chinese market, delivering 83,135 EVs in September 2022, breaking its monthly record. 

Competition entering a new phase 

Despite exclusive support from the Chinese government, Tesla faces strong competition and problems in the Chinese market, which influenced the price cut and revised retail strategy: 

  • Local carmakers, including Chery, Geely, BYD and GAC, are increasing their market share, BYD surpassing Tesla in worldwide EV sales in 2022. 
  • Many complaints about the lack of after-sales services pushed Tesla to shift focus to repair services,
  • Many showrooms in big cities are being closed, and after-sales services are being pushed to suburbs to satisfy customers. 

SMR (Service, Maintenance and Repair) is another segment in competition, where Nio is rising through a door-to-door service, picking up EVs for repairs and bringing them back when the repair is done. 

Ride-hailing to go fully electric

The shifting supply chain routes and the zero-Covid policy are still causing obstacles for the automakers in China, and the waiting times for new vehicles are expected to remain long for a while, despite the increase in EV output.

On the other hand, battery-swapping technology and several incentives in big Chinese cities are rapidly electrifying taxi fleets. According to the BBC, one incentive in Liuzhou is allowing EV owners to drive in bus lanes and providing free parking spaces. As ride-hailing services favour the battery-swapping technology over gas stations, it seems it won’t take long for mobility services to get electrified. 

Main image: Shutterstock
The in-article photo shows Baran Gumusel.

Authored by: Mufit Yilmaz Gokmen