How China took over the global EV market - Asia Specific podcast, BBC World Service

As oil prices remain high, are people shifting to electric cars in Asia? In China, already, more than half the cars sold these days are EVs or hybrids, and Chinese carmakers have been dominating the market, and they're now starting to set up factories in Southeast Asia. So do foreign carmakers stand any chance of competing against Chinese brands? I'm Mariko in Singapore and this is Asia Specific from the BBC World Service.

Twice a week we bring you Asia Pacific stories. unpacked by those who know them best. And today I have Hannah Miao, who is the China economy reporter for the Wall Street Journal. I also have Theo Leggett, who is the BBC's transport correspondent, joining me from London. Welcome both. Thanks for having us. Pleasure to be here. So, Hannah, let's start with you. I think a general narrative. since the war in Iran started at the end of February. is that China has been the kind of economic beneficiary of this conflict.

Do you think that's true? In some ways, yes. The biggest part of that is that the war is really causing a lot. of countries around the world to rethink renewable energy and see that. in situations where gas and oil supplies are being restricted, that renewable energy actually is, from a security standpoint, perhaps a good idea, and they're rushing to build up their capabilities there.

And China is really the world leader in those sorts of technologies. So we're seeing a lot more interest in Chinese renewable energy products. On electric cars, Chinese carmakers have gone from good and rising a couple of years ago. to almost dominant in the world. Where exactly is China at with its EVs, Hannah? I wouldn't say almost dominant. I would say definitely dominant.

The International Energy Agency estimates that China controls. more than 70% of EV production in the world. So we are seeing Chinese car makers becoming top selling EV brands. across the entire world, and it's just expected to continue in this regard. And Chinese carmakers are really now emphasising a push abroad. They're going global. And this is kind of the next frontier for Chinese car makers.

Theo, do you think with high petrol prices, this could be. the turning point where EV adoption goes wild, even outside of China? I think to be honest, Mariko, we've already passed that point. EV adoption has been growing and growing rapidly around the world. It's depended to a certain extent on the incentives offered by national governments. You can see in markets where there have been big tax incentives.

Sales have been higher than where they're not offered. But what we've seen over the past few years is more and more EVs being sold. That has brought the prices down and expanded the market. And then over the past couple of years in particular, you've seen a big expansion of exports from the likes of BYD and Chery, which has increased the number of affordable EVs on the market, and that's been expanding sales. So even here in the UK, for example, last month, the best selling car on the market was the Jaecoo 7 and Jaecoo,

it's a Chery brand. It's only been in the UK for a little over a year. So that's a very dramatic increase. But with some countries still getting their electricity from fossil fuel, how green are EVs, Hannah? Well, I think that's why perhaps China also really focused. on renewable energy sources as it also saw EVs as a strategic sector. So China is also extremely dominant in solar power and wind power.

So that is one way in which they're seeing the transition to. a more low carbon future. I agree with Hannah on this one. I mean, you have to see these as part of an ecosystem. And that's certainly what China has done since 2015. As part of the Made in China 2025 initiative, focusing on renewable energies, including electric cars. and electric car is as clean as the electricity you put into it, but it is also, by its nature, a storage device.

So if you have wind power, if you have solar power, it's actually. a great way to use it because you can store that electricity in cars. And if you have some of the more advanced vehicle to grid technologies, for example, and smart charging, you can integrate electric cars. into your power grid and that can help you to clean your power grid as well. And also, I would just add to that, even not just thinking. about carbon emissions, but in terms of security, Coal is often,

you know, countries often have their own coal supplies. They don't have to import oil and gas. And so in times like these where the energy supply is under pressure, then coal can be a bit more of a secure power source. Even if it's not a low carbon power source. I was reading how Chinese carmakers are now starting to set up factories. in countries like Thailand, across Southeast Asia. Traditionally, Japanese, Korean carmakers have done that. So is China a kind of a new player,

or is China now leading the race in this part of the world, Hannah? Definitely Chinese carmakers are gaining a lot of ground in Southeast Asia. As you mentioned, Japan, traditionally this has been a stronghold for them. And it really depends on, again, as Theo mentioned, those incentives. for governments to establish EV manufacturing in their countries. Thailand, for example, has a really strong policy to try. to build up their country as an EV manufacturing hub.

So we've seen several Chinese carmakers set up there. And oftentimes it's because they want to access those markets as well for consumer markets. And governments are introducing policies that require certain amounts. to be made locally, not just importing Chinese cars. They want to build up their industrial capabilities as well. So we've seen that. We've seen Chinese carmakers gaining ground. in Malaysia and Indonesia or trying to expand there.

Vietnam is kind of interesting because we have VinFast, which is a local incumbent, and they're really dominant in the EV space there. So EV adoption has accelerated quite a bit in Vietnam, but the Chinese carmakers are still lagging behind VinFast there. So I guess a lot of Asian governments. are trying to attract Chinese investments, you know, having factories opening in their countries. But how has it been in terms of demand for EVs, particularly Chinese EVs in Southeast Asia?

We've seen in a lot of markets growing demand for EVs. In Singapore, for example, I believe last year, BYD was. the top car seller in all the country. And yeah, it really depends on when the government is offering. certain incentives for consumers, tax breaks, that sort of thing. That definitely helps spark that consumer demand. But really, I think especially in areas of Southeast Asia. that are a bit lower income, the it comes down to price.

Theo, I was reading an interesting story about Malaysia, how BYD wants to build a factory there. But according to reports, the government there wants to set a rule. where 80% of cars made at that factory must be exported. And for those sold in Malaysia, they want the price to be minimum. BYD hasn't publicly commented about this, but it seems like Malaysia wants China's tech and investments,

but they don't want cheaper cars to flood the market. Yes. And I think this is the kind of trade off. and debate that we're seeing with Chinese exports around the world. Countries do want Chinese brands to come and set up factories. because factories create economic opportunities. They can create jobs. But countries don't want their markets to be dominated by cheap import, by cheap Chinese cars, either. But I have to say, in this kind of issue,

the Chinese manufacturers have a little bit more power. I think they're the ones with the opportunity to bring in work. I'm just wondering how companies like BYD grow so quickly, so significantly, to become one of the global leaders, if not the global leader. How did China do this? And how did other countries like Japan or South Korea Didn't do this, Hannah? I think what happened is China really took a bet.

that they saw EVs as the future. And starting around 2009, they started introducing subsidies. It's just an example of how China's industrial policy. has really supported these sectors. And what typically happens is Beijing sets the agenda. So they'll say these are the sectors that we see as being important. And local governments often are then competing with each other. to try to attract companies and try to grow some sort.

of national champion in whatever strategic sector. And that's really what we saw in the EV sector. And China also supported EV companies by having government procurement. They would buy these vehicles for public transportation, and it was also strategic in how it used foreign investment. So for example, Tesla, they saw Tesla. as a company that could help develop their local EV ecosystem. So Beijing actually changed a rule where before you could,

you could only invest in China if you were doing a joint venture. And Tesla didn't want to do that. And they kind of changed the rules. for Tesla because they thought Tesla could help develop the supplier system. And that's exactly what happened. And China was very strategic about wanting to support batteries, which are such a critical part of EV making. And so there are certain rules, such as in order to get subsidies, you had to use domestically made batteries. So that helped companies like CATL become. the global leader that we've seen today.

I think the competition has been absolutely key. Competition in the Chinese market over the past few years has been ruthless, and it's led to a situation where Chinese car manufacturers can develop a new car within a couple of years. Now, in the rest of the world, the legacy car makers, the established carmakers have been used to a fairly comfortable. research design developed system that takes about seven years. So all of a sudden you've got these Chinese brands,

which have learned to develop cars quickly. in the Chinese market where competition has been cutthroat. Now moving on to international markets, because the Chinese market is overcrowded, and it's really difficult for the established car makers to keep pace. because they don't have that mentality. It's interesting you both talk about domestic competition, cutthroat competition, but I remember both the US. and European countries accusing Chinese government for subsidising so much.

to make it make car makers be able to produce affordable cars. How true was that accusation, Theo? Well, there's no doubt that manufacturers in China have enjoyed. quite comfortable conditions for doing business. So tax breaks, good investment opportunities, a lot of government. support the argument from China is that if other manufacturers want to come. into China, they would benefit from the same things.

And obviously Tesla was invited in. But when it comes to the rest of the world, there are complaints now. that Chinese brands have unfairly benefited from subsidies. and that those benefits are now distorting the market outside China. The Chinese brands are treading quite carefully on this one. So, for example, BYD has not come to Europe and suddenly cut prices in half. It's priced its products at a low level,

but along with the other budget prospects in the market. So it hasn't sought to undercut existing players by a great deal. And that's to avoid the kind of things that we've already seen in Europe, actually, which is extra duties being put. on Chinese imports, because that would be the response. And we've seen that in the United States as well. Hannah, has the Chinese government responded to this kind of accusation. of unfair advantage that were given to those Chinese companies?

I think China always maintains that, you know, it's doing things that are supporting its industries. I think the view is that, well, other countries could also support their industries with policies as well, and that they've pushed back quite a bit on this acquisition of over capacity, which Europe, us often bring up in relation to Chinese exports. So it's a bit of a sensitive area, I would say. But I think the view from many Chinese businesses is, well,

if the products are good, if consumers like them, then what's the issue? Of course, from other governments, the problem is, is this going to hurt local industries? How do we balance the consideration of wanting to provide best products. for our customers and our residents, but also supporting from the business standpoint? Do you think it's possible for any other country's car makers to compete. against the Chinese manufacturers.

given the advantage and the dominance that they have. and I guess the environment that they've enjoyed? I think there has to be an effort to avoid complacency. Legacy car makers have been stuck in a particular way. of doing business for a long time. So if you look at Germany, for example, every year, traditionally there's been a round of pay talks between management and unions. and everybody gets together in a room and then they decide. that this is the pay increase that they're going to get this year, and everybody's happy and they go away.

And prices for the vehicles are set in accordance. with, you know, how much money it all costs. Now, the German car industry is coming under pressure, in part because of imports from China that are cheaper. And they've realised they can't go around doing things like that anymore. So now instead you get talk of factory closures, laying off more staff, trying to make the businesses leaner. And there's also the kind of models that they're producing. When European manufacturers first started looking at electric cars, they went for the high end electric cars,

the luxury models, because that's where the profit is. But the Chinese, particularly BYD, have been more interested. in the budget end of the market in order to get market share. So BYD brought out the Seagull, which in Europe is the Dolphin Surf, and they've started to sell that. And it's been proving quite popular. So they've been looking at the whole market, not just the top end. of the market. My personal opinion is. that Chinese brands will rapidly develop a significant stake.

in markets around the world, where they're allowed to do so. And if you look at the United States because of tariffs, it's a different matter. But they won't take over because others will respond, will react, as will national governments. I think there's a realisation that it is quite a formidable challenge. I think there was a report recently. that the Honda CEO went to China recently and visited some suppliers, and he said something along the lines of we can't beat this. But I also don't think, as Theo mentioned, these brands are going.

to just let China take over and do nothing about it. And so I think this will really reinvigorate a lot. of competition among the foreign carmakers. And we've already been seeing, you know, as Theo mentioned, certain foreign carmakers, you know, really investing in China, doing more R&D there, trying to glean insights from how things are done there. that they can kind of take and bring into their entire operations. And the other thing is that, as we mentioned, the competition in China is so cutthroat right now. It is still a question of how many of these car brands will actually survive.

The competition is so tough. that a lot of car companies had to do price wars last year. Profit margins are just exceedingly low. And BYD, for example, being such a global leader, it's actually not doing as well in China. So there's still a big question about who will come out on top internally. And that obviously has bearings for the global market as well. Which Chinese car makers will survive this sort of competition?

And Theo, we've been talking about how Chinese companies have managed. to not only offer much more affordable cars, but also at a much faster pace. What has this meant for consumers? In terms of consumers, this has quite simply been a benefit. because you've had the results of that cutthroat competition in China, the kind of technologies that Chinese brands are able to produce.

at a low price now spreading onto global markets, which means legacy car makers are also having to raise their game. So for the consumer, effectively, you're getting better cars. and better kit at lower price. Irrespective of who you buy it from. So the benefits that we're seeing from competition in China are spreading out. And ultimately it means that as electric cars go mainstream, they're getting a lot better than they were just a few years ago.

It's not that long ago that if you wanted an electric car. that could charge quickly and had high performance, you had to have a Tesla. That is no longer the case. And if you look at the kind of interior kit, the quality of electric cars that are on the market now, it's far superior from what it was just two or three years ago. And then we hear about things like very rapid charging being brought in. BYD has been making a splash with that lately. All of this, it's very, very rapid progress. And that means that electric cars become more desirable.

And that means ultimately sales will increase and probably increase exponentially. So where would this go if this conflict comes down, if oil, petrol prices come down? Do you think the demand for EVs continues? And has China practically cemented its dominance in this market? Let's start with you, Hannah. I think EV demand will continue to grow. The big question for me is the US, because that is where we have seen a lot of the incentives.

that the Biden administration, for example, offered for EVs fall off. So what's really stopping a lot of American consumers. for going for EVs is the pricing. It's just quite expensive. But, you know, if there is a situation where Chinese EVs are allowed. into the US, I think that could really shake up EV adoption in the US. But that seems to me to be quite a big question mark on global EV demand. But in general, I think the conflict has only reinforced why there is.

a draw to low carbon products. Well, outside of the United States, as Hannah's saying, EV adoption was increasing before the conflict. I think the conflict has shown just how serious our reliance. on fossil fuel products from the Middle East has been. It's provided an incentive both for consumers to look at other options. So perhaps to consider electric cars more than they might otherwise have done, but also.

for governments to think we don't want to be in this situation again. Therefore, perhaps we need to promote EVs a little bit more, so we might see them being more amenable to providing subsidies for EV buyers. And we're getting quite a lot of confusion about tariffs. in the United States as well, aren't we? Theo and Hannah, thank you so much for joining me today. Thanks so much for having us. Thank you for having me. You've been watching Asia Specific from the BBC World Service.

with me, Mariko Oi in Singapore. If you have any questions or thoughts on what we covered in this episode. or any other stories from the region, please leave us a comment below. You can also get in touch with us on Email asiaspecific@bbc.co.uk. and click like and subscribe so you never miss an episode. See you next time.