How China Has Overtaken US in The EV Race
China has overtaken the US when it comes to the electric vehicle (EV) industry. A recent article from Michael Schuman of The Atlantic mentioned that the Chinese government's many benefits and affordability of EVs has fueled the meteoric rise of the industry in China, as opposed to their US counterparts. In the article, Schuman mentioned that these benefits were the result of China's state capitalism, or "socialism with Chinese characteristics", as the Chinese government would put it.
State capitalism, a term defined by Joshua Kurlantzick, in his aptly named book, is a "combination of traditional state economic planning and elements of free-market competition". This means that the state has some control over an industry to drive it in its best interests - a definition Schuman agrees with. He mentioned in his article how China "rewrites the rules of how countries and companies compete in the global economy" by bending entire markets to a degree that's unacceptable in the US free-market economy. This came in the form of offers on funding and protection for "nascent, high-tech industries", as Schuman puts it.
XPeng Motors, or Xiaopeng Motors, is one of China's start-up electric automobile companies, established thanks to China's state capitalism. Brian Gu, vice chairman of XPeng, told Schuman in an interview that the Chinese government is "a lot more open" to innovative business ideas. This means companies such as XPeng has a lot more freedom to push forward with their company's research and test their technologies. For those not in the know, XPeng is one of the start-up electric automobile companies that was established thanks to China's state capitalism.
Another benefit of China's state capitalism is the fact that the government can directly support industries. In XPeng's case, the company signed a US$700 million investment fund that was linked to the company's hometown, Guangzhou. The investment fund, along with the company acquiring preferential terms on land, low-interest loans and tax breaks, made the company's EVs a lot cheaper to sell to the public. Since the company's EVs are cheaper (e.g. XPeng's P7 starts from 229,900 yuan), more people can afford to buy one than a Tesla Model 3 (250,900 yuan), which was the most popular EV in China in 2020.
To combat China's superiority in the EV market, US President Joe Biden wants to pass the American Jobs Plan, which was designed to transform the US' infrastructure, boost its manufacturing capacity and create jobs that don't require a bachelor's degree. Biden, in his speech during his visit to Ford Rouge Electric Vehicle Centre in Dearborn, Michigan, stressed that China is the fastest-growing EV market in the world and that they have a bigger manufacturing scale than all other countries.
"Folks, the rest of the world is moving fast. They’re moving ahead. They’re not waiting for the United States of America. Government, labour, industry — working together — have to step up. And we have a playbook that will work," Biden said, referring to the American Jobs Plan.
In addition to the American Jobs Plan, Biden plans to add new purchasing incentives for consumers to buy clean vehicles in America as well as provide grants, loans and tax credits to kickstart the production of new batteries and parts, in addition to boosting the production of clean vehicles.
The European Union (EU) isn't standing idly by, either. According to the Wall Street Journal's William Boston, the EU is buying electric vehicles at a record pace and even has taken China's place as the world's biggest EV market. This is due to government subsidies, incentives and an explosion in the number of new EV and hybrid car models from European car brands like Volkswagen and BMW at the right time. The tightening emissions requirements also gave Europeans more reasons to buy their very own EV.
However, they might not hold the title for long. Arndt Ellinghorstm, an auto analyst at Bernstein Research, said that the European market is "extremely sensitive to government and company discounts", and that once the subsidies are taken away, EV sales will collapse by 30 to 40 per cent for one or two quarters at least.
Written by John Paul Joaquin