BERLIN – Electric vehicles (EVs) are the future of the auto industry. That has been a widely held assumption for a while, but it is only in the past year that it has become clear how big a lead Chinese automakers have opened in the field. Chinese-made cars now not only dominate their home market, the world’s largest, but are also being exported in growing numbers.

In addition to the lower cost and advanced technology of made-in-China cars, the country has also come to dominate the EV supply chain in ways that will make it difficult for manufacturers elsewhere to close the gap. Analysts have warned that Western automakers could lose a quarter of their market share because of the rise of cheaper Chinese EVs.

1. How big is China’s EV industry?

Chinese brands account for about half of all EVs sold globally. Chinese companies have succeeded in taking domestic market share from former leaders such as Volkswagen, while home-grown champion BYD, the top brand within China, sold more cars than Tesla in the fourth quarter of 2023 to become the world’s biggest EV company.

China’s consumers are going electric in large numbers: EVs accounted for a quarter of all new passenger car sales there in 2022, a figure that had risen to 37 per cent in September.

UBS analysts predicted that China’s global market share will almost double to 33 per cent by 2030, while traditional Western carmakers will see their share fall to 58 per cent from 81 per cent in 2023. They also estimated that in 2023, BYD had a 25 per cent cost advantage over North American and European brands.

2. What’s China’s advantage?

China’s predominance is most pronounced in batteries, the most expensive part of an EV. More than 80 per cent of EV battery cells are made in China, backed by a supply chain that is increasingly putting the mining and processing of component minerals such as lithium, cobalt, manganese and rare earth metals in the country’s hands.

The cost of batteries in China has dropped to US$126 (S$167) per kilowatt-hour on a volume-weighted average basis, while packs are priced 11 per cent higher in the United States and 20 per cent higher in Europe, according to BloombergNEF.

In the meantime, Chinese manufacturers are already unveiling a new generation of batteries that rely on sodium, which is more abundant than the lithium now used in EV batteries, and less prone to catch fire.

3. What kinds of subsidies does China provide?

Consumer subsidies: A national programme that ran for a decade before ending in 2022 discounted EV prices by as much as 60,000 yuan (S$11,200). Many local governments continue to dole out rebates of up to 10,000 yuan.

Manufacturer subsidies: Direct government support helped launch more than 500 EV makers. That led to explosive growth and falling prices, followed by significant consolidation.

Infrastructure: Widely accessible, government-subsidised charging stations using standardised plugs reduce drivers’ costs and ease range anxiety. China had 6.36 million EV chargers at the end of May 2023. Car companies there have also opened hundreds of stations where spent batteries can be quickly swopped for charged ones.

4. What has this meant to other manufacturers?

In 2023, tough competition in China’s domestic auto market and the slowdown of its economy led to pressure to sell elsewhere, and the country exported 825,000 EVs in the first nine months, a 110 per cent jump over the same period in 2022. Chinese exports have gone mostly to Europe, where subsidies to consumers are available on imported as well as domestically made cars. Chinese brands, led by BYD and Nio, saw their European market share jump to 5.6 per cent in the first half of 2023 from 1.1 per cent in 2020.

In September, the European Union opened a probe into China’s state subsidies of EV makers. The US has also offered subsidies, but the expanded tax credits in President Joe Biden’s Inflation Reduction Act (IRA) are limited to cars built in North America with components mainly made domestically. The US also places tariffs of 25 per cent on Chinese car imports, compared with 10 per cent in Europe.

5. What are other countries doing in response?

In the year after the passage of the IRA, investments totalling US$55.1 billion for US battery manufacturing were announced, along with US$16.1 billion for EV factories. While that eventually will produce a wave of EV capacity, the immediate effect was limited, in part because so many carmakers rushing to ramp up production have had to rely on Chinese technology that only 13 models now in production are eligible for IRA purchase subsidies.

Since the IRA was passed, Germany, France and Spain have announced a flurry of their own tax credits and aid packages for EV investments. European automakers including Volkswagen, Stellantis and Renault are retooling their car factories to transition to EVs. They are planning to launch dozens of new battery-powered models in the coming years and are setting up battery plants – either alone or with partners – as they shift away from the internal combustion engine.

South Korea expanded a subsidy programme as EV sales slowed in the face of a sagging economy. BLOOMBERG