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Geopolitics

The G7 vs Chinese EVs: A case of mistaken identity 

Published 14 June 2024 in Geopolitics • 4 min read

Western assumptions about China producing cheap, low-quality electric vehicles are misguided, argues IMD’s Mark Greeven, with the reality being that China is now the world leader in this technology

Western policy concerns about Chinese electric vehicles (EVs) are nothing new. They represent yet another episode in an ongoing trade conflict that is part of a broad rebalancing of global economic and political power.

In these disputes, US and EU policymakers have frequently accused Chinese companies of relying on unfair subsidies, stolen intellectual property, or inappropriate labor practices to overproduce goods that are then dumped on Western markets. This, in turn, undermines domestic industries in the importing states. During China’s economic rise, these critiques were sometimes valid. Extensive Chinese state subsidies of solar panels prior to 2020 did seem to exhibit at least some of these behaviors.

However, assuming that current Chinese advantages in EV production are part of the same story, shows a significant misunderstanding of recent dynamics in the global automobile industry. It also risks missing a possible inflection point in the economic challenge that Chinese companies present to Western counterparts.

Male Asian engineer professional having a discussion standing by the machine in the factory ,two asian coworker brainstorm explaining and solves the process curcuit mother board of the machine
“Because of China’s superior technology and general manufacturing advantages, including better access (for the time being, at least) to the raw materials required to produce EV technology, it is also manufacturing EVs far more cheaply than other countries.”

China simply does it better

Within the context of an overall strategy to green the country, Chinese EVs have benefited from direct and indirect support from both central and local governments. A core element of this policy is to make EVs affordable to the broader Chinese population.

Such support for the vehicle industry is certainly not unheard of in Western countries. This has happened at a national level or within various jurisdictions offering tax breaks and other inducements to attract production facilities.

China’s effort to electrify its own vehicle fleet has involved substantial investment in R&D, bringing a host of technological advances. China’s battery technology, for example, is now the best in the world. More generally, even according to auto executives from other countries, output from Chinese factories is far from low-quality. In reality, they are innovative, high-end vehicles that often outperform German, Japanese, and US competitors, barring Tesla, at least from the consumer’s and technology’s point of view. Because of China’s superior technology and general manufacturing advantages, including better access (for the time being, at least) to the raw materials required to produce EV technology, it is also manufacturing EVs far more cheaply than other countries.

still-life-illustrating-ethics-concept
“Also, raising trade tariffs in Europe and the US does not leave Chinese companies without options.”

A shot in the dark

With this understanding of the situation in China, Western high-tariff policies begin to look misguided. As governments face resistance to the cost of their net-zero plans, it is unwise of them to block consumer access to higher-quality, greener products at lower prices. Moreover, contrary to popular opinion, the Chinese share of EVs in Europe, for instance, is generally low and only a fraction of the total share.

In any case, examples of effective tariffs are few and far between. Instead, the result is often to shelter local firms from competitive pressure, leading to technological stagnation. A situation that we have seen happening in reverse in China is where China’s often rigid policies for foreign companies and sometimes wholesale blocking of companies, such as in the tech sector, have done more harm than help to Chinese competition. A better policy alternative for the longer term is to encourage the development of the local industry and advancing technologies.

Also, raising trade tariffs in Europe and the US does not leave Chinese companies without options. We have already witnessed numerous Chinese EV producers shifting their attention away from Europe and the US to other emerging economies such as Brazil, the Middle East and Southeast Asia. The world is bigger than Western Europe and the US.

Despite the inevitable sound and fury from Western officials, Chinese auto executives are justifiably excited and optimistic that, even in a shifting, unpredictable geopolitical environment, their market-leading product ranges can meet worldwide demand for green transport.

Authors

Mark Greeven

Mark J. Greeven

Professor of Innovation and Strategy at IMD and Chief Executive of IMD China

Mark Greeven is Professor of Innovation and Strategy, and Director of IMD China. As of 1 September 2024 he will be Dean of Asia. He co-directs the Building Digital Ecosystems program and Strategy for Future Readiness programs. Drawing on two decades of experience in research, teaching, and consulting in China, Greeven explores how to organize innovation in a turbulent world. He is ranked on the 2023 Thinkers50 list of global management thinkers.

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