A Tale of Two E-Mobilities
Why the EU shouldn’t interpret the Chinese booming e-car market as evidence of China’s interest in climate protection
- The main motivations for China to invest in electric vehicles (EV) are to reduce the risks of energy dependency and to accomplish industry leapfrogging, strengthening its domestic automotive sector.
- Unlike in Europe, climate change is not among the primary factors considered by Chinese EV consumers, who view smart functions as the key feature of e-cars.
- The car of the future will invariably take the route from electrification to smartness, bringing disruptive changes in the global automotive industry, though there is a lack of holistic awareness among the general public and decision makers in Europe.
- Reviewing China’s e-mobility from an ecological point of view, pollution from the production process and power battery waste have become pressing threats to the environment, while energy from coal remains the most prevalent source of electricity.
In Europe, e-mobility is first and foremost framed in climate change terms. Take Germany, the car nation, as an example: expanding e-car production is seen as a core element of Germany’s climate protection policies. Germany’s federal government has promised that “for Germany to reach its climate goals, we will see seven to ten million e-cars on Germany’s roads by 2030.”
When Germany was discovered to have missed its target of one million e-cars by 2020, the Federal Government became the butt of public criticism.
The Chinese government, by contrast, has been outstandingly successful with their e-car campaign. In 2020, 1.3 million new e-cars were registered in China, and since 2015 China has been the largest e-car market in the world. German government websites express their awe and admiration at this resounding success, acknowledging that “China might be the second largest producer of greenhouse gases globally,” but that it “has – under Xi Jinping’s adage of the ‘ecological civilization’ – registered a series of environmental policy achievements.” As evidence, China is highlighted as an e-mobility pioneer.
While the dynamics of e-mobility in China warrant closer analysis, it makes little sense for Europeans to continue to view this phenomenon through their own lens. There is a straightforward fact that counters the climate protection framing: in the 1990s, when China decided to build its e-car industry, the international community was still years from negotiating a broad consensus and specific goals in response to climate change. This article reviews China’s energy security strategy, industrial policy, consumer habits and investment trends to shed some light on the internal mechanisms of Chinese e-mobility and to suggest how the EU might reassess its own policies.
Energy Security Done Right
From the perspective of national strategy, China has promoted e-cars first and foremost to “reduce reliance on oil imports and to guarantee national energy security.”
For the EU, too, energy security is a major argument in favor of e-mobility. However, researchers critical of the EU’s approach have noted that “for years, the apparent smoothness of energy provision made ‘energy security’ a secondary priority in Europe.” For a long time, the term in itself was rather associated with affordability, with EU policymakers focusing on ecological and technological factorsmore than geopolitics. Until 2014, when the Crimean crisis exposed the vulnerability of the EU’s energy sector.
By contrast, China always views energy dependency as a threat to national security. The Chinese describe their own energy resources as ‘rich in coal, poor in oil and gas’ (富煤贫油少气). Against the backdrop of the swift expansion of the automotive sector, China’s reliance on foreign oil increased equally rapidly, now being at 70% of total oil consumption. More than half of oil exports to China are from the Middle East, Africa and Southeast Asia, with four fifths of the imported oil passing through the Strait of Malacca. This has become known as China’s ‘Malacca Dilemma’ (马六甲困境). In 2003, then-PRC President Hu Jintao defined oil as a core aspect of China’s national economic security, and demanded measures be taken proactively to ensure national energy security as part of a new comprehensive strategy.
This perspective on energy, infused with a sense of crisis, has persisted under Xi Jinping. In 2014, for example, Xi held a meeting on energy security strategies at which he highlighted that energy security is a comprehensive, strategic issue affecting national economic and societal development. He went on that to safeguard national energy security, energy production and consumption must be revolutionized.
In a nutshell, the understanding of PRC policymakers vis-à-vis energy issues by no means follows neoliberal thinking, which suggests leaving everything to market regulation. Beijing’s policies to push the development of non-combustion engine cars needs to be understood within this framework, too. There are in fact debates in China about the actual contribution of the electrification of cars to energy saving, e.g. if e-cars merely shift energy consumption and pollution to the side of energy production. Does the energy conversion efficiency ‘from well to wheel’ truly surpass that of petrol and diesel? How are we to deal with the pollution from used batteries? Nevertheless, as one scholar put it:
“Even if total energy consumption and the use cost increase, and car performance decreases, we ‘have no choice’ but to develop new energy sources for cars in order to be able to respond to disruptions to oil imports and to leave the oil for other sectors to use, especially those who find it hard to identify alternatives to oil.”
“It’s the Economy“
The development of alternative energies for transport is only one element within the PRC’s energy security strategy. Centering in on China’s industrial policy, which is the key incentive here, the aim is to achieve ‘leapfrogging'. There is general consensus within the industry that if China had a mature automotive sector based on combustion technology, things would have panned out rather differently.
In the 1990s, international carmakers began to set up joint ventures one after the other. China hoped to offer its market to the outside world to obtain technology and strengthen domestic automotive industry in return, a tactic that is termed ‘technology transfer in exchange for market access’ (以市场换技术). However, while China’s market for personal cars was growing fast, it seemed difficult to achieve the goal of making the Chinese manufacturers strong and competitive. In 1994, China issued its Automotive Industry Policy (汽车工业产业政策), emphasizing a shift towards domestic production and improving international competitiveness. Simultaneously, according to the policy, the state “encourage[d] the development of novel fuels and new power cars.” In 1998, China’s state-owned FAW Group attempted to develop electric passenger cars. Against this backdrop, Wan Gang’s return to China was crucial to the promotion of China’s new energy vehicle (NEV) production policies.
Wan Gang has well-established links to the German automotive realm. Wan arrived in Germany in the '80s to study towards a PhD, then worked for Audi from 1991 onwards. After he returned to China in 1999 on an exploratory visit, he wrote to the PRC State Council calling on them to make China’s automotive industry leapfrog to the development of e-cars. That same year, he returned to Shanghai’s Tongji University to chair the university’s New Energy Vehicle Engineering Centre (新能源汽车工程中心). In 2001, he became head of the key electric vehicle project within the so-called ‘863 Program’ (China’s national high tech R&D plan initiated in March 1986). At the project’s launch ceremony, he said:
“Assume China lags 20 years behind the rest of the world in conventional combustion engines, for talking’s sake, then we only lag four or five years behind in the e-car sector. With that in mind, were we to focus on developing a new generation of cars and realize industrialization as a strategic measure to promote leapfrogging in China’s automotive industry, we could likely occupy the commanding heights in a fresh round of competition, gaining a beneficial position and improve the global competitiveness of China’s automotive sector.”
The year 2001 is seen as the point where China’s e-cars began to take flight. A group of experts led by Wan Gang proposed an overall R&D concept known as “Three Verticals, Three Horizontals”(三纵三横). Vertically, it envisaged fuel cell vehicles, hybrid and fully electric cars. Multi-energy powertrain control systems, engines and its control systems, as well as power battery technology were identified as the Three Horizontals. In 2004, Beijing issued the new Automobile Industry Development Policy (汽车工业发展政策), “to proactively expand research into new power technology such as e-cars and automotive batteries and to industrialize them, focusing on hybrid car and car diesel engine technology.”
In the decade after that, the development of Chinese e-cars has chiefly relied on a range of governmental industry support and consumption stimulus policies. In 2008, for instance, Wan Gang, who had just become Minister of Science and Technology, launched the ‘Ten Cities, Thousand Vehicles’ program as a first step to promote NEVs in the public service sector across ten large cities. In April 2009, China began to provide subsidies for the purchase of NEVs whereby carmakers reduced the sales price in line with the total subsidies provided. Data compiled by the Chinese media shows that within 10 years, China’s central and local governments provided a total of RMB 160 billion (approx. €21 billion) in subsidies to the NEV sector.
The State’s aggressive policies on the one hand incentivized some manufacturers to resort to deception to get their hands on subsidies. On the other hand, it acted as a catalyst for the development of a large number of domestic companies that were glad to take on the associated risks - be that in the production of entire cars or spare parts - this way galvanizing the development of the full production chain. By means of example, BYD, which had started out as an OEM battery manufacturer in the ‘90s, launched the production of e-cars in 2003, with its NEVs topping the rankings in global sales for six consecutive years (from 2014 to 2019).
Beijing’s e-car promotion policies further include charging stations, tax incentives and free licenses in larger cities where a limited number of license plates are issued.
Yet, despite large-scale government support, as long as battery technology remains inconsistent, Chinese consumers remain skeptical regarding the safety of NEVs. Even though e-car sales figures are increasing, they remain insignificant in the context of annual car sales overall. In 2013, for instance, the total sales of NEVs (including pure electric vehicles and plug-in hybrids) was lower than 18,000 units, while the total number of vehicles sold that year reached 20 million. Since 2014, Tesla has been operating on the Chinese market, triggering a tremendous catfish effect and arousing interest in e-cars among Chinese consumers who have the necessary purchasing power.
Chinese Dream Meets American Dream
In April 2014, Elon Musk first set foot on Chinese soil to participate in the delivery ceremony of the first batch of Tesla Model S cars in Beijing and Shanghai. Chinese media reported that owing to the passion of the spectators, the situation on site was at times chaotic.
The first Chinese Tesla owners were mostly the nouveau riche (土豪) of China’s internet industry, such as Sina Corp CEO Cao Guowei and Xiaomi’s founder Lei Jun. The bashful young gentleman in the picture below is Li Xiang, 33 years old at the time and the founder of Autohome, which is said to be the largest car platform in the world. At the time the picture was taken, his company had already been listed in the US. In 2015, he created the e-car brand Li Auto, for which he secured venture capital from tech companies such as ByteDance. In 2020, there were over 30,000 Li Auto e-cars on Chinese roads, and Li Xiang is known as an ambitious entrepreneur aiming to become China’s Elon Musk.
It can be said that Musk’s China trip marked the point where China’s new money encountered America’s new money. His wealth growing at breakneck speed, his SpaceX rocket program, his unbridled passion for work and his assertiveness on social media have made Musk a personality China’s internet generation strongly identify with.
At the same time, this China trip was also the beginning of close contact between Tesla and Chinese officials. In Beijing, Musk met with Wan Gang, Minister of Science and Technology. In 2017, he met with Wang Yang, Vice Premier of the State Council. In 2018, the Chinese government declared that foreign investment in NEV manufacturing was not subject to the ‘50% minimum’ clause, under which Chinese shareholders must hold at least 50% of total shares. Soon after, Tesla announced it would build a super factory in Shanghai.
As an academic analysis of China’s internal combustion engine manufacturing from a few years back suggests, Shanghai has been most successful in encouraging multinational companies to localize production in China. Decision makers defined joint ventures as a focus in order to promote the local economy and invested a great amount of capital to support spare part suppliers. Between 1987 and 1997, the share of locally produced spare parts at Shanghai Volkswagen increased from 2.7% to 92.9%, and the number of local suppliers from 18 to 248. Tesla’s Shanghai factory has continued in the same vein; the localization rate of Model 3 and Model Y produced in China has reportedly reached 90%.
This shift towards a greater share in domestic production has led to decreased prices – the Model 3 was sold at RMB 600,000 (approx. €78,000) at the earliest stage when it was still imported and is now sold at RMB 250,000 (approx. €33,000). The Chinese urban middle class has become Tesla’s main consumer group. Car insurance data shows that buyers of Teslas produced domestically in China in 2020 were almost exclusively living in China’s first and second tier cities, with the five main cities being Shanghai, Shenzhen, Beijing, Hangzhou and Guangzhou. In all of these metropolises, there are strict restrictions on the issuing of new car registration plates, and at the same time they are home to high-tech companies and tech-savvy middle-class dwellers.
In terms of sales volume, however, the SAIC-Wuling MINI quickly replaced the Model 3 as the top seller in the monthly rankings soon after it was brought to market in July 2020, with nearly 130,000 MINIs sold in the space of half a year. Its sales price starts at a mere €3,800 without airbags and rear anti-collision beams. Notwithstanding, it became popular as the ‘people’s car’ (人民的汽车). Sales are concentrated around the Shandong and Guangxi provinces, the latter is where the car is produced.
In recent years, urbanization in China has seen the creation of a number of smaller fourth and fifth tier cities. These cities lack the municipal transport infrastructure found in metropolises. At the same time, the salary of local residents is considerably lower, making them more price-aware. Since over 50% of China’s energy provision is produced from coal, China’s electricity prices are among the lowest in the world, while petrol is relatively expensive taking residents’ income into account. According to media calculations, Wuling’s MINI costs less than €0,01 in electricity per km. Moreover, it does not require a charging station to recharge but can be plugged into a regular household 220V socket, which is a major selling point. Thus, such an inexpensive e-car has become the ideal means of transport in the daily lives of the general public. In addition, young people in first tier cities, too, are now among the main customers buying this car: through appealing colors, the use of popular social media apps and sales methods such as a car body spray-painting competition, the Wuling Hongguang MINI has attracted this group of people. As Wuling’s director of marketing said, “the MINI has been positioned as a fashionable fast-moving consumer good.”
As many studies have noted, Chinese “consumers tend to focus more on the instrumentality and symbolic effects of car ownership, while environmental effect is not among the primary factors considered by Chinese consumers when purchasing a car.” This, too, applies in the age of smart cars.
When Wuling’s MINI also captured Shanghai’s NEV market, something intriguing happened: car plates for combustion engines started costing as much as €12,000, while NEVs are provided with free special license plates. The MINI has therefore attracted the attention of young people and families looking to buy a second car. Nevertheless, car plates have not been issued in Shanghai for this car since May 2021. Local media reported that the Shanghai Municipal Government is about to issue new regulations requiring the purchase price of the car to be over RMB 100,000 (approx. €13,000) and to be of a length of over 4.6 meters to qualify for an NEV license plate.. The official document is yet to be published, however Wuling MINI has in the interim suspended sales in Shanghai. On social media, the Shanghai government’s decision has been met with criticism and sarcasm, arguing that this policy is discriminatory. At the same time, people have tried to make sense of the rumor that the car has to be over 4.6 meters in length. Early this year, Volkswagen launched the sale of the ID.4, the company’s first BEV made in China. This SUV is produced in two editions by both FAW Volkswagen and SAIC Volkswagen, with the appearance of the two differing slightly: FAW Volkswagen’s car is 4.59 meters in length, while SAIC’s edition from Shanghai is 4.61 meters.
Data Is the New Oil
Regardless whether the Shanghai government intends to issue this policy to protect SAIC Volkswagen’s new product, sales of the ID.4 in China appear to be subpar for now. In May 2021, the two editions together only reached 1,213 deliveries. According to a Reuters report, under sale stress, Volkswagen has suggested staff members buy ID.4s. The sales figures increased to 2,900 in June, which still falls far short of initial hopes, in sharp contrast to the model’s success on the European market.
The Chinese media and the industry have commonly assessed ID.4 as ‘electric but not smart.’ For instance, Li Xiang, owner of Li Auto, mocked the model on social media, saying that the car emphasizes all the elements conventional car makers care about, but that new car-making leaders do not consider relevant at all. In particular, ID.4 was criticized for lack of over-the-air (OTA) technology to download new software updates from remote servers and upgrade the system. This July, Volkswagen announced that it will be launching OTA updates for its ID EVs.
According to the “2020 China's New-Energy Vehicle Sector Report” published in February 2020, nearly 90% of Chinese users consider smart functions when purchasing a car, trusting that smart hardware and autonomous driving are advantageous. It can be said that the Chinese market has shifted from understanding e-cars in terms of electrification to smartness.
In early 2021, several Chinese tech firms started ‘making cars across sector boundaries’: three internet giants with a combined market value of US $1.4 trillion – Alibaba, Tencent and Baidu – have made palpable progress in manufacturing cars. The competition in software and data is becoming the new racetrack of the automotive industry.
On 13 January, Zhiji Motor Technology, a cooperation between the Alibaba Group and SAIC, released a new model a mere 20 days after registration of the new brand. The initial round of financing for this project achieved RMB 10 billion, and the company may opt for an IPO in the future. Within this project, the Alibaba Group and SAIC work with the government of Shanghai’s Pudong New District. Alibaba provides the smart internet system for the cars, SAIC the car manufacturing expertise, and the Pudong New District government the land. Since 2018, Alibaba has been building an autonomous driving cloud platform, establishing a complete set of systems for data collection, data labeling, simulation, model training and evaluation.
On 19 January, Tencent and Geely Automobile signed a strategic cooperation plan. As reported by Xinhua, this cooperation is “the best interpretation of bringing together cars and the internet.” The two intend to create the next generation of smart cockpits, opening up service scenarios connecting through mobile phone and car applications to create in-car and service ecosystems which can evolve sustainably. At the same time, they have launched R&D and applications to support autonomous driving and cloud platforms, and have promoted better relevant standards and regulations.
On 18 February, Baidu and Geely Automobile founded a joint venture. Baidu has seven years’ experience with autonomous driving technology, and its Apollo project is China’s largest open-source platform for autonomous driving. The new company plans to invest RMB 50 billion (approx. €6.5 billion) in the next five years and to launch the first car with a high degree of autonomous driving technology (L4) that can also be mass-produced.
Since this May, Baidu has also launched driverless robotaxis in several big cities across China, in cooperation with the state-owned carmaker BAIC, aiming to reach 3 million users in 30 cities by 2023.
In the report “Technology Roadmap for Intelligent-Connected Vehicles 2.0” (智能网联汽车技术路线图2.0) published in November 2020, the National Innovation Center of Intelligent and Connected Vehicles under the aegis of China’s Ministry of Industry and Information Technology laid out the timeline for mass-production of autonomous cars: by 2025, the country should realize application of conditional autonomous driving technology (L3) at scale, and by 2030, the application of highly autonomous technology (L4) at scale.
Contrasted with conventional cars, the key focus of the new generation of cars will be the smart cockpit, and hidden in it a series of industrial technologies already tried and tested in the internet sector, such as chips, software, data and AI. Car manufacturing today means using the core technologies of the internet to create new open interactive tools to make the car “smart” in its truest sense. China’s internet businesses jump at the opportunity one after the other and have become the driving force in the future development of cars in China by having software define the car. Simultaneously, the income from sales and upgrading of software will become a central profit model.
In fact, prior to directly entering car manufacturing, Chinese internet companies had started to invest in the e-car sector as early as 2014. Holding tremendous funds, they are big players in the Chinese venture capital industry and saw new investment opportunities. Between 2014 and 2018, China saw over 300 newly registered companies entering the automotive manufacturing sector. Yet, by 2020, less than 10% of them survived. Whether it be NIO, which is already listed in the US, XPeng Motors backed by Alibaba Group, or Weltmeister invested in by Tencent and Baidu, all of them are desperately burning money.