A new energy vehicle on an automated production line at an assembly factory of Lynk&Co, a Chinese automobile brand, in Yuyao, Zhejiang Province, on 11 April

Within some 40 hours, Elon Musk’s high-calibre whirlwind trip to Beijing and Shanghai from 30 May to 1 June saw him meeting with high-ranking Chinese officials, in addition to visiting his electric car company Tesla’s Gigafactory. He also had in-person discussion with Robin Zeng, the founder of electric vehicle (EV) battery maker Contemporary Amperex Technology Co. Ltd. 

As Tesla is expanding in the Chinese market and beyond, so too are its Chinese counterparts, leading to China’s rise to become the world’s largest auto exporter.   

Conjoined twins  

In the first quarter of this year, Tesla sold 267,171 Model Ys, of which 94,469 were sold in China, accounting for nearly 30 percent of its total sales, higher than 83,664 in the United States and 71,114 in Europe, according to data from market research firm JATO. 

Wealth management brokerage Wedbushtech analyst Dan Ives said in a note that China remains a vital market for Tesla on both the supply and demand front. Industry statistics showed that Shanghai factory’s annual capacity has surpassed 1 million vehicles, and its products are selling not only in the Chinese domestic market but also overseas. The plant currently produces several versions of Model Y and Model 3 sedans. 

Eyeing the opportunities, Musk continues to bet on the Chinese market, announcing in April that Tesla will build a new mega factory in Shanghai, dedicated to manufacturing the company’s energy-storage product Megapack. The new plant is scheduled to break ground in the third quarter of this year and start production in the second quarter of 2024. 

By 2022, Tesla Shanghai had over 95 percent localised supply chain, which ensures that production takes place as quickly as possible at a lower cost. It has actively promoted the growth of local parts companies, which has boosted the growth of the industry as a whole, laying a solid foundation for China’s new energy vehicle (NEV) development. 

As Musk noted in his meeting with Chinese State Councillor and Foreign Minister Qin Gang on 30 May, the interests of China and the US are interlinked, like “conjoined twins” inseparable from each other. The entry of the US carmaker is considered a boon for China, giving rise to a “catfish effect” in the Chinese NEV market - the effect a strong competitor has in causing the weak to better themselves. 

Chinese domestic brands have sped up their technological upgrading to compete with the EV giant in the same pool. Startups such as NIO, Li Auto, Xpeng, Leapmotor and Hozon Auto have thrived over the years while traditional carmakers have also developed hot-selling NEVs. 

Musk must have felt “sorry” for mocking BYD, now the world’s largest EV maker by sales, for trying to compete with Tesla years ago, given the Chinese brand has been selling more cars globally than Tesla since 2022. “BYD is highly competitive these days,” Musk tweeted in May. 

“China’s NEV industry has seen high-speed growth since 2021 and shifted from policy-driven to market-oriented growth,” Liu Zongwei, a researcher with the Tsinghua Automotive Strategy Research Institute, told Economic Daily. The Chinese government ended its subsidies for NEV purchases in 2022, a practice that had been in place since 2009 to boost the sector’s development.   

Trending now 

China became the world’s No.1 NEV exporter in 2021, selling 310,000 NEVs overseas, registering a 3-time growth year on year, and in 2022, the exports more than doubled to 670,000, according to the China Association of Automobile Manufacturers. Its momentum is on the rise. 

From January to April, Chinese automakers exported 1.37 million automobiles, including 348,000 NEVs, up 170 percent year on year. Partly because of the sector’s rapid expansion, China overtook Japan to become the world’s largest automobile exporter in the first quarter of this year. 

Chinese NEV brands have long held a competitive edge in electrification and smart driving, given the government’s support and their devotion to research and development, said Yao Zhipeng, a manager of smart car funds with Beijing-based Harvest Fund. The improvement of the domestic industrial chain in recent years has also fuelled their explosive growth, he added. That’s why Chinese brands are now able to establish a presence in European markets like Belgium, the United Kingdom and Germany. 

Yin Tongyue, chairman of Chery Automobile Co. Ltd., an automaker manufacturing both gas-fuelled cars and NEVs based in Wuhu, Anhui Province, believes NEVs represent the future of the global auto-making industry. As the NEV industry shifts from policy-driven to market-led growth, the government needs to continue its support in multiple areas including charging stations and piles, Yin said. 

Like China, countries around the world have turned their eyes to the trendy industry, which indicates a blue ocean opportunity. According to the latest annual Global Electric Vehicle Outlook released by the International Energy Agency (IEA), more than 10 million electric cars were sold worldwide in 2022 and sales are expected to grow by another 35 percent this year to reach 14 million. 

This explosive growth means electric cars’ share of the overall car market rose from around 4 percent in 2020 to 14 percent in 2022 and is set to increase further to 18 percent this year, based on the latest IEA projections. 

“The trends we are witnessing have significant implications for global oil demand. The internal combustion engine has gone unrivalled for over a century, but EVs are changing the status quo. By 2030, they will avoid the need for at least 5 million barrels of oil a day. Cars are just the first wave. Electric buses and trucks will follow soon,” IEA’s Executive Director Fatih Birol said recently. 

To secure China’s position as the world’s largest auto exporter, Yin called on Chinese carmakers to work more closely together with overseas partners and share benefits with them. It is also important for Chinese brands going international to localise themselves and contribute to the development of local economies as responsible corporate citizens. 

Yin’s vision is shared by many of his counterparts. Companies including BYD and Hozon have begun establishing NEV key parts production bases in Thailand; Great Wall Motor Co. Ltd.’s factory in Brazil, intended to produce EVs, is expected to go into use next year. 

Over the years, China has become a significant growth driver in the global NEV market. In the future, whether it can ride the tide in the blue ocean as always, only time will tell.