Demystifying the Chinese EV market

Transcript

Announcer: Latitude Media, podcasts at the Frontier of Climate Technology.

Shayle Kann: I'm Shayle Kann. And this is Catalyst.

TP Huang: With the Chinese automakers, you tend to see a lot more of big screens and treating the car not as a car, but rather as a mobile home where you have entertainment system. People can watch TVs, they can take commands and do their work from the car. A lot of people even have a fridge in the car and they're eating and cooking and stuff like that.

Shayle Kann: This week, fridges inside of cars, $14,000 electric vehicles. Public charging every kilometer. Yep, we're going to China.

I'm Shale Kann. I invest in revolutionary climate technologies at Energy Impact Partners. Welcome. Well, I find the way that we talk about Chinese electric vehicles here in the U.S. so interesting. We hear about the market in China for EVs and what they call NEVs, which is new energy vehicles includes plugin hybrids. We hear about the market booming and we know, I think, it's a combination of everything from luxury vehicles, which by the way includes Tesla prominently, but also a bunch of homegrown manufacturers in China, down to the very other end of the market where there are super, super cheap electric vehicles, like really, really cheap.

And apparently we're afraid enough of those vehicles taking over the US market that we impose massive tariffs on their import here. But I at least haven't really heard anybody talk in any real detail about how the Chinese electric vehicle market is structured, what's working, what isn't, who are the big players there, what's the infrastructure like, what's driving all of this growth?

So I wanted to see if we could fix that. And I brought on TP Huang, who has been monitoring the Chinese EV sector pretty closely since, as he has said BYD first popped onto his radar in 2008. He writes a Substack also that I find really informative on this topic. Though I should note that for family reasons as he says he uses a pseudonym, so TP is not his real name. So some real cloak and dagger stuff over here at Catalyst this week. Anyway, here's TP Huang. TP welcome.

TP Huang: Thanks for having me.

Shayle Kann: Let's talk about the electric vehicle market in China. I'm very excited to have this conversation because I hear these big top line numbers, but I honestly have no idea what's actually going on the ground there. So let's start with the high level. Give me just a sense of where are we at in the transition to electric vehicles in the Chinese market?

TP Huang: So the Chinese market is kind of interesting in that I would say there was always a government push to transition the auto industry from ICE to EVs, but it really got a jolt when Teslas opened up their factory in Shanghai and that brought more of a premium field to EVs in China, amounts of Chinese consumers. And then I would say probably around 2021 and 2022, that's when things really took off in terms of EV sales in China. And since then we've basically just been seeing in the last couple of years the penetration rate for the EV continually climbing. And we're getting to the point now where we're seeing weekly registrations of EVs or they actually call NEVs for new energy vehicle, which include the plugin hybrids also. But we're seeing that number exceed the internal combustion engine cars for the first time.

Shayle Kann: So over 50% of new vehicle registrations are NEVs right now in China. And just to contrast that, I don't know the number including plugin hybrids in the United States, but certainly if it's just EVs, I think we're in the 8% to 10% of new vehicle registrations range. So you're saying it's over 50% currently for new vehicles in China.

TP Huang: And I think we just hit that mark recently. So it's been a very interesting climb and you can see it as more and more consumers realize that the internal combustion engines are kind of losing steam. So they are also switching over to NEVs, which are considered to be, I would say people consider them to be more, not just environmental but also more stylish and maybe more tech-ish and also safer in general. So there's a shrinking crowd in China that is still holding on to gas cars, but it is a shrinking crowd.

Shayle Kann: That's amazing, amazing rate of growth. And I want to break that down in a few different ways in a minute, but just at the high level, you started talking about this already, why would you say that China has embraced EVs so quickly? Is it as you said, is it sort of a cultural somehow maybe thanks to Tesla in part EVs became culturally preferable? Or did prices all of a sudden drop? What happened that made the market take such a dramatic turn northward in the last three years?

TP Huang: I think in the beginning the market wasn't, back in the early 2020s around that range, the market was still seeing this as a novelty, only like a smaller subset of the driving population, mostly in big cities were adopting battery electric vehicles. And the plugin hybrids weren't really that popular back then. But when Tesla really started ramping up their production and the cost starting coming down in the market, we started seeing more of a smaller premium on pricing for the EVs over the gas cars.

So that's also when number of sales start taking off. And that's also when you start seeing, I guess the same phenomenon in America you saw in China in 2021 and 2022, which is that just automakers couldn't make enough EVs for market. So back then the main issue with EV adoption was actually the production, not actually the demand out there.

Once enough automakers really put their weight around EV development, that's when the production came up too. And I think the reason why the market really adopted to it is because if you just see some of the EVs are coming out right now, they're very high-tech-ish and people consider them to be safer because when you have a car system that is controlled by electrical system instead of mechanical, the reaction time is just faster, and the sensors are better and the driving experience in general is better.

And if you've driven a Tesla as soon as you stepped on the gas, it goes really fast. And the handling is better and people just consider it to be safer and also it's quieter and there's less smog in the street. And one of the things you notice when you go to Beijing or Shanghai these days is it's a lot less polluted and a lot quieter than it was 10 years ago if you went there. And part of the reason is because you see so many EVs, electric buses and there's just a massive adoption of electrical vehicle technology there. So people are seeing the benefits of having electric vehicles and electric buses, electric trucks in the society.

Shayle Kann: You've mentioned Tesla a few times, this was one of my questions. In most markets we think of China as being fairly closed to exports, certainly exports from the United States or exported technology for that matter. Obviously this is an exception where Tesla set up a gigafactory in Shanghai and really it sounds like galvanized the EV market. Where are we today in terms of EVs in China on the breakdown of domestically produced versus foreign, I guess, foreign owned even if domestically produced? How much has homegrown Chinese auto manufacturers versus companies like Tesla?

TP Huang: I would say that number is a shrinking pie at the moment because the Tesla sales have basically been flat in the past year or so. The only other ones selling a lot of EVs in China among foreign automaker is Volkswagen. The ID series are still selling somewhat, but it's not a great sale for them. And during this time you saw a huge jump in sales from BYD and Lee Auto and a couple of the other players, but I think BYD is the main driver right now in the ICE to NEV transformation.

Shayle Kann: And in the US obviously the way that EV's enter the market, thanks initially to Tesla, and then I think this is consistent more broadly is it started as luxury segments, and then increasingly now we're starting to get EVs on the market that are priced more akin to their ICE counterparts in the same vehicle class. Has it been the same in China? And obviously if so we've obviously bridged over into mainstream adoption. So presumably are we at the point now where we're at upfront price parity for an EV versus an ICE vehicle in the same class in China? Or is it still a premium price but people are just more willing to pay it?

TP Huang: So I would say that back in 2022, at that time we still had a situation where the EVs was marketably or noticeably more expensive than ICE cars. And then what we noticed since is that BYD kind of, I think they're the drivers behind a lot of this stuff because they managed to industrialize the production to such a level and got the cost down so much that back in 2023 they started a campaign basically saying the electric is as cheap as ICE cars.

What they did was they basically lowered the plugin hybrid prices to the same level as ICE cars. So they would sell a compact sedans for about a 100 KRB, which is about 14 KUSD, so it's pretty cheap. And then as time went on, as the battery prices keep going down because the lithium prices went down further and the chip prices keep going down because they ramped up production for that also, they were able to lower the prices further until this year they started a campaign saying electric cheaper than gas. So they lowered the compact sedan prices to 79.8 KRB, and that is basically a little more than 10,000 US dollars.

Shayle Kann: And that's pure EV or that's a plugin hybrid?

TP Huang: That's a plugin hybrid. The pure EV for that compact sedan was around a 100,000, so around $14,000.

Shayle Kann: Yeah, so for a compact sedan you're getting a pure EV in China from BYD, which is like a tier one Chinese automaker, probably the tier one Chinese automaker for the equivalent of $14,000 US.

TP Huang: And I would say they also have some of the more famous ones that you hear about like Seagull and Dolphin and the Seagull is kind of interesting because it's like a nice mini car, but probably interior size is more like a compact sedan and that is going probably... You can probably buy it if you get some haggling, you can probably get it for 70,000 RNB, which is under $10,000.

And then more recently they came out with what they call the DM 5.0 technology, which is an interesting technology in that it increased the fuel efficiency to around 80 to 90 miles per gallon. And they made a lot of waves with this 2100 kilometer range claim, which has been verified by some independent vloggers out there. And they were able to lower the price of a Honda Accord and a Camry size sedan to 100,000 RNB, which is a really low price because if you compare to how much money we have to pay for sedans here in America.

Shayle Kann: Right. Yeah, that's a huge difference. Yeah. So just talk a little bit more about the large auto OEMs in China. I guess how many are there? This is one thing I'm always curious about. In the U.S. we have a pretty small, even including Western Europe, it's not that many auto manufacturers who produce anything at scale. Obviously there are some really unique small ones who make small series production, but we have the big three in Tesla basically here in the US and a few others in Europe. But you can count them on two hands really. Is it similar in China, BYD is so dominant and a couple of others have emerged or is it more dispersed?

TP Huang: So in general, people would say there's a lot of players in China because there are a lot of automakers. I would generally say that BYD itself is generally reaching Tesla level of dominance in the Chinese market now because with the most recent releases, they're probably going to get to maybe 40% market share among NEVs in China, which is just a huge for single player.

But there are some other very relevant players like Lee Auto is a major one that's actually, it's generating good margins and it's also selling a more premium, higher end type of SUVs and also what they call MPVs over there. And so they do quite well. And Huawei, they do quite well because they're considered to be a premium brand in China. And both of those brands I would say have a higher brand recognition for the luxury class of sedans and SUVs than BYD right now. So they're also major players.

And there are some other ones that people probably heard about like Nio and Xpeng and also the classic automakers that are switching from ICE to NEVs and they will be Geely, Chery and SAIC. Some of them have done JVs with foreign automakers in the past or presently, and other ones are just always, in the case of Geely, they've only ever produced for themselves. So they're trying to make the hard transition right now to go from an automaker that does mostly ICE vehicles to NEVs and it's not the easiest change for the, I would say the legacy companies out there.

Shayle Kann: Let's talk about charging infrastructure. Obviously if we're hitting 50% penetration of new vehicle registrations being NEVs in China, presumably the charging anxiety problem must be largely solved. I imagine China to be a particularly difficult market in which to solve that problem because I think of it as being pretty urbanized and urban environments mean a lot of people who don't have home charging and so you have to have a ton of public charging.

So I would imagine it just on the surface to be an even bigger challenge in China than it is here in the U.S. Where is China in terms of charging deployment and what does it look like? Where are people charging predominantly?

TP Huang: Yeah, I think one of the things you see in China is also that the charging infrastructure varies depending on which part of China you are in. So obviously in the big cities, tier one cities like Shanghai or Shenzhen and Beijing, you're going to see a lot of chargers and they're just everywhere. But when you go to the smallest towns and the villages and things like that taking longer trips, the EV infrastructure aren't as good. Also in China what you see is there's a big mix of different type of chargers. So there are these really ultra-fast chargers that they say they can charge 500 kilowatts and the majority of chargers are actually a lot slower. They go more like a hundred to 150 kilowatts.

Shayle Kann: Even that, by the way, 100 to 150 kilowatts is still faster than most public chargers in the U.S. I'm a relatively recent EV owner, which is embarrassing, but listeners will know this about me already. So I've been experiencing public charging in the U.S. for the first time, and there's a lot of six kilowatt public chargers, which I don't understand why they exist. They're totally pointless here. So if the slowest ones in China are 100 kilowatts, that's already a distinction.

TP Huang: I think they made a pretty conscious effort to build the DC superchargers, and it's not just a government effort. A lot of it's privately driven as the, especially companies like Lee Auto, BYD, NIO and Huawei itself, they wanted to push... You want to drive forward to get people to buy your cars, you have to make sure that they have a charging infrastructure because when you get to the busy holiday seasons in China, you still have issues where people are just going to a charging station and scrambling because there's not enough chargers around, even though it is, I would say a much denser charging network in China, you're still dealing with charging infrastructure issues. So that's still something they can improve on.

And when it comes to chargers, they really have them everywhere. They have where they used to have the gas stations, they have them on highways. Shenzhen I think was promising something like one every kilometer or something like that. So basically it's very common depending on which part of China you're in.

Shayle Kann: Are they all interoperable? This is another issue we've had I think both in North America and in Europe around like, well, Tesla had the closed end infrastructure and now it's becoming interoperable faster, slower, depending on what you believe about the supercharger team. But then there's also the EV GO network and the Electrify America network and everything is different and you have to sign up for multiple apps and all this kind of stuff.

Is it like that in China where every EV charging station is on its own network and you have to deal with it individually or do they have better interoperability?

TP Huang: I think most of the EVs can use the public chargers. So that isn't a problem. There might be a couple of private ones more like Tesla for example, that not everyone can have access to. But for the majority of the part, I think that they have a pretty large public charging network that all the cars can access. And then you also have people like NIO that does the battery swapping network and they have their own huge fleet of battery swapping centers around the country.

Shayle Kann: I was going to ask about that, right, because NIO has very publicly been in favor of battery swapping. It's a model that was attempted long ago here through Better Place, didn't work out. Is that popular in China, the battery swapping with NIO? I guess you said they have a big network, but do you see that commonly?

TP Huang: They have thousands of them and what's kind of interesting recently is that they've been able to sign up a bunch of other automakers. I think they're up to eight other automakers now who have signed up to the NIO battery swapping network. Now the next step is probably the harder step for NIO, which is actually getting these automakers to build cars with the battery specification that can get swapped in and out because that's always been a concern, right?

So we'll see how it works because NIO itself financially is not doing the best amongst the automakers. So I think there is some questions around that. Another place where battery swapping is kind of useful is for electric trucks. When you have these huge trucks, it takes a long time to charge them. I think that's one other avenue that you'll see a pretty high adoption of battery swapping.

Shayle Kann: I was going to ask about heavy duty. So is heavy duty similarly ahead in China from a penetration standpoint as light duty is, do we see a lot of electric or plugin hybrid electric trucks?

TP Huang: Generally I would say the commercial vehicles in terms of trucking is probably two or three years behind where the passenger vehicle is right now. But the growth is pretty fast at the moment. You're seeing maybe like 100% growth this year versus last year for the same period. And especially for the heavy duty trucks, the main breakdown I would say is between the pure battery electric versus battery swapping ones, and you probably have a 60-40 ratio between the two, and there's also some hydrogen fuel cell vehicles out there.

So that'd be kind of interesting to see which one wins out among them. Maybe we won't ever get a final answer, maybe they'll always exist, but there's that. And you're also seeing, I would say increased adoption in the lighter trucks. It's a huge market. You don't see as much plugin hybrid at the moment for the trucking industry. You still see mostly the pure electric or the battery swapping.

Shayle Kann: I'm not sure if you know this offhand, but I am curious how the cost of electricity and the cost of petrol in China compares to that ratio here or in Europe. Is electricity particularly expensive or cheap? And is petrol particularly expensive or cheap in China?

TP Huang: I might be getting this wrong here. So this is just based on my previous interpretation. I would say that electricity in general is quite cheap in China, probably not that much cheaper than America, but I'd have to look into it. And the petrol itself is probably a little more expensive than America, so still cheaper than Europe though. So I would say part of the driving factor in the EV adoption is how much more economical it is to charge electricity instead of getting gas.

Shayle Kann: And has grid infrastructure been a barrier? I mean, obviously what we're facing here in the United States now as we're starting to build larger charging depots, as we're starting to think about charging heavy duty vehicles as the grid infrastructure just needs to catch up and it's taking time. And so you end up with these situations where somebody wants to build an EV charging depot, but there's three years before the grid infrastructure can get upgraded or whatever.

And we're not trying to do anything nearly at the pace that China has been deploying chargers and vehicles that are charging over the past couple of years. So has the infrastructure been a bottleneck at all or is it just like China can just build, build and it doesn't matter?

TP Huang: Probably the latter. But to expand on that a little bit, one thing you find that's kind of interesting with all our charging station now is that they have their own solar panels on top of the roof and then they have their own energy storage systems along with it. So that actually does help alleviate some of the grid concerns. But in general, what you see in China right now is that the energy or the electricity usage growing maybe seven to 8% a year. There's a lot of, I would say spare capacity in the grid network.

There's a lot of electricity generated and there's also a lot of energy storage system coming online. So for the most part, the grid is able to handle it. Now, we do have some blackouts in China in summertime when it gets too hot outside and the hydro powers are not generating as much and there's still a lot of demand for air conditioning. So that is a problem, but I have not heard about a situation where the grid just can't supply enough electricity to the EVs.

Shayle Kann: All right, so we have all these Chinese NEV OEMs who are now producing vehicles and selling them in China, even for pure electric for the equivalent of $14,000 US, plus or minus and maybe falling. And that I think helps to explain why there has been a lot of fear in the United States, and I'm sure in other countries as well of late about the possibility of exports from Chinese automakers into the United States and basically swamping all of the domestic manufacturers.

Do you view that as, is that fear warranted? Have the Chinese automakers expressed a desire to start exporting more and actually, do they export NEVs already to other countries or is it all still pretty domestically consumed?

TP Huang: I would say, I'll just use BYD as an example because I know their situation the best. Obviously Tesla itself also exports a bunch of production in Giga Shanghai too around the world. But when it comes to BYD and I think other Chinese automaker are similar situated, I would say they get maybe 10% to 15% of their sales outside of China right now, which in itself is not a huge number, but when you consider how big the Chinese auto EV market is compared to the rest of the world, it can feel like a huge swamping of the market for other countries.

And the other more important part is that the Chinese EVs themselves are in terms of pricing and value you get with them is a better proposition than pretty much anything else out there. If you can get a car for even $14,000 that is safe and you can drive reliably your family, that's a pretty good deal for most people out there.

So I totally understand that the politicians think that this is a major threat to the local economy. So for BYD and other Chinese automakers, I think they look at America and Europe a little differently. When they look at America, they see a situation where they just don't think they can get into the market whereas for your Europe-

Shayle Kann: These are trade barriers, you mean?

TP Huang: Yeah, the trade barriers and just geopolitical reasons and I know this from personal connection that BYD just isn't coming to America in the PE market at all,

Shayle Kann: Though interestingly, they have in the electric bus market, right? They're a significant player in heavy duty, but they haven't really shown up here with light duty.

TP Huang: Yeah, I mean they have one of their bigger factories overseas in California, which makes a lot of electric buses and other commercial vehicles in America. And I think that's part of the reason they want to not track additional attention to themselves and keep that revenue coming in.

But I think in terms of Europe, I think they do want to have a permanent presence in Europe, but that would involve obviously building factories in Europe, maybe two or three of them over there. They're obviously encountering local oppositions, worried that it's going to damage the local European automakers along the way. So what you see is a lot of their attention are not really focused right now on the western countries, but rather a lot of the global south countries like Brazil, Thailand, Indonesia, central Asia, probably a lot of the Middle Eastern countries I would say. But those are some of the bigger export targets for Chinese automakers right now, especially for BYD. Along the way, they're also working on trying to build up the charging infrastructure in those countries so that people are willing to buy EVs.

Shayle Kann: From a technology standpoint. You mentioned before that some of the, particularly the higher end vehicles in China are pretty tech forward. I've seen some videos of some Chinese electric vehicles with what looks like a generation of technology, even from a user experience perspective that's years ahead of what I've seen from many of the automakers here. What would you say are the key differences? What have you seen from a technology standpoint that is in the market today in China that we don't see so much in other countries yet?

TP Huang: I think I would just compare that to what I have with my Tesla Model Y. In terms of product, I would say in terms of the self-driving features, it's mostly very similar to what you have with Tesla right now with the FSD. But with the Chinese automakers, you tend to see a lot more of big screens and treating the car not as a car, but rather as a mobile home where you have entertainment system, people can watch TVs, they can take commands and do their work from the car. A lot of people even have a fridge in the car and they're eating and cooking and stuff like that. It's kind of interesting actually how that evolved.

But one thing you notice is when you're sitting in the driver's seat, most of the entertainment system now actually take voice command. So that is part of where AI is coming in, in understanding people's commands and then doing tasks. And that's one of the things where why you see these smartphone makers like Huawei, Xiaomi, and even Geely, which bought Mizu got into this, is because there is a lot of cross-section between the smartphones and how the Chinese tech companies look at smartphones versus EVs just in terms of the adoption of AI, adoption of just the connectivity and also being able to control your homes and things like that.

Shayle Kann: Yeah, I've heard people describe EVs as a big computer on wheels. So in some ways it makes sense that... And in fact it's funny that Huawei and others have actually gotten into that market while Apple our smartphone maker here in the United States, famously spent 10 years and some number of billions of dollars on an electric vehicle project that they recently mothballed and have given up on. So I guess it worked for Huawei and others, but not so much for Apple.

TP Huang: Yeah, I think that's like, I really wish Apple had created something because I think we do need a real competitor to Tesla here in America. One of the interesting thing, if I remember correctly is actually Apple had already picked BYD as their battery suppliers. So a lot of people in the BYD following community, were hoping that Apple have something, But in my mind, at least, I think Apple might be making a mistake in giving it up at this point. I think this is going to be a major avenue to where consumer electronics move in the future, where you have your car and your phone and your smart home products all connected together.

Shayle Kann: All right, anything we should be expecting to see over the next few years that you think will be interesting in the EV market in China? Are there models that are to be released that are especially exciting? I presume the penetration rate is probably only going to continue to increase, so we're going to be in the significant majority NEVs territory pretty soon. What else should we be looking out for?

TP Huang: The one thing I would say is that there's a huge shift going on right now that's not really picked up as much in the auto market, which is just how much the legacy German and Japanese and even GM are losing in China to the Chinese automakers in the market share because they're not producing EVs there for people like Volkswagen, they get one third of their sales in China, and I think it's similar ratio for BMW and the Audi and Benz, also the Honda, Nissan and Toyota. They also get a fair big chunk of their sales in China.

And we're also seeing BYD getting into markets, especially in Southeast and Latin America where those markets were traditionally very heavily dominated by the Japanese. It will be very interesting to see over the next few years how countries will be affected by this. Because if you think about Japan and Germany, auto industry is such a huge part of their economy.

Part of the mistake they made is they never had a really competitive software industry. So when we have the shift going from a mechanical gas car to something that's more electrical and software driven to something that have AI in the future, they don't have the local talent to develop competitive products. Once we get to the point where the consumers are looking, see the more technologically impressive product, and if you ever sat in a Tesla and a Honda, you can tell the difference between the two.

Then if they make the same move outside of China as they do inside China, then it's a huge disaster for Toyota and Honda. Who knows, in 10 years there might not be a Nissan out there, there might not be a Mitsubishi.

Shayle Kann: All right, TP, this was illuminating. It's astounding to me the pace at which China is electrifying vehicles. So I'm interested to have you back on in a year or two and see what the next generation looks like at that point. But in the meantime, thanks so much for your time.

TP Huang: Thank you very much. Appreciate it.

Shayle Kann: TP Huang writes about Evs, clean energy and other technology focused on China on his Substack. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures, prelude backs visionaries, accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com.

This episode is produced by Daniel Woldorff. Mixing by Roy Campanella and Sean Marquand. Theme song by Sean Marquand. Stephen Lacey is our executive editor. I'm Shayle Kann, and this is Catalyst.