Why is China electric vehicle market booming?

In 2023, China electric vehicle market witnessed a significant surge in sales, reaching a total of 8.88 million—a remarkable 38% year-on-year expansion. Notably, during Q4 2023, Chinese automaker BYD outpaced Tesla in electric vehicle sales. How did China get to this point?

This blog post delves into the key factors that propelled China to the forefront of the EV revolution and explore valuable lessons for companies aiming to scale up their innovations.

Learning lessons from adjacent industries

Unlike Tesla’s policies to directly target the auto industry, Chinese automakers BYD and Geely remained under the radar and quietly experimented in their early stages.

They kickstarted their EV development by focusing on adjacent industries, which is electric buses and motorcycles. These products are less visible than cars, yet present unique challenges that are ripe for automakers to address. What they learned by tackling these challenges ultimately contributed to their EV manufacturing strategy.

For instance, buses are heavier and carry more passengers than commercial sedans. Additionally, most buses are operational for about 18 hours each day. They therefore have greater battery power and storage requirements. And more powerful batteries take longer to charge.

By targeting an adjacent industry, BYD began pushing the boundaries of battery technology as early as 2009. BYD featured electric buses as its entry product into North American markets. It first sold electric buses as fleet vehicles in 2013, then supplied them to the Los Angeles Metro system in 2015. BYD electric buses are now also prevalent in South American markets.

Solving operational challenges

Besides relying on government’s policies to incentivize EV adoption, early innovators recognized the operational challenges that China electric vehicle presented and worked collaboratively with local groups to find solutions.

In 2009, China’s government put in place a policy to subsidize the purchase of hybrid and electric cars and buses in 10 cities. Moreover, in these 10 cities, including Beijing and Xi’an, Chinese EV producers worked closely with taxi companies to devise operational solutions that would improve core battery technologies. More importantly, they tested various scheduling options for battery charging that matched the current performance level of fully electric and hybrid vehicles.

In China, taxi companies operating electric or hybrid vehicles typically have two fleets of cars. The morning shift ends around 7 p.m., which enables the morning fleet to be charged after 8 p.m., avoiding the window of heavy industrial power consumption. The evening fleet returns for charging around 2–3 a.m., which is also within the period of lower power consumption for a city’s grid.

This new schedule, designed jointly by Chinese EV producers and taxi companies, not only addresses the battery constraints of EVs but also helps to flatten the consumption curve of a city’s power grid.

Collaborating to focus on core technology

Recognizing the significance of battery technology in EV manufacturing, Chinese automakers strategically focused on this core component. Coincidentally, the Chinese EV industry enjoys a proximity to many critical raw material supplies. This can provide both positional advantages for them to develop new battery technologies and negotiation power with suppliers beyond batteries.

Indeed, Chinese companies collaborated broadly — with other automakers as well as technology companies — to strengthen their capabilities in terms of EV manufacturing. For instance, BYD set up a new automotive division in 2002 and began making cars via acquisition of Qinchuan Machinery Works, a small car manufacturing company.

BYD also collaborated with Daimler and Toyota to gain knowledge of EV manufacturing in exchange for sharing its own knowledge of battery manufacturing technologies. In addition, in 2018, BYD partnered with Chinese technology giant Baidu to scale up the software capability and service capacity of its EVs for the mass market.

Through these critical partnerships and acquisitions, Chinese automakers have charged up their development of peripheral components for EVs and accelerated their go-to-market speed. BYD and Geely orchestrate complementary assets quickly and effectively around their core focus, which is battery technologies. This approach, in turn, helped them emerge as two leading EV manufacturers in China.

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