China’s EV Success Story: Lessons from the World Leader

China has zoomed ahead in the electric vehicle (EV) race, leaving other countries like the US and Europe in its rearview mirror. But it wasn't just because the government threw money at the problem. There are valuable lessons here for anyone looking to understand how industrial policy can drive success.

The Tesla Spark

Sure, the Chinese government invested heavily in EVs, seeing them as crucial for the environment and economy. But the real game-changer was Tesla. When Tesla started making cars in China in 2019, it sparked a frenzy. Consumers were thrilled, and a whole new supply chain for EVs sprang up almost overnight.

Innovation and Competition

Innovation became the name of the game. Scores of EV companies popped up, each trying to outdo the other with the latest designs and tech features. Not all of them survived, but those that did became stronger and more competitive. Today, China’s EV market is known for intense price wars and fierce competition.

Lessons from Beijing

China’s approach to industrial policy offers a contrast to how it handles other industries. Unlike its efforts to build a domestic aircraft industry to rival Boeing and Airbus, which hasn’t seen much success, China didn’t try to create specific “national champions” in the EV sector. Instead, it let many companies compete, adopting a "let a hundred EV makers bloom" strategy.

BYD and Others Leading the Way

Companies like BYD have thrived. BYD now offers electric cars with cool features like rotating touchscreens for just $10,200. Li Auto’s spacious SUVs with top-notch entertainment systems are also a hit. Even Xiaomi, known for smartphones, has jumped into the EV market with its SU7 model.

Beyond Cars: Batteries and More

China's influence in the EV market extends beyond just making cars. The country has also become a leader in battery production. Local giants BYD and CATL now dominate the global EV battery market, thanks to early government policies that supported local manufacturers.

The Bigger Picture

China's success story isn't just about subsidies. It’s about creating a demand-driven market, investing in infrastructure, and encouraging private sector competition. Unlike the US, which let market forces decide the fate of EVs, China’s government played an active role in creating an environment where EVs could thrive.

Looking Ahead

China’s EV industry is on track to contribute significantly to the economy, potentially making up 2.7% of the GDP by 2026. However, there are still challenges ahead, like tariffs from the US and the European Union that make it harder for Chinese EVs to enter those markets.

Final Thoughts

The story of China’s EV industry is a lesson in how to foster innovation and competition. It shows that while subsidies can help, they aren't a magic bullet. Success comes from creating an environment where companies can innovate and compete, allowing the best to emerge.

China's experience suggests that the real winners will be those who can create a supportive environment for innovation. As Scott Kennedy from the Center for Strategic and International Studies puts it, “Governments that create an environment for innovation will allow breakthroughs by companies to eventually find a place in the market.”