Experts Unpack China’s Upper Hand in BEVs

ANN ARBOR, MI – The rapid ascent of China in global automotive markets is disrupting the industry and challenging traditional companies such as General Motors and Volkswagen as well as upstarts such as Tesla, which face fierce competition from Chinese rivals building electric and autonomous vehicles.

Homegrown Chinese companies such as BYD, NIO, Geely, Li and others are forcing change and readjustment just as the Japanese carmakers did in the 1970s, the South Koreans did in the 1990s and Tesla did in the 2010s as they displace older, more established companies, observes Stephen Dyer, co-leader of AlixPartners office in China.

“Today, Chinese automakers have come of age and represent as much of a disruptive force now as Japan, Hyundai and Tesla have in previous generations,” Dyer says during a presentation at Automotive Futures’ annual conference on development here.

Dyer notes the homegrown Chinese brands are replacing brands from global companies, which held two-thirds of the market during the first days of the auto boom in the early 2000s.

China is now the leading exporter of vehicles, shipping its models across the globe. AlixPartners is predicting Chinese brands’ share to reach 33% of global markets by 2030, doubling share in Europe and reaching 9 million units in international sales, says Dyer.

With their strong position in the sprawling market in China, Chinese brands are shaping new expectations for technology, comfort and design. While the percentage of buyers “very” or “moderately” likely to purchase a battery-electric vehicle have stagnated in the U.S. and European markets, it is near 97% in China, according to an AlixPartners estimate.

Chinese EV startups can develop vehicles in almost half the time of traditional OEMs by designing and testing to “good enough” standards, says Dyer.  Chinese models are two years fresher than foreign brands, with some averaging 1.6 years in market and with the latest technology and batteries, putting pressure on companies such as Tesla.

Consumers in China are seeing BEV price parity, efficient charging and easier licensing for New Energy Vehicles (NEVs), while Western customers see BEV prices 35%-55% more than ICE alternatives, Dyer notes. Chinese brands also provide higher ADAS content than same-priced non-China brands.

Chinese makers’ costs are roughly 35% lower than those of global rivals, Dyer says, but adds, “Chinese automakers’ cost advantage will diminish as they move ahead.”

Michael Smitka, emeritus professor of economics at Washington and Lee University and a long-time student of China’s economy, tells the conference the Chinese auto industry is being propelled by the growth in production of NEVs, which include not only BEVs but also plug-in hybrids and EREVs – vehicles that use an ICE engine as a generator.

Both Smitka and Dyer suggest global automakers face major challenges in the Chinese market. Asian automakers such as Honda, Toyota and Hyundai are retreating and companies such as GM and VW have seen income from joint ventures slashed.

VW, once among the best-selling brands in China, is closing plants, they note, and losing dealers in the face of the rising Chinese competitors, who are engaging in a broad price war.

Global automakers were slow to move toward BEVs and stuck with traditional ICE models that are losing favor among buyers targeted by the Chinese government’s EV incentives. Smitka says the government’s commitment to BEVs, and the development of BEV suppliers and chargers, dates back more than 15 years.

Private companies such as BYD, Geely and Chery, along with other smaller companies, some of which are supported by local governments across China, are moving into the BEV space.

Early on, China’s BEV program was plagued by fraud and scandal, giving rise to stories of “(B)EV graveyards” outside big cities.

But the problems have been addressed, according to Smitka, and China’s BEV business is taking hold despite China’s broader economic difficulties. Most of the Chinese BEV companies are not profitable and consolidation is likely, but some like BYD are thriving as they quickly expand.

Chinese companies also are rapidly expanding and leading the way in the application of artificial intelligence to automotive problems. Chinese automakers are using AI for trend forecasting and design, according to Yun Liu, a consultant for automotive supplier Sophon.

The strengths of the Chinese automotive industry are diligence and innovation, the capability of its established supply chain and government support, he says. These advantages have put Chinese companies ahead in the development of technology required for Level 3 autonomy and autonomous vehicles.

Baidu, the Chinese equivalent of Google and ChatGPT, has already developed an automotive platform. “It’s already developed the Apple Car before Apple,” says Liu. While Waymo has a few dozen AVs on the road in the U.S. and Tesla is promising to deliver fully autonomous vehicles within two years, Liu notes, Baidu has more than 1,000 AVs operating in Chinese cities.

BYD Song, a top seller within China, exported as Seal U and Sealion 6.