Best China Observer: Electric Vehicle Market Has Too Many Entrepreneurs and Engineers

China’s electric vehicle market is saturated with far too many automaker founders who are locked in a brutal battle for market share, said China analyst Dan Wang.

Wang lived in China from 2017 to 2023, where he covered the country as a technology analyst for Gavekal Dragonomics, a financial services company.

He is now a research fellow at the Hoover Institution at Stanford University. Wang published his first book, “Breakneck: China’s Quest to Engineer the Future,” in August.

Wang said the country’s electric vehicle price war would not end anytime soon, and that was intentional.

“There are too many entrepreneurs, too many engineers and too much willingness from local governments to support local champions,” he said.

“Brutal competition is behind many of China’s successes, for example in solar and electric vehicles. It is also a reason why many of these industries have low profits,” he added.

Wang wrote in “Breakneck” that government support was one of the main reasons why Chinese tech giants like Huawei and Xiaomi ventured into the auto sector.

“This type of expansion is driven both by extremely competitive market environments and by government subsidies that make it easier for companies to try their hand at manufacturing new products,” he writes.

“They allow companies to launch a flood of undifferentiated products, ruthlessly underbid and pray that their competitors run out of money before they do,” he added.

This race to the bottom is starting to show up in the financial results of electric vehicle companies.

In August, BYD announced that its second-quarter net profit fell 30% from a year earlier.

BYD said in its earnings report that “short-term profitability” had been reduced by “excessive marketing” and discounting. In May, BYD announced it would cut prices on 22 electric and hybrid models until the end of June.

“Competition in China is fierce and it is difficult to change this situation,” Wang told Business Insider.

“This is partly explained by the scale of the Chinese market, where entrepreneurs always dare to seize opportunities, which is a characteristic of China’s highly dynamic ecosystem,” he added.

Hundreds of billions in subsidies – at least

Last year, the United States The Center for Strategic and International Studies said in a report that the Chinese government has spent at least $230 billion since 2009 to support local electric vehicle champions such as BYD. The think tank believes this figure is likely an underestimate, as it does not include incentives and subsidies from regional governments.

Rivian CEO RJ Scaringe told the “Everything Electric” podcast in an episode broadcast in September that Chinese electric vehicles are cheaper because of the country’s generous subsidies and lower labor costs.

“There’s nothing magical when you take it apart that allows for these really impressive cost structures,” Scaringe said. “There’s no secret magic that makes you say, ‘Oh, aha, they did that.’ But it’s more about the cumulative benefits of a lower cost of capital. »

But not everyone said that China’s electric vehicle market would remain so hotly contested in the years to come.

In December, Xpeng CEO He Xiaopeng told his team that the auto industry would experience a “phase-out cycle” from 2025 to 2027, according to an internal letter obtained by The Wall Street Journal.

The Xpeng founder said in a November interview with Singapore’s The Straits Times that most Chinese automakers would not survive beyond the next decade.

“Personally, I think there will only be seven major automakers that will exist in the next ten years,” he said, without naming specific companies.