Over the past two decades, the real estate sector has been a domestic engine of China’s economic growth. In 2021, real estate investment reached 14.8 trillion RMB, which accounts for 27 percent of China’s fixed asset investment. However, this overextended sector has run out of steam and has caused systematic economic problems.
Realizing its overreliance on real estate, China has made a big bet on the smart electric vehicle (IEV) industry over the past decade, hoping that this sector, along with its fast-growing ecosystem, will be the new engine. for China’s economic growth. As a result, China has gained a competitive advantage in the IEV industry, as the Chinese government has acted as a technology incubator.
In 2021, the global automotive industry enjoyed a market size of 2.86 trillion dollars only from car sales, but only 10 percent of the market belonged to the IEVs. That leaves enormous room for future growth. Historically, European, American, and Japanese automakers have dominated the internal combustion engine (ICE) automotive market, both economically and technologically. Today’s rapid transition from ICE cars to IEVs presents a once-in-decades opportunity for newcomers, similar to the rise of smartphone makers and bust of feature phone makers in the 2010s.
Technologically, the IEV industry has evolved through three stages of development: electrification, intelligence, and ecosystem. Electrification is the process of powering the vehicle with electricity, with battery technology and supply chains as key enablers. Building on electrification, intelligence such as autonomous driving can be infused into IEVs to make driving and driving experiences more comfortable and enjoyable. Computer chips, AI talent, and data are key enablers of intelligence. Driven by intelligence and enormous computing power, an application ecosystem it can be developed for IEV, similar to how mobile apps drive the sale and evolution of smartphones. With a developed IEV ecosystem, many usage scenarios will emerge, as well as business opportunities beyond mobility.
Since China became a member of the World Trade Organization (WTO) in 2001, China has been a major global supplier of electronic components, especially battery production. Many Western economies moved battery production, considered a highly polluting industry, abroad, and China became a perfect destination due to its low labor costs and relatively high tolerance for highly polluting industries at the time. This reshaping of the global electronics supply chain led to the rise of Chinese battery companies such as ATL, CATL, and BYD.
In the 2010s, the ubiquitous proliferation of smartphones gave Chinese battery companies another boost. In particular, the fierce competition to enter the iPhone supply chain forced these Chinese battery companies to increase their investments in technology and product quality. Having benefited from globalization and incubated in the smartphone era, Chinese battery companies, exemplified by CATL and BYD, already dominate the global battery market as the IEV era begins. China’s advantage in electrification sets the stage for Beijing to bet on the IEV industry.
Building on a mature electrification supply chain, the Chinese government has committed enormous amounts of financial resources and played a crucial role in incubating China’s IEV industry by providing incentives for both the supply and consumption of electrification. IEV. To boost IEV consumption, since 2010 the central government has initiated a consumer subsidy program, which covered more than 40 percent of IEV costs. Since 2014 all IEV sales are exempt from purchase tax.
To encourage the supply of IEVs instead of ICE cars, China has established a “double credit policy” since 2018. Under this policy, automakers are assessed in terms of fuel consumption and EV production to qualify for new credits. of energy. As a result of these efforts, China not only has the most sophisticated IEV supply chain, but is also the world’s largest IEV market. The next natural step for China’s IEV industry is globalization, as exemplified by CHILD recent effort to enter the European market, and BYD success in the ASEAN market. Due to its superior products, we can expect IEV’s Chinese brands to become global brands soon.
The IEV industry is the jewel in the crown of the broader automation sector, which includes service robots, industrial robots, delivery robots, autonomous drones, etc. The automation industry can potentially facilitate China’s dual problems of population aging and labor shortages have a far greater impact on the global economy.
One subtle implication of the rise of China’s IEV industry is that many IEV technologies and supply chains may trickle down to drive the development of various types of autonomous machines. This is a natural move for any IEV company. For example, Tesla recently announced robot Tesla, a conceptual general-purpose robotic humanoid that can act as a household service robot or an industrial robot. Tesla Bot was made possible by Tesla’s mature AI technologies as well as its manufacturing supply chain. China’s XPeng made a similar move to use its technologies and supply chain to produce a robot pony for delivery tasks.
In short, globalization has equipped China with a sophisticated manufacturing supply chain, especially in electrification. After a decade of continuous investment, China is now poised to assume the global leadership of the IEV industry. Assuming IEV technologies and supply chains find their way into the broader automation sector, China is creating an engine of economic growth for decades to come.
However, before China’s gamble pays off, there are some caveats. First, today China still relies on third-party suppliers for semiconductors, a core technology in the IEV supply chain. Therefore, any embargo on chip supply will be devastating for China’s IEV industry. Second, due to the current geopolitical situation, many countries may ban Chinese IEV products on national security and data privacy grounds, similar to how the United States and many of its allies do. prohibition Huawei products.