China’s Trickle-Down Supply Chain: From Intelligent Electric Vehicles to Robots

In the past decade, China has spent more than $100 billion to fuel the growth of the Smart Electric Vehicle (IEV) industry. As a result, China now has the most sophisticated IEV supply chain and is the world’s largest IEV market. While the dominant argument is that China made this investment to reduce greenhouse gas emissionsI argue that this investment is having a much deeper impact on China’s economy. IEV’s supply chain, including its talent pool, technologies, and manufacturing capabilities, will seep into empowering various segments of the robotics and automation industry, thus accelerating China’s economic transformation into the automation era.

In the context of globalization, China’s economy has benefited from its huge supply of cheap labor by serving as the factory of the world. However, as labor costs rise and its population ages rapidly, China may no longer enjoy that demographic dividend. In fact, many companies are moving their factories outside of China. To avoid falling into middle income trapstructural change in China’s economy is imperative.

Historically, only a few countries have managed to escape the middle income trap, and no country with an aging population did. However, traditional theories of economic structural change are human-centered, such that the human labor force is the source of productivity. Today, technological innovations allow robots to take on many agricultural, industrial, and service tasks. As robots become more ubiquitous in our daily lives, robots can be a source of productivity and thus can rescue China from the middle income trap. In fact, we have seen various forms of robots integrating into the daily life of the Chinese, whether they are food delivery robots on the street or cleaning robots at home.

For China’s economy to transform into the automation era, a complete robotics technology supply chain must be developed. Key components of this supply chain include artificial intelligence (AI) software, batteries, sensors, computer chips, and servo motors. All of these components are also required in IEVs, albeit with a larger volume and more stringent technical requirements. China’s heavy investment in the IEV industry has led to fierce competition in these technical areas, which will lead to overprovisioning of production capacities as well as rapidly falling costs. Consequently, the robotics and automation sector will benefit from this to produce robots that are effective and profitable.

Now let’s examine the key components of the robotics technology supply chain. The following figure compares the market share of the robotics technology supply chain between China and the United States.

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First, both the US and China are leading AI talent, with China accounting for 32.3 percent and the US for 44.2 percent of global AI talent. It is no coincidence that many AI talents work at IEV companies, such as Tesla in the United States and Baidu in China. From my personal experience, in China, the mobility of AI talent is very active between the IEV industry and the robotics and automation sector, due to the fact that many AI technologies developed for IEV can also be used for various robot types. This is also verified by Tesla’s recent decision to produce robot tesla.

While the United States currently leads in AI talent, recent trends may change that. China generates more STEM graduates than the US, and there are more and more tech talents going back to China from the US and Europe. With a thriving IEV industry and a promising automation and robotics sector, China may soon develop the world’s largest AI talent pool.

As the world’s factory in the era of mobile phones, many Chinese companies have become key suppliers of iPhone, especially battery companies. As a result, China is already dominant the global battery market, providing more than 56 percent of the world’s batteries. By comparison, since battery manufacturing is considered a highly polluting industry, the United States has outsourced most battery manufacturing abroad. Realizing this problem, the US government is trying to bring back battery manufacturing through the Inflation Reduction Law of 2022.

Sensors, especially LiDAR sensors, are essential for IEVs and robots. Although US companies are pioneers in sensor technologies, Chinese sensor vendors have experienced tremendous growth in recent years, benefiting from the boom in China’s IEV industry. Today, Chinese sensor suppliers have 26 percent of the world market, while US companies own only 3 percent. In addition, Chinese suppliers continue to grow rapidly, while the market share of US companies continues to shrink.

Servo motors determine the precision and controllability of robots, especially industrial robots. Japanese manufacturers dominate this area due to their technological advantages, but Chinese manufacturers have been growing rapidly due to their cost advantages. Today, Chinese manufacturers have a 30 per cent global market share while the US presence is almost negligible. Similar to how China’s IEV industry spurred the growth of the sensor and battery supply chain, it is reasonable to project that Chinese servo motor suppliers will grow rapidly with China’s robotics and automation sector, and gain market share. globally for the foreseeable future.

Although China’s booming IEV industry has spurred growth in many technical areas, computer chips have always been China’s weak spot. Today the United States still dominates the global market for microprocessors, especially high-end artificial intelligence processors. Realizing the strategic importance of microprocessors, the United States Congress recently passed the CHIPS and the Science Act of 2022 to further strengthen domestic semiconductor manufacturing, design and research. In addition, Taiwan Semiconductor Manufacturing Company’s recent opening of a new plant in Arizona is another big win for the US semiconductor industry. Without an advanced chip supply chain, China still has to rely on US supply to sustain growth in its robotics and automation sector for the foreseeable future.

In short, China’s huge investment in the IEV industry will not only make China greener, but more importantly, accelerate China’s economic transformation into the automation era. Examination of supply chains reveals that China has gained, or is on the way to gain, dominance in many key technology areas of the robotics and automation sector. If this trend continues, we may soon find ourselves in a world powered by Chinese robots.

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