When it comes to making and buying electric cars, there’s China and then there’s everyone else. As of April of this year, China accounted for about 35% of all the electric cars sold in the world. Its consumers are on track to buy 1 million (link in Chinese) electric cars by the end of the year.
Government policy—rather than market economics—created the electric car craze there. For nearly a decade, China’s government has poured money into the EV industry, offering generous tax incentives and subsidies for car makers and consumers, building charging infrastructures across the country, and placing restrictions on the sales and use of gasoline cars.
As a result, electric vehicles have become a large part of Chinese people’s daily lives in a way that hasn’t happened in countries like the US. And there’s no better place to see that than in Shenzhen, one of China’s tech hubs in the southern part of the country.
Shenzhen is the world’s only city to have 100% electric buses. It’s also one of the first Chinese cities to set a goal to replace all gasoline-run taxis with new electric vehicles, which includes pure battery vehicles and plug-in hybrids. And that’s not a coincidence. Shenzhen is home to BYD, the world’s second largest EV maker after Tesla.
The Chinese company, which is backed by Warren Buffet, received about $590 million in subsidies from both the local and central government. That support played a big role in BYD’s growth from a battery maker into a major player in the global EV market in a little over two decades, according to Qiu Kaijun, who runs a website (link in Chinese) for electric vehicle industry insiders. Another Chinese company,Contemporary Amperex Technology (CATL), has recently signed a contract with BMW, replacing Samsung as its battery supplier. That’s a pretty big deal, considering the battery makes up as much as 40% of the cost of an electric car.
The Chinese government sees EVs as an opportunity for China to leapfrog competitors and become a major car manufacturer. The success of these Chinese companies is a sign that hope is coming true, Qiu said. But subsidies won’t last for much longer. Over the next five years, China plans to wean domestic EV makers off subsidies and raise technical standards. Chinese car makers will have to compete on a more level playing field with foreign companies, including Tesla and Volkswagen, which are both building factories in China.
“After 2020, foreign brand EVs will eat into the market shares of domestic ones more than they do now, but they won’t blow Chinese car brands out of the water,” Qiu said. “If you only compare the top models, Chinese brands and foreign brands will be more or less on the same level.”
Another major milestone lies ahead in the near future. Batteries and getting better and cheaper. By 2025, the cost of an electric car could be comparable to that of a car with an internal combustion engine (ICE). And when that happens, the era of ICE cars will be coming to an end. So whoever is best positioned to compete in the EV market now could come to dominate the global auto market in the future. It will likely still be Germany, Japan and the US, but China is adding itself to that list.
Quartz News is a weekly video series bringing you in-depth reporting from around the world. Each episode investigates one story, breaking down the often unseen economic and technological forces shaping our future.
Click here for previous stories.