Levi Tillemann can speak Spanish, Portuguese, Japanese, Mandarin, policy, and technology. In 2015, he published The Great Race: The Global Quest for the Car of the Future, while he worked in the US Department of Energy under president Barack Obama. Tillemann now runs a consultancy and advises companies on the energy transition and how best to navigate emerging technologies.
Welcome to our field guide on China’s electric-vehicle industry. Check out other parts of our deep dive here. This interview has been lightly edited and condensed for clarity. We’ve also included some quotes from Tillemann’s book.
Quartz: What got you into the vehicle industry?
Tilleman: I had an automotive startup company, which I founded with my dad. The focus was on making more efficient internal-combustion engines. But as we started to mature and got a better understanding of the obstacles, I was also coming to a better understanding of how important policy was to automakers making long-term technological plans. At the end of the day, a more efficient internal-combustion engine is definitely useful. But to solve the long-term environmental and social problems, we need to go not just towards lower emissions but zero emissions.
I turned over the startup to someone else who is interested in and is still pursuing the idea. And I went on to complete a PhD at Johns Hopkins University on industrial policy in the automotive industry. My thesis looked at fuel economy, emissions regulations, and the trend of electrification. The focus was on why and how electrification happened in the past and could happen in the future. Based on that work, I got hired by the Obama Administration. I wrote The Great Race on the side and later started up [my consultancy] Valence, where I’ve been working on these issues.
The automobile’s importance to growth, trade, innovation, military technology, and the environment is, for practical purposes, immeasurable. The industry is a point of national pride, a center for manufacturing employment, and an instrument of state power for the world’s most technologically advanced economies—much more so than most people realize.
Do you think you can have more impact on policy from outside government than from inside?
There are a bunch of emerging technologies—electrification of transport, autonomous driving, and renewable energy—that are either economical or on the cusp of being economical. What I find is that government is incredibly conservative when it comes to projecting technology pathways and making policy for emerging technologies. Sometimes they need a nudge from outside analysts and from the media to get them to do the right thing. I work with companies that I think are on the right track and help them understand how they can be most effective going forward.
To dominate a twenty-first-century economy, to win this race, America will have to change—and to some significant degree that change will have to be political. America must learn to be goal-oriented, tactically flexible, and driven by long-term macroeconomic trends rather than short-term political or financial interests.
Since you wrote your book, you’ve changed your mind about China’s electric-car industry. How come?
When I put the finishing touches on The Great Race, China had put an enormous amount of political capital and money into developing a sector that was highly fragmented, had not reached scale, and was sputtering. It looked like an embarrassment. But I learned that policymakers in China were studying the mistakes they made in the early stages of developing this market. They were also studying successful actors like the California Air Resources Board and the historical example of countries like Japan. They recalibrated their policies to take advantage of those best practices and the electric-vehicle industry got back on track.
The Chinese have long-term plans that I think are both aggressive and sustainable. Recently, they announced they’ll be dialing back direct subsidies for electric vehicle purchases. Instead, they’ll be instituting a synthetic market that is modeled on California’s zero-emission vehicle policy, where automotive manufacturers have to reach a certain threshold of electric vehicle production each year. The automakers who aggressively pursue EV technology can profit from selling credits to other auto manufacturers who didn’t invest in the technology.
But that’s not what I learned from my reporting in China. They see the credit system more as a mandate, rather than a true market-based solution. Many are readying plans to game the system.
If for some reason the Chinese feel that the system is being gamed or they’re not able to reach those strategic goals, then they can dial up the pressure by putting out a new set of tactical fiats. In the short term, you might be able to game the system, but the policies will adapt to that.
Look back at the creation of the Japanese automobile industry in the 1950s onwards, and you’ll see a parallel. The Japanese put up very high barriers around their domestic market through tariffs and restrictions on foreign companies entering the market. At the same time, they began to attempt to export vehicles abroad. Having those two dynamics at play at the same time is really important. On the one hand, it allows the industry breathing room to grow and develop. You don’t have ravenous foreigners come in and take all of the profits associated with that market. On the other hand, it forces your domestic companies to start to think about competing at a global level.
It’s fair to say that the electric vehicles sold in China by and large are too expensive. Their quality is not high enough, considering what people are paying for them. If you were to allow Tesla, Nissan, or Toyota to go in there and compete against Chinese domestic manufacturers completely unfettered, they would probably wipe the floor with them at this point in time.
If that’s true, then the Chinese government has already opened the floodgates by allowing 100% foreign ownership of electric car companies in China. That’s why Tesla is planning to build Gigafactory 3 in Shanghai. Why would China do that, if it knows its own companies cannot compete against foreign manufacturers?
Chinese policy on paper is frequently different than policy in practice. There is a long history of favoritism and protectionism. For example, government procurement plays a powerful role in China. There are cities that make policies that are highly exclusionary to foreign manufacturers. Shanghai in the 1990s made rules about taxis in the city that favored a particular car engine. The goal was to favor a local manufacturer. Some of these ideas strain credulity from an American standpoint and would never stand up in an American court of law. It’s important to understand that the Chinese operate on a very different model.
We’ll see what happens once Tesla starts producing vehicles in China. There are incentives for the Chinese government to be a good host for Tesla. But there are also reasons to stymie Tesla. It’s going to be interesting to see which course they take.
America’s burgeoning hostility to the concept of state-driven economic development was the exception. Other countries, such as Japan and Germany, embraced the role of the state and used industrial policy to great effect in developing sectors like high-end manufacturing.
Chinese carmakers told us they believe car owners in China don’t need more than a 300 km (about 185 mile) range on a single charge. If anything, even less would do. Do you think such low-range electric cars could take off?
It integrates into a larger theme. One way to think of China’s transportation sector is to build out short-range, low-tech electric vehicles suitable for urban transportation. When you need to travel longer distances, you use those short-range vehicles to get to mass-transit hubs. There you take high-speed trains. That is probably the framework that we need to pursue globally, if we’re going to beat climate change.
This strategy gives China a dial to reduce their carbon emissions. Trains and electric cars run on whatever is feeding them electricity. So every coal power plant the Chinese turn off and every massive wind farm or solar farm they turn on, the cleaner the electrons that go into every single one of those electric trains and electric vehicles.
But China’s reliance on coal hasn’t really gone down. The country continues to build more coal power plants.
The question to me is not what they’re doing right now, but whether they are building options into the system. It’s not good that they’re building coal power plants. They have also been inefficient in their deployments of renewables. But it’s really important that, rather than just doing the right-here, right-now assessment of emissions of a particular product or business model, to think about the potential of that product or business model going forward.
The [auto] sector was going to have to rely on state support—industrial policy. Since the time of Henry Ford, no automobile industry in the world had ever become internationally competitive without that kind of government intervention.