Shift Key Classic: How China Created an EV Juggernaut

The Chinese electric automaker BYD is entering a new stage in its history. Last month, it sold more than half a million electric vehicles and plug-in hybrids. BYD has already shipped more cars this year than Ford and Honda, and it is fast coming for Volkswagen, GM, and Toyota’s crowns as the world’s three largest automakers.

Earlier this year, Rob and Jesse spoke with Ilaria Mazzocco, a senior fellow with the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies in Washington, D.C. She has watched China’s EV industry grow from a small regional experiment into a planet-reshaping juggernaut. On this week’s episode of Shift Key, we’re re-running that conversation — one of our favorites ever to happen on the show. We’ll be back with a new episode next week.

Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University.

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Here is an excerpt from our conversation:

Robinson Meyer: It’s been clear since Trump pulled out of the Paris Agreement, to some degree, that China was trying to race ahead in these clean technologies in a way that America was not. But I feel like the full arrival of the Chinese EV industry in the U.S. discourse has only happened in the past year. Can you zoom out and just give us a sense of how we went from the Chinese car industry being … not a joke, necessarily, but not really seen as a serious global competitor, to now, where the Chinese EV industry is shaping U.S. and European policy at the highest levels?

Ilaria Mazzocco: I actually think the fact that the traditional internal combustion engine automotive industry in China was so uncompetitive is part of the reason why we’re here, right? So the Chinese government for decades tried to come up with ways of getting a world-class industry. So it’s like, you know, to access the Chinese market, you have to create a joint venture, and the government picked — usually it was state-owned enterprises, which are not known for their dynamism and creativity and innovation.

And in fact the car companies that did do better in China were often sort of the private, or like the small state-owned enterprises that were sort of coming in from the margins and maybe struggled to get a license to operate initially — like Geely, right? Geely was sort of a classic example of that.

But essentially, by around the global financial crisis, there was the sense that this just wasn’t working. And this was also at a time when the Chinese bureaucracy is starting to think more and more about industrial upgrading. Salaries in China are going up. So you want to think of what’s next steps as maybe textiles and other sort of lower-end manufacturing moves outside of China. And so the thinking was, well, why don’t we invest and put our weight behind the next-generation technology in automotive, and sort of invest in that. And that way, we’re competing on a level playing field.

Ironically, that’s sort of the idea — or in the sense that, you know, you’re not competing with companies that have been accumulating IP for over 100 years, you’re sort of playing … Chinese companies may have even an advantage if they start early.

This was sort of the brainchild of the minister at the time, the minister of science and technology, who was an auto guy, Wan Gang. And so this was a fairly small project, to be honest. This wasn’t something that the secretary of the party or the premier who came up with it. It was a ministry-level initiative. There were four ministries working on it, but yeah, pretty small. It was really pilot city programs, not a big success initially — kind of expensive — but they stick with it. And that’s kind of the key there, right? So that’s what the big advantage that the Chinese bureaucracy has, that it can have that policy continuity. These are not politicized things, issues. These are, there’s also not, there’s no voters there looking at the budget and saying, You’re spending a ton of money on this unproven technology. And so that’s one advantage.

What I also like to point out is that it was the right time. This is, they started the program to commercialize, right? Obviously there’d been R&D grants and that sort of thing, but there’s a program to start actually giving consumers rebates to buy EVs and incentivizing taxi fleets, which was pretty crucial in China, and bus fleets to electrify self-starts around 2009, 2010. And you know, in those years, that’s also when Tesla is starting to emerge, right? This is a moment in which the technology is … not mature, but it’s mature enough that it can actually make real strides when it starts to be commercialized.

And then the third part is you had really good entrepreneurs. You had BYD that was just there lobbying to get this. You actually had Tesla in there trying to get more incentives for this, as well. But, you know, you had Chinese companies like BYD that were really at the margins and quite hungry that really took up this opportunity and started investing and really believed in it. So I think you had that combination of factors and, you know, now we’re like 15 years later, I think we’re seeing the results of it.

I will say it doesn’t always work that way. To an extent, there’s an element of luck, right? This is the problem with industrial policy. You can do the work right in the research and you can get it right, but it’s still not a … you don’t always know that it’s going to work out. And I give the example of fuel cell technology. They received the same types of subsidies, fuel cell passenger vehicles in China. And that, you know, we’re nowhere close to seeing a mass market for that.

This episode of Shift Key is sponsored by …

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Music for Shift Key is by Adam Kromelow.