BYD overtakes Elon's Tesla. Why do EVs have geopolitical significance?
China has long been poised to dominate the global EV market, why does it matter?
When Rishi Sunak announced that the UK was delaying by five years the requirement for all new car and van sales to be electric, his critics rushed to accuse him of rowing back on net-zero pledges to shore up right-wing support.
Some of that criticism was fair. Sunak’s move came, after all, on the back of an unexpected Tory victory in the Uxbridge byelection - Boris Johnson’s old seat.
That contest was fought, in part, over the expansion of the Labour Mayor of London’s daily £12.50 fee on motorists driving cars with internal combustion engines.
Expect to see the Conservatives place motoring high on the agenda during this year’s election campaign. Such was the perception of the politicking around this decision, that the government of Australia, through its top diplomat in London, took the rare step of warning the UK that it needed to explain itself.
“It is important that the UK make the point not just to Australia but to other partners in the global community that we, the UK, have not retreated from our forward-leaning positions,” Stephen Smith, Australia’s High Commissioner told me in an interview.
But this sort of political criticism didn’t hurt Sunak. In fact, it was one of the few acts that managed to improve the British prime minister’s dire position in the polls, even if just by a handful of points.
But while there may have been an ephemeral political dividend, this was not the total story.
This week, the Chinese carmaker BYD reported last year’s final quarter sales. The numbers showed BYD overtook Elon Musk’s Tesla in the last three months of 2023, selling 526,000 battery-only vehicles. When compared on a yearly basis, Tesla still came out on top, selling 1.8 million EVs compared to BYD’s 1.6 million.
But the general trend is clear.
“BYD is growing faster than Tesla and it’s likely that it will outsell Tesla on electric-only cars in 2024,” Felipe Muñoz, a global analyst at JATO Dynamics told me.
“Unlike Tesla it has a big range of products and it has affordable electric products and they are starting to expand their business globally.
“It makes BYD stronger and with more potential than Telsa because Tesla is focussing on the premium market, even if it has cut its prices a lot this year, we’re still talking about non-affordable cars or cars that are not for the mass market.”
Muñoz said that with emerging markets accounting for one-fifth of global vehicle sales, affordability was key to competing with China and that so far no Western carmaker has produced a model capable of competing with BYD when it came to cost.
But he said caution over the quality of Chinese-made cars did give the West some time if it was serious about trying to catch up.
Time is what Britain needs. Late last year Nissan announced £3 billion worth of investments to make two new EV models at their plant in Sunderland, in England’s north. It is targeting 2030 as the year all its new vehicles are 100 per cent electric.
It is also prioritising cost by going Cobalt-free from 2028 which will reduce the cost of its EV batteries by 65 per cent.
Separately, Tata, which owns Jaguar Land Rover, is spending £4 billion to build a factory that will aim to produce enough batteries capable of powering hundreds of thousands of cars each year.
Buying time also allows the government to say that it is supporting a local industrial green transition, and not one imported from China - although they won’t say that last bit as explicitly out loud.
“Our zero emission vehicle mandate will further boost the economy and support manufacturers to safeguard skilled British jobs in the automotive industry,” Anthony Browne, the UK’s Technology and Decarbonisation Minister said as he reminded of the changes that came into force this week.
For Europe, it’s a case of deja vu. The continent was once a powerhouse in turning-out solar panels but this industry was lost to China, which could produce the green technology cheaper and with State subsidies.
Fearing a repeat of history, the EU Commission last September opened an investigation to establish where China’s EVs supply chains benefit from “illegal subsidisation” strangling Europe’s ability to compete.
“Mark my words - the rise of China's auto industry, while likely a bit muted in the US, is going to be one of the biggest geoeconomic stories of our time,” wrote Tom Shugart, Adjunct Senior Fellow at the Centre for a New American Security.
“They'll eat the EU auto industry alive”.
I asked Shugart, a former submariner whose interest in the race to dominate the global EV market arose from monitoring China’s commercial shipping fleet, why this even mattered.
Cars, after all, are not what we would deem critical technologies like semiconductors.
“Why all of this matters to me as a military analyst is that military power in the modern world is largely derived from economic power, so any major shift of economic power from, say, Europe to China will have resultant effects on the distribution of military power over time,” he said.
“Also, China’s huge commercial shipbuilding industry - which has military applications - provides a natural synergy with the EV industry expansion.
“As China needs more and more auto shipping capacity to ship these EVs to their overseas markets, China has the shipbuilding industry available to build the vehicle carriers necessary to carry them - and those vehicle carriers then have military utility as roll-on/roll-off ships that could be used to transport Chinese military vehicles in something like an invasion of Taiwan.”
Economic security intertwined with industrial and national security has been a theme that’s become particularly live in the West since the election of Donald Trump in 2016 on the back of his pledge to “Make America Great Again.”
It is why Joe Biden introduced the Inflation Reduction Act (IRA) in 2022 to shore up “good jobs” in local green manufacturing.
The IRA provides $7500 in tax credits for buyers of EVs, so long as those vehicles meet the requirements relating to how much of the car was assembled in North America and the battery’s critical minerals were sourced and processed either in the United States or from trusted trade partners, ie. not China.
The legislation sets out a gradual tightening of these rules over time, with the aim of throttling any Chinese input.
For Australia, which no longer has a domestic car-making industry, its best hope is to be granted a bite of Biden’s IRA pie as one of those partner countries with an abundance of the critical minerals that will power the drive to net zero.
For now, Australia sells the bulk of its lithium to China which sells it back inside EVs.
Australia’s favourite EV is Tesla's Model 3 which is produced in Shanghai. The next five top-selling models are all BYD makes, meaning the top six types of EVs on Australian roads are all currently made in China.
Also see https://www.caixinglobal.com/2024-01-20/china-ministry-blasts-local-officials-for-blind-ev-investments-102158841.html
In Australia we have an energy market (solar panels, retailer and infrastructure ownership) dominated by Chinese interests, a property market flush with Chinese cash and our transport sector is heading the same way with the added bonus of all our EVs being always accessible through over the air updates. I'm sure everything is just fine.