How Chinese automobile industry went from obscurity to the largest EV market MediaInsights.in

As of 2024, China is the world’s largest EV market in the world. It’s also the world’s largest exporter of cars, having overtaken long-standing market leader Japan thanks to the former’s world-class electric vehicles. China’s electric car market has single-handedly managed to alter the global automotive landscape. But how did a country whose industry was mired in obscurity and beset by high import tariffs go on to become an economic and technological powerhouse?

As things stand, BYD has claimed the title of the world’s bestselling EV brand. China now accounts for six out of every 10 EVs sold globally. It controls over 70 per cent of the world’s battery raw material refining, 77 per cent of the world’s lithium-ion cell capacity and 60 per cent of the world’s component manufacturing for lithium-ion batteries.

China’s advancements in the EV technology space and its dominance over the EV supply chain resulted from the early realisation that going toe-to-toe with ICE vehicle market leaders from Japan, Germany and the US was a losing game. Especially since automotive development continued to languish in China, for a very long time.

Rocky start

British writer Bryan Appleyard, author of the book “The Car” traces the reasons why China had such a late start when it comes to manufacturing cars. An excerpt from the fifth chapter of his book reads:

“Mao Zedong regarded private car ownership as bourgeois consumerism. And so, from 1949 onwards, taxi companies died and private car ownership in the big cities plummeted (…) In 1993, 96 per cent of all vehicle sales were to government departments or state-owned businesses. For more than 50 years, the Chinese car industry lay dormant. In 1978, only 2,640 cars were produced. But by 1984 the authorities were beginning to think private car ownership was not corrupt”

Zedong did dream of a national, state-owned automotive industry, but the transfer of technology proved to be challenging. In 1953, China’s first automotive establishment FAW (First Automobile Works) was established but it wasn’t until the market reforms of the late-1970s and early 1980s, introduced by Zedong’s successor Deng Xiaoping that things picked-up pace. China’s economy finally opened-up to foreign investments. The country’s automobile industry was on the brink of a revolution.

Foreign carmakers step-in

Mao’s death in 1976 was followed by a shift in focus to economic rather than just political reforms. According to a research paper published by the University of Edinburgh stated that “Productive power rather than class struggle became the predominant concern”.

Till then the FAW and Dongfeng, two state-owned automotive concerns made cars that were primarily used by officials. Following the economic reforms introduced by Xiaoping – Mao’s successor, China was finally ready for its first joint-venture with a foreign automaker – Jeep. The formation of the Beijing Jeep Corporation in 1984 not only allowed the influx of modern technology into China’s automobiles, it also paved the way for future joint ventures, crucially that of SAIC Volkswagen in the same year. By 1985 the number of automobile factories in China went from 55 to 114. By 1991, China had already developed its first-ever indigenous vehicle – the FAW Jiefang CA770, showcasing the country’s design and manufacturing capabilities while also shedding light on its car buying preferences.

Enter the 2000s

At the turn of the millennium, China stood at the precipice India is at today. Particularly when it comes to electric two-wheelers where it stands to have an edge over international competitors. Its own fledgling automotive industry could not effectively tackle incumbents with several decades worth of experience. It was prudent that China worked on a technology that other markets weren’t yet proficient in. And much like India, China too needed to reduce its dependence on imported oil. However, in 2001, China joined the World Trade Organisation (WTO) which led to tariff reductions and local content requirements, allowing the automotive industry to grow like never before. By 2003, China was the fourth largest automotive producer in the world, surpassing the US by 2009 to become the world’s largest automobile market.

China’s Geely acquiring a brand like Volvo in 2009 was a truly historic moment. It was a clarion call of sorts, announcing China’s arrival on the global automotive stage. Shortly after that began an era of subsidies and incentives for electric mobility. With the prohibitive cost of car ownership now a thing of the not-too-distant past, the Chinese automobile market had officially come of age. Moreover, the subsidies on offer for EVs set them on the path that has made them a dominant player in EVs today. The motivations were manifold, from reducing the oil import bill to tackling the issue of urban air pollution.

In 2019, China mandated that at least 3-4 per cent of all cars produced locally must be electric. China also offered easy access to vehicle licenses that one must have (and are famously difficult to obtain) in order to drive a vehicle. Carpool lanes were also given increased access to EV owners, according to a report by GRC Global Group. These policies created overwhelming demand for EVs, leading to manufacturers investing heavily in EV technology and supply chain. It was a concerted effort, expected to pay dividends later, as the Chinese government invested $58 billion between 2010-2018. As a result, the Chinese government has been forced to phase out certain incentives, at least at the national level. While still offering exemptions from its vehicle purchase tax. At a time when Europe and the US are implementing protectionist policies to stem the tidal wave of Chinese EVs, China’s best course of action is to tax ICE vehicle owners in its own country. In the near future, China aims to continue building a robust EV ecosystem, with an expanding charging and battery swapping network, while ensuring the EV industry isn’t reliant upon any direct aid from the state.

(Parth Charan is an independent automotive journalist and writer who has written on cars, motorcycles and the automotive industry for the past 12 years. He lives in Mumbai.)

First Published Date: 13 Jun 2024, 12:00 PM IST