It's time to have an adult conversation about Chinese EVs
Trump's 25% tariffs on foreign vehicles will hurt American automakers. To understand why, it's crucial to examine China's role in the complex global industry
'It's All Computer'
Simplicity is an art, and the above quote should be displayed in MoMA. All EVs are giant batteries controlled by computers with a big tablet on the dashboard. Unlike combustion engines, there's not much to them. You don't need to change the oil or spark plugs. Maintainance is easier because motors power the wheels directly.
It's baffling to hear someone say, "China's not nearly innovative enough to keep up in the EV market," as if the country didn't already have a massive homegrown industry. As someone who owned an e-bike for most of my 6 years in China, I can attest. Here's me on the Niu I owned for four years, named Pí pí xiā 皮皮虾 (mantis shrimp).
The mantis shrimp was one of many beast e-bikes I shared the road with. It's a vehicle of the worker: the American equivalent of an economy compact or SUV. They get you to work, and you can carry groceries, your kids, or whatever.
The best part about e-bikes is their lack of maintenance. I rarely had to take mine in. That included my Niu, which racked up tens of thousands of kilometers in its years of service as a commuter. On the other hand, my Haojue motorbike, dubbed the "workhorse of China" (the "Suzuki" pictured below), needed much more TLC.
The charging infrastructure for EVs was already well-established because of e-bikes and micro-mobility vehicles like three-wheeled platforms (三轮车). Then, there are cities like Liuzhou, where electric cars run wild. The southwestern paradise has the highest rate of EV ownership worldwide (Source: Securities Daily, in Chinese). Tiny cars, like the one shown below, are everywhere.
Watt this has to do with EVs
Considering all this, it's quick maths why China is the world's largest EV market. My tales thus far have yet to disclose the biggest part of the story: batteries.
China is a battery behemoth. Every e-bike, EV, computer, smartphone, or TV remote has a battery, and a Chinese company likely makes it. The International Energy Agency, an independent intergovernmental body, reported about the booming industry earlier this year. Here are the key takeaways:
- China makes over three-quarters of batteries sold worldwide
- Producers have been playing the long game, investing in batteries that use improved and more cost-effective chemicals
- The industry involves every step of the supply chain, from minerals like lithium to manufacturing and distribution
- The report also notes the "fierce domestic competition," with over 100 companies vying for the top spot
In the previous edition, I mentioned CATL and its investment in the world's largest cobalt mine in the Democratic People's Republic of the Congo. CATL and BYD are the two biggest producers of EV batteries, accounting for 55.1% of the global market share in 2024. They are not to be slept on.
BYD is an auto giant that's continuing to shape the EV market. Shares in the company went through the roof on March 17 after it announced its new lineup that can recharge just as quickly as gas cars fuel up. It continues to be the biggest threat to Tesla, alongside other Chinese companies like XPeng, Geely, and NIO.
CATL is in an even more unique position. It's the leading supplier to Tesla's largest factory in Shanghai.
Stepping in it, again
Trump's sanctions on foreign autos will harm his buddy-in-chief's bottom line. Like with the DRC, we can see how the administration's overlapping interests interact on the world stage. Tesla wanted to enter the Chinese market. It took years before Telsa and the Shanghai Municipal Government struck a deal on the factory.
This agreement is important. It's the first time a foreign automaker has been able to wholly own its factory in China. Plenty of ink has been spilled about how beholden Musk is to Beijing. But it's a mystery why Shanghai let Musk fully own the plant. NIO, an upscale Chinese EV maker, was simultaneously in talks [Article in Chinese] with the city government, further complicating this outcome.
One Chinese commentator concluded [Article in Chinese] that allowing Tesla unprecedented market access would force domestic companies to step up their game. They write this would lead to a "catfish effect," where weaker competitors would become stronger after introducing a stronger one. They appear to be doing so, especially after BYD showed its supercar "jump" over a pothole.
Waiting for a Japan Moment
Two kinds of people are from my home state of Colorado: Subaru and Toyota drivers. This would have been heretical in the lead-up to the US-Japan trade war of the 1980s. Nowadays, American consumers cherish these brands for their reliability and affordability. The failure to stymie Japanese car manufacturers is obvious.
There's little reason to believe the same could be true for Chinese EVs. The technology is already diffused domestically, the homegrown industry is booming, and the expertise will continue to grow. Trump's tariffs have the potential to backfire, which would only benefit Chinese automakers.
European companies warned EU regulators that the bloc's tariffs will hurt their bottom lines. The CEO of SEAT, a Volkswagen subsidiary, said they would have to cut 1,500 jobs because of the price jump. One reason executives are worried is that China is the world's biggest auto part manufacturer. Any disruption in the supply line, including retaliatory measures, will cost them.
American automakers—including Telsa, the administration's poster child of success—are unlikely to benefit from these tariffs. Whether you'll see more XPeng EVs on the road is uncertain. One thing that is certain is that the complexities of business, politics, and technology continue to change every second. Simulations & Hallucinations is about examining our complicated world, so stay tuned!
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-Tim