Auto & Transportation

The password for China's new energy vehicles to achieve a "counterattack" is a forward-looking industrial policy layout, complete industrial chain support, and endogenous driving force brought by technological innovation

According to customs data, in the first quarter of this year, China's trade exports of "New Three Samples" electric passenger cars, lithium batteries, and solar cells to the top five markets of the European Union, the United States, ASEAN, South Korea, and the United Kingdom increased by 88.7%, 88.1%, 103.5%, 121.7%, and 118.2%, respectively, accounting for 71.6% of the total export value of "New Three Samples"

In the severe and complex external environment, China's international trade imports and exports improved month by month in the first quarter, demonstrating strong resilience and achieving a stable start.

According to customs data, the total import and export value of China's goods trade in the first quarter of 2023 was 9.89 trillion yuan, a year-on-year increase of 4.8%. Among them, exports reached 5.65 trillion yuan, a year-on-year increase of 8.4%. The total import and export volume for the month of March reached a new historical high, higher than market expectations.

Among them, the strengthening of new advantageous products has played a more positive role in the overall stability and improvement of foreign trade, especially in the mechanical and electrical products represented by new energy vehicles, which have maintained a good upward trend. According to customs data, from January to March 2023, the export of new energy vehicles reached 248000 units, a year-on-year increase of 1.1 times.

In recent years, China's new energy vehicles have undergone a transformation from being a "catcher" to a "leader" in the global automotive industry, and have become one of the "new three types" of China's foreign trade exports. Against the backdrop of the urgent need to further shape new advantages and develop new driving forces in China's foreign trade exports, analyzing the leading password for new energy vehicles to "rise against the trend" may provide reference for other industries to achieve breakthroughs.

Three major features

At around 8:00 am on March 22nd, accompanied by the sound of a whistle, the "Kari Leader" Ro Ro ship carrying 3000 domestic brand new energy vehicles slowly departed from the Nansha Automobile Terminal and set sail for Southeast Asia. This is the batch with the highest single export volume of domestic new energy vehicles from a single brand in South China since the beginning of this year.

New energy vehicles have undoubtedly been a major highlight in China's export trade in recent years. According to customs data, in 2021, China exported 310000 new energy vehicles, a three fold increase year-on-year, making it the world's largest exporter of new energy vehicles; In 2022, the export volume of new energy vehicles in China exceeded 670000 units, achieving a doubling growth; Since the beginning of 2023, China's new energy vehicles have maintained a high growth trend.

It is worth noting that while achieving a "quantity" growth, China's new energy vehicle exports have undergone a "qualitative" leap, showing three major characteristics: high-end export models, diversified export targets, and a chained export industry.

——High end export models.

If in earlier years, China's automobile exports were mainly focused on "cost-effectiveness," then in recent years, new energy vehicle exports have gradually developed towards mid to high-end models with high added value, and the "gold content" of products has been continuously increasing.

According to statistics from the China Passenger Transport Association, the average export price of new energy passenger vehicles in China has risen from $3000 per vehicle in 2018 to $22000 per vehicle in 2022.

Not only has product prices increased, but many domestic brands such as BYD, NIO, and Xiaopeng are also trying to use their mid to high-end models as entry models into new markets. For example, BYD's first model exported to Norway was the flagship SUV model in the BYD dynasty family, the BYD Tang, priced at 619900 Norwegian kroner (approximately 405800 yuan). As of the third quarter of 2022, Chinese car companies sold models worth over 400000 yuan in Norway, accounting for 3.73% of the total registered pure electric vehicle models, a year-on-year increase of 3.43%.

At the same time, the premium capacity of domestic new energy vehicle brands in the overseas market is also constantly increasing, and some models' overseas pricing is significantly higher than that in China, with a range of up to 30% to 50%. For example, the BYD Tank, which is priced at around 300000 yuan in China, is priced at around 400000 yuan in Norway, similar to the BMW ix3, which is also a pure electric mid to large SUV sold in Norway. In addition to BYD, some models of brands such as MG, Xiaopeng, and Euler are also priced higher overseas than domestically.

——Diversified export targets.

The export market of new energy vehicles in China is gradually expanding from a local market dominated by developing countries to a diversified market pattern with multiple markets blooming in Europe, Asia, and Africa.

From 2020 to 2022, multiple domestic brand car companies such as BYD, Xiaopeng, and NIO began to enter the mainstream overseas automotive market. In 2021, Europe will replace Asia as China's top exporter of new energy vehicles. Nowadays, in Europe, one out of every 10 new energy vehicles comes from China.

The ASEAN market, represented by Thailand and Malaysia, is also a window for Chinese new energy vehicle companies to "go global" with its considerable population consumption potential and market prospects. According to the Thai Automobile Association, Chinese brands account for over 90% of the total sales of new energy vehicles in Thailand.

Meanwhile, as brands such as BYD enter the African market, new energy vehicles made in China have become an important driving force for the electrification transformation of the African automotive industry. Algeria's Oriental Daily commented that electric vehicles made in China are occupying an increasing market share in Africa, and the cake is getting bigger, providing necessary technical and product support for Africa's electrification transformation.

——Chain export methods.

Industry insiders pointed out to reporters from Outlook Newsweek that currently, China's new energy vehicle industry chain is showing a trend of developing from "electric vehicle exports+lithium battery exports" to "localization of overseas new energy industry chains".

On the one hand, the rapid growth of exports of new energy vehicles has driven the growth of exports of core components such as lithium batteries. According to customs data, in 2022, the total export value of lithium batteries in China reached 342.65 billion yuan, a year-on-year increase of 86.7%, ushering in a growth window period.

On the other hand, with the deployment of new energy vehicles to the sea, relevant enterprises in the industrial chain have also set up factories overseas.

In June 2021, Great Wall Motor Thailand Rayong Plant was officially put into production; In September 2022, BYD announced the construction of a new energy vehicle production base in Thailand with a production capacity of 150000 vehicles; In December 2022, Tianji Automobile announced the establishment of a joint venture in Saudi Arabia to invest in the production, manufacturing, and research and development base of new energy vehicles; In February 2023, Chery Motors announced that it would invest 400 million yuan to build an automotive base in Argentina

Experts say that under the premise of protecting core technologies, Chinese car companies can participate in international competition by building factories overseas, which helps to enhance China's participation and voice in the global supply chain, improve competitiveness, and further maintain the resilience and stability of China's industrial and supply chains.

Industrial policy amplification "engineer oriented"

From a "catcher" in the traditional automotive industry to a "leader" in the new energy vehicle industry, the password for China's new energy vehicle to achieve a "counterattack" is the endogenous driving force brought by a forward-looking industrial policy layout, complete industrial chain support, and "engineer oriented" technological innovation.

——The firm industrial policy effectively supports the cultivation and growth of the market.

From 2001 when the Ministry of Science and Technology included electric vehicles as a major special project in the national "863 Plan" during the "Eleventh Five Year Plan" period, to 2009 when the Ministry of Science and Technology, National Development and Reform Commission and other departments jointly issued the "Automobile Industry Adjustment and Revitalization Plan", officially marking the beginning of the era of "new energy vehicle purchase subsidies", and then to the introduction of strong management and supervision mechanisms such as "prescribed vehicle subsidies" and "downhill mechanisms" to ensure precise subsidies

Over the past 20 years, China has successively introduced industrial policies that cover multiple measures such as access management, purchase subsidies, tax incentives, transportation support, technological innovation, and continuous optimization, firmly supporting the development and growth of the new energy vehicle industry. As of the end of 2022, the total number of new energy vehicles in China reached 13.1 million, accounting for more than half of the global total number of new energy vehicles.

An Qingheng, director of the China Automotive Industry Advisory Committee, told reporters from Outlook Newsweek that at the beginning of the development of new energy vehicles, there were also some debates and doubts, but we can always firmly adhere to the strategic direction of the development of the new energy industry.

In his view, under the guidance and promotion of industrial policies, the new energy vehicle market in China has grown rapidly, providing space for product iteration and upgrading, as well as creating conditions for the improvement of the industrial ecology. Under the combined effects of policies, funds, technology, and consumption concepts, the competitiveness of China's new energy vehicle industry continues to improve.

——A comprehensive industrial chain layout has effectively improved industrial competitiveness and risk resistance.

The automotive industry is a large-scale, long chain modern industry. After years of development, China's new energy vehicle industry has formed a complete industrial chain covering the upstream, midstream, and downstream, from raw material supply to research and development and production of key components such as power batteries and vehicle controllers, to vehicle design and manufacturing, and to supporting construction of charging infrastructure.

The comprehensive industrial chain layout has given China's new energy vehicles multiple advantages.

Firstly, the cost is lower. According to a report from French automotive parts suppliers, the cost of producing electric vehicles of the same type by Chinese automakers is 10000 euros lower than that of European automakers, indicating a significant cost advantage.

Secondly, it is more resistant to market fluctuations. In 2022, despite multiple global car companies experiencing varying degrees of supply chain crises such as chip shortages and battery price hikes, BYD's sales continued to grow rapidly and won the global new energy vehicle sales championship. Its highly vertical, autonomous and controllable supply chain system is indispensable.

At present, BYD has a full industry chain layout in the upstream, midstream, and downstream of the new energy vehicle industry, from raw materials for batteries to the core of the new energy vehicle three electric system, and then to the complete vehicle manufacturing and research and development system for downstream vehicles, forming a complete closed-loop. The advantages of the entire industry chain make BYD more resilient and productive in the face of market fluctuations, with significant synergistic effects.

In the interview, Wang Du, Assistant President of the China Automobile Distribution Association, mentioned that after years of development, China's new energy vehicles have formed a large industrial scale, which allows us to quickly find alternative solutions in the face of supply chain crises and resume production in the shortest possible time.

Thirdly, promote the automotive industry towards a rapidly iterative "consumer electronics" model.

Nowadays, China has formed industrial clusters in fields such as new energy vehicles, power batteries, and key components, with full industry supporting capabilities.

The 2022 Insight Report on the Development of China's New Energy Vehicle Industry shows that the four major industrial clusters of new energy vehicles in China are prominent, forming the Yangtze River Delta cluster led by Shanghai, the Greater Bay Area cluster led by Guangzhou and Shenzhen, the Beijing Tianjin Hebei cluster led by Beijing, and the West Triangle cluster led by Chengdu Chongqing and Xi'an.

The scale effect of industrial agglomeration enables the innovative design of new energy vehicles to be quickly implemented with low cost and high efficiency, driving the iteration speed of products and technologies to accelerate, closer to the "consumer electronics" rapid iteration mode, and accelerating the process of new energy vehicle technology innovation in China.

——The "engineer oriented" technological innovation effectively enhances the endogenous driving force of industrial development.

In the traditional automotive field, Chinese car companies once hoped to accelerate their development pace through a "market for technology" approach. Years of experience have proven that this path has not been successful. Due to insufficient independent development capabilities and reliance on foreign investment for technology, a "market promotion oriented" industrial development logic has been formed. In the new energy race, Chinese related enterprises have always adhered to "engineer oriented" independent innovation, achieving technological breakthroughs in core components such as batteries, motors, and electronic controls, and possessing considerable technological advantages.

Taking the power battery, which accounts for about 40% of the cost of electric vehicles, as an example, in recent years, China's power battery industry has developed rapidly, supporting new energy vehicles to have longer endurance mileage, faster charging speed and more competitive market prices.

According to McKinsey&Company's calculations, the range price ratio of pure electric models in China is about 21 kilometers per 10000 yuan, while the range price ratio of international models is generally about 11 kilometers per 10000 yuan.

The leading technology cannot be achieved without a large amount of research and development investment. Taking BYD, the top ranked company in the "Top 20 New Energy Vehicle Patent Companies List" released by Enterprise Inspection, as an example, in the 2022 financial report released by BYD, R&D expenses were 20.223 billion yuan, including 16.28 billion yuan in automotive project expenses. This data is 2.14 times the R&D expenses of 7.323 billion yuan in 2021 and 3.92 times that of 2020.

It is the obvious advantage of original technology that greatly enhances the endogenous power and discourse power of China's new energy vehicle industry, allowing China's new energy vehicles to not be afraid of competition in the international market, including developed countries, and have a certain premium ability, becoming one of the "new three" leading China's foreign trade exports.

Cultivate new advantages

The report Global Trade Outlook and Statistics released by the World Trade Organization (WTO) on April 5 predicts that the growth rate of global commodity trade volume will decline to 1.7% in 2023, lower than the average level of 2.7% in 2022 and 2.6% in the past 12 years, dragged down by factors such as the Russia-Ukraine conflict, high inflation, tightening monetary policy and uncertainty in the financial market.

The complex and severe international economic and trade environment has brought significant challenges to China's import and export growth. The Central Economic Work Conference held at the end of 2022 proposed to make greater efforts to promote the stable scale and optimized structure of foreign trade, promote the stable stock and expansion of foreign investment, and cultivate new growth points for international economic and trade cooperation.

Industry insiders believe that cultivating new driving forces for foreign trade development requires the formation of a synergy between trade policies and industrial policies, the consolidation of development advantages through smooth industrial and supply chains, the enhancement of the value and influence of Chinese brands in the high-end market, and the continuous expansion of overseas "friend circles" to expand the scope of export destinations.

——Form a synergy between trade and industrial policies.

The Guiding Opinions on Promoting High Quality Development of Trade issued by the Central Committee of the Communist Party of China and the State Council in November 2019 pointed out the need to promote the consolidation of the industrial foundation for trade development, "play the role of market mechanisms, promote the interaction between trade and industry, and promote the process of industrial internationalization. Accelerate the development and cultivation of emerging industries, and promote breakthroughs in key areas. Optimize and upgrade traditional industries, and improve competitiveness

In the interview, industry insiders discussed that the core reason why new energy vehicles can become one of the "new three types" of foreign trade exports is that new energy vehicles have strong market competitiveness. Behind this, the support of industrial policies is of great importance.

In recent years, a large number of trade policies have been introduced at various levels, playing an important role in promoting high-quality development of foreign trade. But from the underlying logic, the quality of foreign trade performance still depends crucially on the product's performance in international market competition.

In this sense, cultivating and shaping new competitive advantages in foreign trade is fundamentally about cultivating and shaping new advantageous industries. Therefore, it is necessary to coordinate trade policies with industrial policies, combine the characteristics of different industries, and explore specific paths for the organic combination of the two.

——Shortcomings and weaknesses need to be addressed, with an "engineer oriented" approach to smooth the supply chain of the industry chain.

From the development process of new energy vehicles, it is precisely in the fields of electric motors, electronic controls, and batteries that core key technologies have been mastered that China's new energy vehicles can occupy an advantage in international competition.