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Recap: Getting to Zero (epi 2): How the U.S.-China Race for Electric Vehicles is Changing the World, 4.6.21

Recap: Getting to Zero (epi 2): How the U.S.-China Race for Electric Vehicles is Changing the World, 4.6.21

On April 6, China Institute hosted our second episode of Getting to Zero, a new series exploring the pledges by China and the U.S. to eliminate net greenhouse gas emissions. As the two greatest emitters of carbon, their environmental and economic policies have the power to either save or destroy the planet.

This episode focused on the accelerating auto industry race to produce and grow the electric vehicle market – and how everything from supply chains to labor force to data management is being turned on its head. Ahead of the SH Auto Show, China EV expert Tu Le, global auto industry expert John Paul MacDuffie, and BYD USA executive Frank Girardot discussed the road ahead in a far-reaching conversation, recapped below.

Speaker Bios:

Frank Girardot (FG) is communications director for BYD Auto’s North American operations, and an award-winning former newspaper editor, columnist and investigative reporter in Southern California. Girardot, a best selling non-fiction author, has won several writing awards, including the Southern California Press Association’s award for Investigative Journalism.

Tu Le (TL) is founder and managing director at Sino Auto Insights, an advisory firm that helps organizations bring innovative & tech focused products & services to the transportation & mobility sectors. Sino Auto Insights helps their clients develop cross border market entry strategies, market research, product/market fit, business development, and financial due diligence. Tu’s weekly newsletter is a must read for anyone in Asia or the U.S. that follows the mobility sector. He is recognized as an expert in the EV & mobility space by respected media outlets such as CNN, Business Insider, The Straits Times, Economist, Wired, Technode, the Financial Times, the Wall Street Journal and others. Tu is also an advisor to startups and a mentor for accelerator programs in China and Taiwan. He previously spent time at GM, Ford and Apple in Michigan & Silicon Valley as well as China based startups. He has a BA from Michigan State University and MBA from Carnegie Mellon University.

John Paul MacDuffie (JM) is Professor of Management at the Wharton School and Director of the Program on Vehicle and Mobility Innovation (PVMI) at the Mack Institute for Innovation Management. His research, primarily on the global automotive industry, has examined the impact of human resource systems and work organization on economic performance; collaborative problem-solving within and across firms; and whether new technologies will change product and organizational architecture. His commentary on the disruptive innovations affecting the emerging mobility ecosystem are featured in the New York Times, Wall Street Journal, Washington Post, Bloomberg Business Week, Fortune, Forbes, [email protected], and on National Public Radio. He is a founding board member and current President of the Industry Studies Association; and he has advised the Federal Reserve Bank and the World Economic Forum.

Moderator’s Bio:

Dinda Elliott (DE) is Senior Vice President of Programs at China Institute.

Full Video of Getting to Zero, Episode 2:

Selected Program Quotes:

DE: The race in the US is finally on! But wait: the race in China has been on for a very long time. China sold 40% of the world’s EV’s in 2019. I would like to start tonight in China. What has been happening over the last 12 years, since China first started promoting EVs? I read that there are 400 EV companies in China and the five most prolific EV fundraisers raised over $21 billion of fresh capital since 2020.

TL: China made EVs a strategic priority for the country and began a subsidy program for electric vehicles. That lit the fuse. If we fast-forward a few years…what we are seeing over the last 5-6 years were a lot of EV startups. The government has spent $60 billion in tax rebates to customers. You saw Nio [list on the stock exchange]…and now it is a $65 billion dollar company. We are running in China and the [rest of the world] is learning to walk.

TL: Leading up to the Shanghai Auto Show, you see tech companies coming to the forefront talking about the future of transport and mobility. Didi Chuxing, China’s Uber, has announced they are getting into vehicles as well. Alibaba is [getting into it]. Over the next 24-30 months everyone will be elbowing for positioning in the market. Around the $30,000-$50,000 price point, it is going to be brutal. The legacy automakers are coming in because they want to be a part of the largest future auto market in the world.

The Chinese government decided pre-COVID they would lay off some of the subsidies and focus on infrastructure. China has focused on Tier 2/3/4 cities to focus on charging infrastructure. Nio is putting in battery swapping stations. So there are different ways of managing that range anxiety and charging time.

If Biden’s infrastructure bill is approved, we will start seeing investment in [the American] charging network.

DE: Who are the Big 4 Chinese automakers today?

TL: NIO, Li Auto, XPeng, and WM Motor.

DE: What are we seeing in the US? Can America catch up?

JM: Certainly we can…but there are a lot of moving parts that have to come together to see more rapid progress. The consumer demand side is one that has always been lagging and discouraged auto companies to move ahead faster. We have had the problems with momentum swings. Often it seems like it resets to zero, in terms of public and corporate attention to it. The policy swings have been a problem too.

There is more receptivity to electric vehicles in a variety of dimensions, even holding aside subsidies. There may be a legacy of [gas powered cars in America]. Both China and the U.S. has vast space between cities but China has a large train network. It is on those long trips where range anxiety is the greatest. The US is a more car dependent society.

I have started to like a Field of Dreams metaphor: if you build it, they will come. China really did that and forward invested into infrastructure to stimulate demand. They are using every single policy lever to move this initiative. In the U.S., it has been politically contentious.

The EU is in the lead on emissions targeting, and the U.S. will go back to Obama-era policies. China, meanwhile, requires the multinationals to build electric vehicles with Chinese batteries. There are already at scale…so if they can push up demand in their home countries, that will only help them. It may be a reframe to think of it as a U.S. vs. China thing, as opposed to a company vs. company [situation] that will get the Americans moving in a more active way. We respond to this sense of competition. In the sense of getting the U.S. out of some of its inertia, it could be good.

DE: It sounds like it has moved on to intense competition in China between these 400 tech companies…and more new players are jumping in.

TL: In China, we have gotten past the question of ‘if EVs are right.’ It is now a question of ‘how fast.’ The U.S. government has to come in and say ‘how are we going to incentivize competition?’ Educating consumers on these types of thing…the era of making electric cars look electric is over. What we will see is more influence from the tech side in terms of how vehicles are going to be designed. Car companies chase ‘fit, form, and function.’ Tech companies work on the user-experience. They do it in China a bit, but [the U.S.] really needs to play catch up. We have $25,000 cars that will include LIDAR [essentially sonar that uses pulsed laser waves to map the distance to surrounding objects.]

We are going to see more autonomous features in China than the rest of the world. Cadillac’s average consumer in the U.S. is over 60. In China it is around 30. The people who are buying products at the $50,000-$60,000 digital price point, they grew up with digital.

I am excited that Xiaomi—a consumer product company, like Apple—is jumping into the EV space. Xiaomi is very good at creating the eco-system. It makes sense from an eco-system standpoint. They started by making local phones, and then the only part of your life that they weren’t a part of was transportation.

DE: Tell us about BYD. What sort of pressures and challenges are you seeing in the U.S.

FG: I think that some of the cars that we have will astonish the American consumer. Here, we have this idea of the Chinese product as being less up to par than a Cadillac or Lexus. But many of these cars have fit and finish on the level of BMW, but with prices far more consumer-friendly. Cars coming here from China will sell themselves.

But there is a negative and nasty component. We build electric buses and trucks, and we had municipalities who wanted to buy them using government funds. The Trump administration targeted us and blocked the funds from being used. So now we have 500 buses in [limbo].

How does the U.S. accept a publicly traded Chinese company on U.S. soil? That is something that is going to have to be answered in the next year. The Biden administration is looking to eliminate 50,000 diesel buses in the next few years. We have the capacity to build them. But if the government takes us out, (the U.S.) will lose that ability to meet those goals in that space.

The American infrastructure is completely lacking in its ability to handle the onslaught of electric vehicles. Do you charge your car during the day or night? When you drive to the mall, and they have three EV charging spots and two are for Tesla, what do you do? Range anxiety is also an issue we see in the bus and truck market.

DE: How is BYD doing in other parts of the world, like Latin America?

FG: Worldwide, beyond cars and masks, our products are the heavy-duty vehicles like buses and trucks. We have a sky-rail system going into Brazil. We have 500 buses in Colombia, 400 buses going to Chile. We are working with the Toronto transit system. We make the London double-deckers. Our hometown of Shenzhen is home to many of these buses. In the U.S., we are finding a great market for electric refuse trucks.

JM: We have the pushback from the fossil fuel industry. We had the recent Postal Service vehicle competition, the Osh-Kosh company that won said they wouldn’t build more than 10% of the vehicles as EVs. I don’t know if that can be reversed at this point. I am not as pessimistic about the charging infrastructure situation…you can get a charger and run it off of a 240V outlet. Most of your daily commuting, you won’t need to charge it at all. And most people will charge at night. They don’t want people charging at peak hours, and they will incentivize that. It is about getting infrastructure into urban areas and multi-use buildings. That is where the Biden administration should focus.

FG: The subsidies that are offered by the Chinese government are available to any company who wants to build there. Primarily it goes to the consumer. Here, do we incentivize [industry] or the buyer?

TL: China is the largest EV market in the world. The old automakers are working around what is happening in China to push their vehicles out. Tesla has lived off of subsidies and tax credits. The Chinese government adopted what California did 15 years ago. And Tesla is profitable because of these EV credits.

This is where the US government has to come into play. We need to get to that tipping point. It isn’t just cars, it is connected suppliers, cloud systems, V2X (vehicle to everything communication), this is the future 10-15 years out. As Americans, we want competition, it drives innovation and drives down cost. When the U.S. is a globally competitive player in the EV sector, I think we will be fine.

DE: When it comes to EVs, there seems to be a major rethink in the U.S. about what the government’s role should be in terms of industrial policy. Doesn’t the government have to play a role to get things rolling?

JM: I think that rethink is going on, that’s certainly true. Even GM with its big announcement of the 2035 goal to have all vehicles EVs, they said these are aspirational goals. They said they will need a lot of government support in terms of policy to get there. Which is not the kind of thing you’ve been hearing from GM in the past. That’s a piece of it.

Other things have also pushed GM and other auto companies in this direction. Emissions targets are getting tougher all over the world…And China is the biggest EV market in the world. It requires multinationals to build EVs with Chinese batteries and Chinese components. These multinationals like GM and Volkswagen, they’re going to sell more EVs in China than they will in their own countries for a long time. Scale of course helps immensely with cost. And so if they can push up demand in their home countries, then that will add to the China demand, and that will help them, too.

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See previous programs in the Getting to Zero series