HomeUncategorizedChina’s Aggressive EV Strategy: A Calculated Move to Undermine Western Markets

China’s Aggressive EV Strategy: A Calculated Move to Undermine Western Markets

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In recent months, headlines have been dominated by reports of China’s aggressive campaign to dominate the global electric vehicle (EV) market. At the center of this strategy is a staggering $230.8 billion investment, spanning over a decade, aimed at propelling China’s EV industry to the forefront. This massive investment, as highlighted by the Center for Strategic and International Studies (CSIS), underscores China’s intent to use vast government resources against private industry in the West to steal and dominate the EV market.

The Scope of Subsidies

The scale of Chinese government support is extraordinary. It accounts for 18.8% of total electric car sales between 2009 and 2023. This state-backed support includes direct financial aid, tax exemptions, funding for infrastructure like charging stations, research and development (R&D) programs, and extensive government procurement of EVs. Scott Kennedy, trustee chair in Chinese Business and Economics at CSIS, notes, “the average Chinese support per electric car purchase was $4,600 in 2023, down from $13,860 in 2018.” These figures, however, are just the tip of the iceberg, as broader financial backing also encompasses low-cost land, electricity, and credit for manufacturers.

The Goal: Market Dumping

China’s extensive subsidization has enabled it to produce and sell electric vehicles at significantly lower prices, a tactic aimed directly at undermining the competitiveness of Western automakers. This strategy of market dumping—selling products at artificially low prices to drive competitors out of the market—has triggered a defensive response from the European Union (EU) and the United States. The EU’s provisional tariffs range from 17.4% to 38.1%, while the U.S. has imposed a 100% tariff on Chinese EVs.

Scott Kennedy, trustee chair in Chinese Business and Economics at CSIS, criticizes Western automakers and governments for not being aggressive enough in countering this threat, stating, “There are some exceptions, but in general Western automakers and governments have dilly dallied and not been aggressive enough.” Beijing’s support extends beyond financial aid, encompassing non-monetary policies that favor domestic over foreign automakers, further skewing the market in favor of Chinese manufacturers.

But is this the right way to compete? Do the U.S. and the West provide massive subsidies to compete with China, rather than allowing market forces to produce an industry naturally? Should the West allow itself to be forced into the China socialist model?

The Competitive Edge

China’s strategy goes beyond mere financial support. Regulatory changes, such as the “dual-credit system,” push automakers to electrify a significant portion of their fleets and make it easier for consumers to obtain licenses for EVs compared to internal combustion engine (ICE) vehicles. This regulatory environment, combined with financial incentives, has propelled China to the forefront of the global EV market.

Despite extensive support, Chinese EV companies are grappling with profitability issues. Kennedy observes that in a well-functioning market economy, firms would more carefully gauge their investments, avoiding the sharp gap between supply and demand that currently plagues China’s EV industry. “Firms would more carefully gauge their investment in new capacity, and the emergence of such a sharp gap between supply and demand would likely result in industry consolidation,” he said.

Remember that the first round of EVs in China failed miserably, there are massive graveyards of these vehicles where they have been abandoned as useless. This cost China 10’s of billions of dollars. In the West, under normal market conditions, this kind of incompetence would not have been rewarded. But China’s unlimited government funding is being used as a weapon to attack the West, so they keep going.

EV graveyard in china

Chinese EVs now boast advanced technology, including cutting-edge battery designs, impressive range and reliability, and sophisticated infotainment systems. They have copycatted from the West improve their product, after massive mistakes. This technological advancement, coupled with aggressive pricing, makes Chinese EVs highly attractive to consumers both domestically and internationally. Kennedy highlights that “independent auto analysts and Western automakers with whom I’ve spoken all agree that Chinese EV makers and battery producers have made tremendous progress and must be taken seriously.”

The U.S. and EU must decide whether to shut out Chinese EVs entirely or find a way to coexist in the global market. Both regions need to ramp up their own EV industries by fostering high-quality, affordable EVs and developing a robust charging infrastructure. Coordination on both defensive and offensive policies will be crucial to protect domestic industries, promote decarbonization, and safeguard national security.

The aggressive subsidization of China’s EV industry is part of a broader, more sinister strategy. By using state resources to undercut global competition, China aims to monopolize the EV market, thereby gaining significant geopolitical leverage. This strategy not only threatens the viability of Western automakers but also poses a risk to the economic stability of nations heavily reliant on the automotive industry.

Kennedy’s analysis suggests that China’s actions could lead to “a sharp gap between supply and demand,” potentially causing market instability and forcing Western companies out of business. The U.S. has responded with the Inflation Reduction Act, which allocated $370 billion for promoting clean technologies, including a $7,500 credit for qualifying electric car purchases. However, this pales in comparison to China’s relentless financial and regulatory support for its own industry.

China’s massive subsidization of its EV industry represents a significant threat to Western automakers. The socialist methods employed by the Chinese government, involving extensive financial and regulatory support, have created an uneven playing field that is difficult for private industry in the West to compete against. As the global competition for dominance in the EV market intensifies, Western governments and automakers must take more aggressive steps to bolster their own industries and ensure a fair and competitive market.

The difference between the methods of China and the West is that for the West this is business. For China this is war. China will go into massive debt and take massive losses on the industry to weaken the West.

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