When China’s BYD recently overtook Elon Musk’s Tesla as the global leader in sales of electric vehicles, casual observers of the auto industry might have been surprised.
But what’s caught other carmakers around the world off-guard is something else about BYD, which is backed by Warren Buffett’s Berkshire Hathaway: its low prices.
“No one can match BYD on price. Period,” Michael Dunne, CEO of Asia-focused car consultancy Dunne Insights, told the Financial Times. “Boardrooms in America, Europe, Korea and Japan are in a state of shock.”
BYD can keeps its costs low in part because it owns the entire supply chain of its EV batteries, from the raw materials to the finished battery packs. That matters because a battery accounts for about 40% of a new electric vehicle’s price.
Of course nobody can match BYD, they don’t just own the supply chain the Chinese government subsidizes every part in their supply chain. The Chinese government wants to crush foreign competitors. And before you say Tesla gets subsidies, it’s no where near as extensive as the subsidies Chinese EV manufacturers get.
China doesn’t need to subsidize the entire supply chain because the reason Chinese EVs are so cheap is literally hyper-capitalism. China has had an immensely competitive EV market for years, and they’re been getting into price wars without government intervention. That’s forced innovation at a pace that Tesla cannot match alone because they have no need to compete at such a pace. Here’s a list of national EV subsidies and their status:
In 2022, the 12600RMB consumer incentive to buy a BEV vehicle was ended. This is rather similar to Biden’s EV tax credit.
China has waived the consumption tax for the EV market, which is a tax designed to target environmentally-unfriendly products. The consumption tax is commonly applied to automobiles, but they’re being explicitly waived for the EV market for what is hopefully an obvious reason.
Currently, the tax-free allowance for an EV (the portion of an EV purchase that is not charged VAT) is 30000RMB (@13% VAT, = 3900RMB). This subsidy is being reduced in 2025 and phased out entirely in 2027. This is also rather similar to Biden’s EV tax credit.
Costs of EV charging/battery switching on the grid are borne by the government because the government manages electricity on the supply-side, including finding producers and managing distribution. This is not unusual of crown corporations in other countries.
While there are provincial incentives for companies to set up shop in one province over another, they’re smaller scale, not received support at the national level, and not unique to China (see: subsidies to Tesla for their production and to Amazon for their HQ2). The most unique element of China’s subsidy regime is the elimination of excess consumption tax in the EV market, which has created a huge marginal advantage for developing EVs over developing ICE automobiles. Importantly, that subsidy is simply reducing the excess tax charged on automobile manufacturing over that charged on typical consumption.
It can be all that, and subsidize. Some of it is a form of subsidizing. I’d say big picture subsidizing for the environment is ok. The raw market is prone to anti-competitive practices, catch 22, tragedy of the commons, etc. You want the unseen hand and some planning. A mixed economy. Which is what we all have in some form, outside of lawlessness of failed states, where drug/war lords rise and set their own laws/regulations anyway.
I’m telling you, those are literally what the subsidies are. None of this is private or confidential. The lack of consumption tax is the single greatest supply side subsidy.
Subsidiaries enabling a more rapid transition away from fossil fuels by lowering the cost to consumers is a great thing, and what’s even more impressive is they’re also using subsidized projects to install high-speed or low cost rail lines all over the world.
It’s great that there’s a country working so hard to help is turn the corner on climate change especially as they’re focusing on making life better for the working classes. The country has lots of problems but we all do, they’re also doing great things which I think we could learn a lot from them.
A lot of people are saying this is bad, but for once, I’m on China’s side here.
The faster we pivot away from fossil fuels, the better, by any means necessary.
It’s bad because it forces a monopoly. Once co.petition is out of the window, they will recoup with monopoly prices
China has the most competitive EV market on the planet.
And don’t underestimate, that Human Right Violations are a competitive advantage, too. You don’t even need to argue with slave labor from Uygurs, but not allowing unions and having really low labour standards brings the costs down.
Is that why license plates are so cheap in the US?
I know youre making a prison joke but license plates are small stamped pieces of sheet metal. Im pretty sure you could automated that down with relative ease.
Right, but prison labor is still used in many other contexts.
I know, I was just saying that license plates are one of the elements of prison labor which has pribably been eliminated. Hell im not even against prison labor per se, I just wish they were paid a good sum for it. It would give them some cash to get started again once out.
What does the government subsidy per vehicle work out to?
So China investing in their manufacturing capabilities are resulting in better prices to customers. Western subsidies result in better paychecks for management or act as a feedback loop in the form of lobbying.