This week we saw Tesla deliver its first Model Y compact crossover. It’s the company’s second made-in-China vehicle, after the Model 3.
Investors have loved Tesla for a while now. It’s worth more than Toyota, Volkswagen, Daimler, and Honda combined, making it the most valuable car company in the world.
But this comparison with other traditional carmakers is also misleading. It misses the fact that the market disproportionately favors companies that make electric vehicles.
That’s right: the world’s first, fourth, and fifth most valuable car makers are all “electric first.” Tesla, BYD, and NIO didn’t begin building internal combustion engines. They started with batteries. And BYD (backed by Warren Buffett) and NIO (listed on the New York Stock Exchange) are both headquartered in China.
So how exactly is China propelling these companies? Consider these figures.
- Tesla’s Shanghai Gigafactory, which can produce 150,000 Model 3 sedans a year, was completed in 168 working days. It took two years to build the Tesla Gigafactory in Nevada. To get hold of enough batteries, Tesla has been working with the Chinese supplier CATL.
- BYD makes more than passenger cars. It’s the world’s largest electric bus supplier, holding the #1 position in the US, Latin America and Europe. It’s also the world’s second largest battery manufacturer, ahead of Japan’s Panasonic and behind only Korea’s LG.
- Electric engines on average may have something like 20 parts, whereas the traditional combustion engines may have more than 2,000.
All these means only one thing. China has controlled the supply chain of electric vehicles (EVs).
To build an EV, you don’t need the craftsmanship that the German and the Japanese have mastered over decades. It’s simpler assembly process like that of a computer and a mobile phone. China has been assembling gadgets for Apple and HP and Dell for years.
The most important component of an EV is batteries, and the leading players are all in Asia. Then you need cheap land to build factories, and more importantly, abundant workers, who stand on the assembly lines. And that’s how China is leading the EV revolution.
What’s added inside a car today is software. The self-driving algorithm. On that front, Silicon Valley might still have a chance. But time is ticking away fast.
Stay healthy,
This article is co-authored with Angelo Boutalikakis, a research associate at the LEAP Readiness Project.
6 comments
Completing a giga-factory in 168 working days calls to memory the speed at which China has built or rebuilt sections of towns. The old saying “time is money” only touches one aspect of the importance of time and of timing. Prof. Yu it would be most interesting if you could help us understand how Chinese companies manage time. The VP of a US based MNC that operates 3 plants in China mentioned they found people ready to make extraordinary efforts to solve a problem. But, there must be more than attitudes, there is something to be learned. Thanks.
Thanks ! The investment made in internal combustion motors kept many car-companies tied to that technology. Off the cuff, China has several companies that produce electrically powered cars on top of the locally assembled Tesla.
I do not know if, how, and when the New Administration will join the TPP. The size of that market will have an impact on the development of technologies well beyond electrically powered and self-driven cars. You are fortunate to have a good understanding of both the Western and the Chinese business environments. I would look forward to reading insightful thought on this. Best, Willy
Truly production can be scaled in China where labor, assembly as well as engineering workforce is plentiful and less expensive (for now), However, there are battery factories growing in Europe as well such as Northvolt in Sweden to supply the European Market. However, REE (Rare Earth Elements) is still mostly found in China, but other places such as Greenland could also be high amounts of this which will benefit Europe too.
Let us not forget, Tesla is more than the cars, it is also the technology and the whole Power Customer Journey such as Homepower through batteries and solar panels.
When China starts their “engine” to get the lead, no matter which industry, nobody will have chance against their copy, financial (state sponsored!) and market (size) power. Telecom, Solar, Chemistry and many more are already passed away in EU and US.
Goodnight Europe: You were an honest and correct market player, but silly enough, to open all the doors for your biggest enemy! R.I.P.
It’s interesting how NIO and BYD are climbing up the chart, the competition is in full swing! I can certainly say that automakers will start to ramp up electric in the future.
Compelling piece Howard, China is indeed leading the way in EV sector worldwide and will likely continue to do so!