Cross-border synergy with China can help US more quickly adopt EVs
- Despite US fears about an overcapacity in Chinese green teach, China’s market share of solar modules and electric vehicles is smaller than that of other competitors
- ‘Cooperative competition’ between manufacturers can help both countries synergise their green industry transitions
Unlike basic commodities like steel, which are largely interchangeable, cars are highly differentiated products. No matter how well-made, the cheap Chinese cars of old were no threat to premium brands like BMW. But not so the latest EV models that are both technically impressive and affordable. And as EVs gain prominence, petrol cars will indeed face global overcapacities.
Around 18 million EVs are projected to be made next year, up from 10.5 million last year. But growing capacity alone does not quite equate with overcapacity. Unlike the solar industry a decade ago, the dynamics for the EV industry are far more complex. With high-cost producers in a high-priced market, the US faces more severe challenges within its own EV sector.
Most new industries go through stages of growth, proliferation and consolidation. EVs are no exception. China has been consolidating its EV industry. From a height of about 500 EV assemblers in 2018, there are an estimated 140 car companies (of all types) in China – a third of which may exit this year.
In the US, after Lordstown went bust last year, Faraday Future and Fisker may soon follow suit. Other US EV start-ups like Lucid and Rivian, despite respectable growth, have struggled with low sales volumes.
The proliferation of EV start-ups is shaped more by the forces of global capitalism than the support of governments. Venture capitalists are driven by an exuberant outlook on the trillion-dollar market potential and sky-high valuations of market leaders like Tesla and BYD.
Rivian hit a valuation of US$150 billion, far exceeding Ford’s, before falling to US$10 billion. Since Tesla, the US’ market economy has yet to produce another success of its kind. Meanwhile, GM and Ford have scaled back their EV ambitions.
Production capacity is only half the equation in supply-demand balance. Overcapacity is a result of unrealised market demand as much as industry proliferation. While European and Korean-made EVs are able to make use of US tax credits, Chinese EVs are largely locked out.
If EV pricing in the US can approach the level of China’s, demand will mushroom, absorbing much of the expanding capacity. Trade restrictions imposed by the US are arguably just as responsible for any unfolding EV overcapacities as China’s industrial output.
How the US, home of trailblazer Tesla, lost the EV race to China
Just like South Korea, Japan and the US, China had adopted industrial policies to promote certain industries at their early stages. Particularly, local governments in China have been key drivers. But relatively mature industries like solar and EVs are no longer dependent on government support in China. They have entered virtuous cycles of evolution, both improving technologies and reducing costs.
If China were to use the visible hand of the state to accelerate industry rationalisation, to comply with American wishes, it would only make Chinese market leaders stronger at an ever faster pace. Culling marginal players will boost the profitability of industry champions, making them more formidable rivals.
At issue is not so much the quantity of green tech capacities in China, but the quality of its highly competitive capabilities.
The rapidly evolving green technology landscape represents an ecosystem straddling economic ambitions, environmental imperatives and escalating geopolitical rivalries. US-China duels over techno-industrial strategies are pulling their green tech ecosystems apart. Balkanisation into fragmenting spheres is distorting resource flows, suffocating entrepreneurship and deterring cross-border synergy that is vital for green innovation.
These complex challenges demand that enlightened self-interest transcend outmoded zero-sum mentalities. Frameworks for cooperative competition of carefully instituted win-win interconnectedness may help synergise the green industry ecosystems of US and China.
Winston Mok, a private investor, was previously a private equity investor