Demystifying the Chinese EV market

Start with the milestone and its exact scope. Huang says weekly registrations of new energy vehicles recently crossed above internal combustion cars for the first time. New energy vehicle is the Chinese regulatory category and it includes plug-in hybrids, so this is not a claim that half of new Chinese cars are pure battery electrics. Kann’s comparison figure for the United States is 8% to 10% of new registrations, and he says plainly that he does not know the American number with plug-in hybrids included, so the two are not measuring the same thing. The scope matters, because the price story that explains the crossover runs through plug-in hybrids first.

Huang’s causal account has three stages and only the first is about government. There was always a state push to move the industry from combustion to electric, but what moved consumers was Tesla opening its Shanghai factory, which attached a premium, aspirational feel to electric cars. Sales took off around 2021 and 2022, and the binding constraint then was production rather than demand: automakers could not build enough. Once enough of them put real weight behind development, supply caught up, and BYD industrialized production far enough to run a 2023 campaign whose message was that electric is as cheap as combustion. It priced a plug-in hybrid compact sedan at about 100,000 renminbi, roughly $14,000. Falling lithium prices and falling chip prices carried it further, so by 2024 the campaign line had become electric is cheaper than gas, with the same class of plug-in hybrid at 79,800 renminbi, a little over $10,000, and a pure electric compact sedan around 100,000 renminbi. Charging did not turn out to be the binding constraint either, though the network is much thinner outside the big cities.

Which sets up the thing the tariffs are about, and this is where Huang’s answer diverges most from the framing around it. He grants the premise that makes politicians nervous: a car you can buy for $14,000 that is safe and reliable enough for a family is a better value proposition than almost anything else available, and given the size of China’s domestic market, even a modest export share looks like a flood from the receiving end. But he puts BYD’s sales outside China at only 10% to 15%, and says, on the strength of a personal connection rather than any public statement, that BYD is simply not coming to the American passenger vehicle market, citing trade barriers and geopolitics. He adds a second reason: BYD already runs a large California factory building electric buses and other commercial vehicles, and would rather not attract attention that could jeopardize that revenue. Europe is different, because BYD does want a permanent presence there, which would mean building two or three factories against local opposition. The real export push is aimed elsewhere: Brazil, Thailand, Indonesia, central Asia and much of the Middle East, with charging infrastructure built alongside the cars.

So the displacement Huang thinks is underpriced is not American at all. It is that the German and Japanese incumbents, and General Motors, are losing share inside China while depending on it heavily. Volkswagen takes about a third of its sales there, and Huang puts BMW, Audi and Mercedes in a similar range, with Honda, Nissan and Toyota also drawing a large share. His explanation has nothing to do with batteries. Those countries never built a competitive software industry, so as the car shifts from a mechanical product to an electrical and software-driven one, and then to one with artificial intelligence in it, they lack the domestic talent to build a competitive product. The same brands are now meeting BYD in Southeast Asia and Latin America, markets the Japanese have historically dominated. Huang offers the endpoint as speculation: in ten years there may be no Nissan and no Mitsubishi.