China Races for Gold in the EV Olympics

While the world’s attention was fixated on the Summer Olympics in Paris, a different kind of global competition is also unfolding. China, a leader in both sports and manufacturing, is sprinting towards supremacy in the global electric vehicle market. Unlike the Olympics, this race is not about meters or seconds but about market share and cost. China’s decade-long preparation for this race has made it the favorite to take the top spot on the electric vehicle podium.

Ironically, the 2008 Beijing Olympics jumpstarted China’s EV ambitions. At that time, the air pollution in China’s biggest cities was so bad that they called it the “Airpocalypse.” Olympic athletes competing in outdoor events voiced concern about their health and safety. Facebook founder Mark Zuckerburg famously posted a picture of himself running through Tiananmen Square with smog so dense you could hardly see the buildings behind him.  

Following this moment of international embarrassment and growing public concern, the Chinese government embarked on a journey to improve its country’s air quality and to expand its manufacturing prowess into the global auto industry.  Electric vehicles emerged as a cornerstone of the initiative.   

Today, China’s dominance in the EV market is undeniable. It builds, sells, and exports more EVs than any other country. Last year, it claimed the gold medal in auto exports, surpassing Japan for the first time. China’s annual vehicle production of 30 million, with a capacity to build up to 45 million, dwarfs the North American output of 15 million. The scale of China’s export ambition is staggering, as evidenced by the large 7,000+ unit shipping vessels they ordered last year, increasing their shipping fleet from 33 to 91. Never mind the inconvenient truth that the environmental costs from just one ship would require 50 million EV miles to offset its annual carbon footprint.

The speed with which China is transforming the global auto industry is causing significant anxiety among legacy automaker CEOs who continue to watch their market share and profits decline around the globe. Western automakers are feeling the impact of China’s dominance in three significant ways:

1. Reliance on China’s Dominant EV Supply Chain

China began developing an EV battery supply chain in the mid-2000s, long before any other country or company had even contemplated it. They went to African nations like Congo and offered to construct ports in exchange for access to their rich mines of rare earth minerals, like lithium, copper, and cobalt, which are essential for EV battery production.

Today, China’s supply chain dominance is unrivaled, accounting for 85% of the world’s EV battery mineral refinement and 79% of global battery production. Chinese car companies are estimated to have a 30-35% cost advantage driven by the strength of their supply chain and labor force, which works up to 120 hours of overtime per month! Building a new EV today without China’s involvement is nearly impossible.

2. Massive Reduction in Profits from the World’s Largest Auto Market

China is the world’s #1 volume market, with annual sales near 25 million. Legacy car companies have historically relied on the Chinese market to meaningfully contribute to their bottom lines.

Today, there are over 100 new upstart Chinese car companies whose focus is squarely on growing market share, not driving high profit margins. Companies like BYD have emerged and undercut the legacy automakers with affordable, government-subsidized, high-tech EVs and plug-in hybrids. They sell an entry-level EV called the Seagull for only $10,000.  The average gross profit for BYD is a measly $1,200 per vehicle. By comparison, Tesla’s gross margin is estimated to be closer to $8,000. Elon Musk recently commented, “If there are no trade barriers established, they [the Chinese EV makers] will pretty much demolish most other car companies in the world.” 

As recently as 2018, the Chinese market delivered $2 billion per year in profit to GM, but today, it has become a money-losing venture, with GM posting a $210 million loss in the first half of 2024. The urgency of this profit crisis is clear, as many legacy car companies have begun taking drastic actions. Hyundai recently placed one of its Chinese manufacturing facilities for sale, while many others, including Toyota, have significantly pulled back their production and sales forecasts in China. These production/sales reductions have driven some pessimism on Wall Street – as Toyota’s share price is down 25% in the past six months.

3. Whiplash from Government Regulations and Tariffs

U.S. politicians have taken notice of China’s rising automotive ambitions and have rolled out aggressive new tariffs (+100%) and adjustments to the Inflation Reduction Act to fend off the growing competitive threat of Chinese automakers. Unfortunately, these actions have added a layer of confusion to U.S. automakers, dealers, and consumers trying to transition to EVs.  

Since January 2023, the list of eligible vehicles for EV incentives has changed three times based on vehicles’ final assembly location, battery components, and/or critical minerals sourcing. In a recent survey, 41% of American shoppers said they are not aware of any state or federal incentives available for EVs. Even Mary Barra, CEO of GM, has pleaded for “consistency in government policy” because investments and product timelines are 5-10-year windows, and automakers cannot efficiently deploy capital in a constantly changing regulatory environment. Carlos Tavares, CEO of Stellantis, has called these new tariffs on Chinese automakers a “trap” because “you cannot stop the competition; you can only protect yourself with performance.”

While the closing ceremonies in Paris have already taken place, the global EV Olympics are just getting started, and there’s no question that Chinese automakers are already lapping the field, accounting for 60% of the global EV sales last year.

However, the global auto industry is more like a decathlon than an individual race. Winning automakers are those who best align their product strategy with consumer demand to maximize sales and profits. This year in the U.S. market, as EV sales growth has slowed and profitability remains severely challenged, brands like Toyota are winning with hybrids, with sales up 66% in the first half of 2024. Even in China, plug-in hybrids are outpacing EV sales, with a massive 70% year-over-year increase. 

The Olympics are held every four years, but the planning and training never stop. Automakers and their suppliers will continue to innovate battery technologies, with a new start-up company – Natron Energy, set to open their first $1.4 billion plant in North Carolina to produce sodium-ion-based batteries, a potential game-changer for the industry. Winning the gold medal in the automotive decathlon is a monumental challenge with rapidly changing dynamics across consumer demand, government policies, and new technologies. It will be fascinating to see who is standing on the podium of the global auto market in 2028 when the next summer Olympic games come around.

Brian Finkelmeyer

Senior Director of Enterprise Insights and Advisory

Brian Finkelmeyer is Senior Director of Enterprise Insights and Advisory at Cox Automotive. Brian leads a team dedicated to providing car companies with actionable business intelligence to drive their performance. Brian has spent his entire career in the auto industry, working at Nissan for nearly 20 years in various sales leadership positions. Upon joining Cox Automotive, Brian was responsible for the vAuto New Car Inventory solution – Conquest. Brian lives in Nashville, TN.