If you bought an electric vehicle in the UK this year, there’s a good chance it was an MG4. The fully electric hatchback, which launched in 2022, sold 5,200 units in the first three months of this year, the second-best selling EV behind Tesla’s Model Y.
With prices starting at about £27,000, it is also substantially cheaper than the Tesla at £45,000. And while MG is one of Britain’s most famous car brands – with a century of carmaking in Birmingham until MG Rover’s 2005 collapse – the secret to its newfound success comes from China. Since 2007, the company has been owned, and the cars made, by SAIC, China’s largest carmaker.
In the past few years, China has been churning out EVs of a quality and price that is making western marques nervous. More than a quarter of new cars sold in China last year were EVs or hybrids, compared with 13% globally. And of the 850,000 electric passenger cars imported to Europe in 2022, more than half came from China.
Xi Jinping, China’s president, has pledged to take the country to net zero emissions by 2060. In the EU, the target is 2050. For both, decarbonising the streets with EVs will be crucial, and China is racing ahead. By 2025, 13% of China’s fleet is predicted to be fully electric or hybrid, compared with 6% globally.
After an astonishing rise, some analysts are wondering if China’s EV industry can continue to accelerate, as the government winds down state support and geopolitical tensions threaten to dampen global demand for its cars.
Last year, Beijing ended a programme of subsidies for EVs that had been in place for more than a decade.
Between 2010 and 2020, more than 152bn yuan (£16.5bn) was ploughed into EV allowances. But rather than passing the higher costs on to consumers, companies slashed prices, leading to a price war that drove the cost of some models down by nearly 15% compared with 2022.
In July, Beijing ordered the firms to show “core socialist values” and “not disrupt fair competition with abnormal pricing”. At the behest of the industry ministry, executives from 16 companies including Tesla and BYD – China’s leading brand and the world’s biggest EV producer – signed a pledge.
But although the cash subsidies have has been wound down, China still wants to back an industry that will be crucial to meeting its climate targets – and which is expected to rake in £227bn this year. In June, the government announced a package of tax breaks for the industry worth 520bn yuan over four years.
“Luck is opportunity and preparedness intersecting,” says Tu Le, the founder of Sino Auto Insights, a consultancy. “China EV Inc and China battery Inc [have been] preparing for this since 2009.”
China’s biggest EV success story is BYD, a Shenzhen-based company that started out making mobile phone batteries in 1995. In the 2000s it moved into cars, applying its cutting-edge battery knowledge to a market that had struggled to offer EVs cheaply enough to lure consumers away from petrol.
After years as a relative minnow, BYD now makes what many analysts consider to be the most advanced car battery in the world: the Blade, which can be found in its EVs, as well as cars made by Tesla and Toyota. That innovation has translated into huge revenues: the company has forecast profit growth for the first six months of this year to be between 192% and 225%. At the lower end of the range, that would take profits to 10.5bn yuan.
BYD’s success comes from the fact that it has near-total control over its supply chain, including the mining of minerals critical to battery production. Last year, the prices of lithium, cobalt, nickel and manganese surged, causing havoc in the EV market. But BYD has cultivated close relationships with miners and processing companies. In April, it struck a deal with the Chilean government to build a $290m lithium cathode factory in the mineral-rich country. Other Chinese companies are making similar moves: UBS expects Chinese-controlled mines to produce almost a third of global lithium supply by 2025.
China’s dominance of the supply chain is a headache for the west. In the finished products, some analysts warn that there is a security risk associated with having Chinese-made sensors roaming European streets. “Companies and policymakers have only just begun to think through the security ramifications of increasingly autonomous and sensor-filled automobiles operating on their roads,” says Chris Miller, author of Chip War, a book about the US-China semiconductor race.
Beijing is alert to this concern. Teslas have repeatedly been banned from certain areas when China’s leaders are in town. Last week, Chengdu, the capital of Sichuan, was reportedly blocking Teslas from areas related to Xi’s planned visit for the University Games, a sports event that started on Friday.
There is also the economic threat. In May, the insurer Allianz warned that Chinese-made EVs could cost European carmakers €7bn (£6bn) a year in lost profits by 2030. But the US and Europe are divided on how to balance these concerns against the desire to wean drivers off fossil fuels. European manufacturers – and particularly Germany’s premium marques of BMW, Audi and Mercedes-Benz – are heavily reliant on sales in China, and know that restricting China’s access to Europe could backfire.
“It is going to be hard for European and UK politicians to square the circle that is the UK being committed to banning internal combustion engines by 2030 – and Europe by 2035 – without Chinese EVs,” says Le. “Something’s got to give.”
Human rights groups hope that what gives is not their concerns about rights abuses in the EV supply chain. Researchers from Sheffield Hallam University have noted that much of China’s lithium processing takes place in Xinjiang, a predominantly Uyghur region where there are reports of forced labour (the Chinese government denies these claims). In “the rapidly growing lithium EV battery market, or in emerging technologies, companies will need to be vigilant to avoid forced labour supply chain risk” in Xinjiang, the researchers said in a report last year.
But as economists from ING have noted, Chinese battery brands are “set to go global”. Batteries account for 40-60% of the price of an EV. So as EV companies compete to reduce costs, producing an affordable vehicle that is not powered by China may prove impossible.
