China’s domestic electric vehicle industry has made significant strides this year, causing concern in Western societies. The US administration called Chinese leader Xi Jinping and subsequently sent the Secretary of the Treasury to apply pressure, pledging to “protect American workers and the automotive industry” and preparing to send the Secretary of State to continue lobbying. The German president also visited China in April, risking having his mobile phone information stolen, and called on China to “open up and have a fair market,” issuing warnings about dumping and overcapacity. Both the US and Germany are world-renowned leaders in the automotive industry, so their concerns are to be expected. Japan, another major player in the global automotive industry alongside the US and Germany, has not yet revealed formal government responses, but the savvy and meticulous Japanese are likely deeply researching, evaluating market impacts, and devising strategies. Once Japan’s strategies and demands are unveiled, it is believed they will have a clear advantage.
For China’s domestic electric vehicles to go global, unlike Chinese furniture, household appliances, clothing, and toys in the past, higher technological content, product quality, safety standards, after-sales service, and brand marketing are required. The impact and influence on the global market are also much greater, thus causing intense backlash from Western governments and industries.
Specifically, for China’s domestic electric vehicles to truly go global, they must overcome several hurdles including “losing money in transactions”, “low gold content,” and “national reputation.” These hurdles involve issues such as corporate profitability and government subsidies, product quality, safety, and reliability, consumer trust, doubts about Chinese products and brands, after-sales service and automotive distribution networks, and national origin. Cars are not small appliances; they are the second-largest investment for families after real estate, used for over a decade, and require accompanying dealership networks for routine warranties and maintenance.
Currently, the Chinese electric vehicle industry is generally operating at a loss. Apart from Xiaomi, companies like NIO and Li Auto are also experiencing substantial losses. In mid-April, Citigroup released a research report predicting the production and delivery of Xiaomi Group’s first car, SU7. They estimate that Xiaomi SU7’s delivery volume can reach 5,000 to 6,000 units in April this year, with an expected total annual delivery of between 55,000 and 70,000 units. However, for each SU7 sold this year, Xiaomi will lose RMB 6,800. Xiaomi’s automotive business is projected to incur losses of RMB 4.1 billion in 2024 for the full year.
Such losses in car sales are only sustainable under significant government subsidies. Internal revelations within Xiaomi indicate that the company is prepared for over five years of losses in the future. Apparently, the Chinese Communist government seems determined to support the survival and development of China’s electric vehicle industry at any cost, with international market expansion being China’s obvious choice. However, the problem lies precisely here: the electric vehicle industry in the West has reached a bottleneck, leading major international electric vehicle companies to abandon their optimistic estimates and plans to fully transition to electric vehicles within a few years, instead returning to gradual development, with electric vehicles and gasoline vehicles coexisting, supplemented by a multi-vehicle development model including hybrid cars. Currently, the honeymoon period for electric vehicles in Western markets has passed, and the many shortcomings of electric vehicles are beginning to surface, such as rapid discharging in cold weather, inadequate charging infrastructure, and the realization that electric vehicles are not as environmentally friendly as previously thought. The sudden entry of an 800-pound gorilla into the struggling electric vehicle market in Europe and the US has paved the way for Chinese electric vehicles to surge ahead, threatening the industrial foundations of the electric vehicle industries in Europe and the US.
Research from the Kiel Institute for the World Economy in Germany shows that Beijing heavily subsidizes domestic industries, especially in green technologies such as electric vehicles or wind power, with subsidies totaling three to nine times that of other OECD countries like the US or Germany. The Institute estimates that direct subsidies to key beneficiary BYD amounted to approximately $239 million in 2020, skyrocketing to $2.3 billion in 2022. Cumulatively from 2018 to 2022, direct subsidies exceeded $3.7 billion. Direct subsidies increased from 1.1% in 2020 to 3.5% in 2022. One of the co-authors of the Kiel Institute’s report, Dirk Dohse, stated that government subsidies in China are widespread, with over 99% of listed companies receiving direct government subsidies in 2022. The Chinese government strategically uses subsidies to advance competition in key technologies. The research indicates that China’s explicit goal is to achieve a leading position in green technologies such as electric vehicles and wind turbines.
The high costs of electric vehicles, market dumping at low prices, and the substantial subsidies China provides for export and employment have forced Western governments to confront this economic threat posed by China and take swift action to plug the leaks. Whether through tariff barriers or enacting laws directly prohibiting Chinese automobiles, overcoming these hurdles is the first major challenge for Chinese electric vehicle companies.
China’s electric vehicle industry saw rapid development following the success of Tesla in China and Musk subsequently sharing technology and encouraging other companies to enter electric vehicle production. With substantial support from the Chinese government and categorization into the “new quality productivity” sector, great and swift progress was achieved. Xiaomi, a smartphone company, introduced its own car brand just three years into development without sufficient testing or safety assessments. However, during this rapid development, domestic electric vehicles in China faced skepticism – issues with branding and trust began to emerge. By mid-April, pre-orders for Xiaomi SU7 exceeded 60,000, but the cancellation rate soared to 55%. Soon after the launch of the Xiaomi SU7, it faced nine major criticisms, including the inability to refund deposits, cut corners in manufacturing, and seats sagging, among other fundamental issues.
During the delivery of the first batch of Xiaomi cars in Beijing, Lei Jun personally opened the car doors for owners, heavily relying on public relations and stunts, but the real quality of the cars was worrying. In Haikou, Hainan, a newly purchased Xiaomi electric car suddenly caught fire, leaving the helpless driver stranded while police were unable to do anything, exemplifying the current state of China’s domestic electric vehicles. Chinese electric car drivers tested the renowned Xiaomi SU7 and found themselves in accidents due to brake pads and discs wearing down directly. Some new Xiaomi SU7 cars broke down within hours of delivery, failing to start in the morning after being picked up from the dealer – despite following customer service instructions, the cars couldn’t be restarted and had to be towed back to the 4S store. How could it be safe to drive such vehicles? Some car owners claimed the vehicles were industrial garbage, making strange noises and leaking water from brand-new cars.
The lack of basic rigorous testing and approval for such vehicles highlights the irresponsible practices of the Chinese electric vehicle industry, which rushed to enter the market without thorough testing and improvements. Additionally, reports indicate that Chinese electric vehicles entering the European market are actually entering as used cars in the leasing market because new cars must pass stringent crash tests by the EU. As hastily launched and untested Chinese electric vehicles couldn’t meet these rigorous standards, they were forced to export new cars as used vehicles to Europe without undergoing proper testing.
However, when Chinese electric vehicles truly enter the European consumer market and undergo the EU’s rigorous testing requirements, hastily produced Chinese electric vehicles may face significant troubles. This would be the second major obstacle for Chinese electric vehicles. China’s authoritarian government’s large-scale promotion and subsidies, attempting to stimulate economic growth urgently, reveal society’s pursuit of wealth at all costs while disregarding personal safety and life.
China’s reputation worldwide has been tarnished by the heinous acts of the Chinese Communist Party, resulting in a loss of reputation for the Chinese people globally. The atheistic and communist brainwashing by the Chinese government has led to a moral decline, a lack of benevolence, and a disregard for propriety among contemporary Chinese. Due to the lack of morality, deviating from the characteristics of “truthfulness, compassion, tolerance” in the universe, the reputations of the Chinese Communist government, the Chinese people, and Chinese enterprises have all suffered significant damage. Even worse, this damage can occur within a few years of a Cultural Revolution or in an instant during the Tiananmen Square massacre, but restoring this reputation will require a considerable amount of time. It will be extremely challenging for such a country, nation, and its enterprises to gain the trust of foreigners and foreign markets.
From 1985 to 1992, an American businessman named Malcolm Bricklin sought to import household cars from Yugoslavia, another socialist country, to the United States. Bricklin found another partner, Jerry Puchkoff, and began selling Yugoslavian-made small cars called Yugo in the United States. They even managed to sell 140,000 of these cars, with peak sales of 48,000 in 1987, dwindling to just 1,400 by 1992. I still remember seeing this brand of car on the streets when I came to the US in 1986. Eventually, due to design, safety, and reliability issues, the failed Yugo had to sadly exit the US market. Today, if someone proposes to import cars from Eastern European countries into the US, everyone would likely question their sanity. One factor contributing to this skepticism is the “Country of Origin” effect discussed in marketing studies.
The “Country of Origin” effect refers to how manufacturers from certain countries benefit collectively when skilled at producing specific products, creating a positive perception globally. Conversely, a country not renowned for a particular product may adversely affect even the brands exceptionally proficient in manufacturing that product. For example, French wines are renowned, so even a lesser-known French wine brand can easily gain recognition overseas due to this positive “Country of Origin” effect. In contrast, American consumer electronics are not well-known, so even outstanding American electronic brands find it challenging to make an impact internationally today due to this effect.
In the US market, when people discuss cameras, most will think of Japanese brands like Nikon, Sony, and Olympus; when it comes to appliances, many will think of South Korean brands like Samsung and LG. Mention Japan, and people quickly associate it with Toyota, Honda, and Lexus. Or think of Italy, and fashion design, leather shoes, and suits come to mind. When it comes to which products people associate with China in the US market, or with Chinese brands, the associations are not as strong. This is the “Country of Origin” effect. Of course, Americans today may be aware of Huawei, TikTok, and Xiaomi, but the associations with these brands are often negative due to the adverse “Country of Origin” effect.
In summary, the three hurdles of “losing money in transactions,” “low gold content,” and “national reputation,” along with other obstacles, must be overcome by Chinese electric vehicle companies. Failing to overcome at least these four hurdles, China’s electric vehicle industry is likely unable to step outside its borders and enter the markets of developed countries in Europe and the US.
Managers in the Chinese automotive industry may be overly eager, trying to jump on the electric vehicle bandwagon quickly. Their impatience may stem from the Chinese authorities’ pursuit of quick success, hefty subsidies and the stagnant Chinese economy with no prospects of short-term recovery. The overall sluggishness in the Chinese economy is a reflection of the looming decline of the Chinese political regime.
The current “export leap” of Chinese electric vehicles essentially involves state subsidies to encourage exports, reflecting planned economy and socialist practices. The electric car market battle is also a socialist China competing against the entire capitalist Western world. Yet, today, many Western countries are also adopting socialist practices to varying degrees. Many Western nations are actively promoting electric vehicles due to green and environmental agendas, implementing government subsidies for consumers. Because Western governments are offering subsidies for electric vehicles too, criticizing the Chinese government’s electric vehicle subsidies appears awkward, and retaliating against China seems feeble. These dynamics should be viewed as the global dissemination of communist economic policies, the rampant spread of socialist economic policies worldwide, and the adverse effects of globalization and the political agenda driving the green energy movement.
(Translated and revised from original article)