The Chinese EV industry and us
I have been fascinated by the rise of the Chinese EV (electric vehicle) industry. From being the butt of Elon Musk jokes a decade ago, the Chinese EV industry, led by BYD, is poised to conquer the world.
Chinese manufacturer BYD, or Build Your Dreams, has outstripped Tesla in global sales and is producing product after product, from full EVs to hybrids, that are technologically advanced and, most importantly, affordable. So worried are Western governments about the Chinese EV invasion that they are erecting tariff walls against Chinese cars in a retreat from free trade principles they had been espousing.
The rise of the Chinese EV industry is a testament to the competence and foresight of Chinese bureaucrats who used the transition to EVs to leapfrog Japanese, Korean, European, and American manufacturers. Knowing that carving market share from entrenched ICE (internal combustion engine) producers like Toyota and Ford would be an uphill climb, the Chinese government bet big on the nascent EV industry instead.
From seeding demand through subsidies and tax breaks for consumers to using government procurement contracts for the public transportation system and investing in scientific research and development into batteries, the Chinese government nurtured a fledgling industry into a powerhouse that now accounts for nearly 37% of all new car sales in China.
While the Germans are good at mechanical engineering, I have read that the Chinese poured resources into chemical engineering because the heart of EVs is batteries. Making better and longer-lasting batteries requires chemical manipulation rather than mechanical invention.
However, more importantly, the rise of the Chinese EV industry is also a product of foreign talent, foreign capital, and capitalistic competition.
Many foreign car designers work for Chinese firms. One such designer is Wolfgang Egger, a Director of Design at BYD who previously worked for Alfa Romeo and Lamborghini. Chinese car manufacturer FAW, which produces the luxury brand Hongqi, poached Giles Taylor, a chief designer from Jaguar and Rolls Royce. Other European designers like him work for Chery, NIO, GAC, Dongfeng, Great Wall Motors, and other Chinese brands. This shows that the Chinese are not xenophobic when it comes to business. They don’t see foreigners as displacing local talent but as a source of new technology and knowledge. Here, hiring foreign managers is a pain (except if you are a POGO).
Chinese car manufacturers are open not only to foreign talent but also to foreign capital. It’s well-known that Warren Buffet invested $230 million in Shenzen-based BYD in 2008, which has become highly profitable. However, the second biggest foreign shareholder in BYD after Berkshire Hathaway is BlackRock, one of the world’s biggest asset managers.
We can learn more about how the Chinese handle foreign investment in the automotive industry to boost their local industries. Previously, the Chinese government had a policy that foreign car manufacturers had to have joint ventures to enter the Chinese domestic market. However, it made an exception for Tesla. It allowed Tesla, a 100% foreign-owned EV manufacturer, to set up a Shanghai factory and sell in the Chinese domestic market. Elon Musk didn’t know that the Chinese were learning from the supply chain ecosystem that Tesla set up in China. The know-how and EV supply chain ecosystem then spread to other Chinese EV manufacturers.
Imagine if that policy against 100% foreign investment were here. It would probably be in the Constitution, and there would be no way to change that policy and learn from foreign know-how.
Another primary reason why the Chinese EV industry developed so fast, marked by rapid innovations from battery technology to design, is because the Chinese government use Schumpterian-style fierce capitalistic competition to drive change. There are hundreds of car manufacturers in China, from state-owned enterprises and privately owned companies to joint ventures. Even if some manufacturers are state-owned or owned by a local government unit, the government doesn’t choose and protect winners.
Nio, for example, a luxury EV manufacturer founded by entrepreneur Bin Li, innovated battery swap technology to stand out from the competition. The company had been losing money for years and nearly went bankrupt due to fierce competition. The Hefei municipal government threw Nio a lifeline by investing in it. Then, after it faced bankruptcy a second time, the Abu Dhabi Investment Fund came to its rescue and injected $2 billion into the company. Nio is listed on the Hong Kong and Singapore stock exchanges and expects to be profitable soon.
We should be as open to foreign talent and capital as the Chinese, but we are not. For example, our Constitutional restrictions on the practice of professions make it hard to hire foreign managers and use foreign talent. Just teaching is considered an exercise of a profession, which is prohibited in the Constitution unless provided by law, so it isn’t easy to hire foreign professors. Our universities will never become world-class if we continue to have this policy.
We seem to have a different attitude when it comes to sports. Our Congress rushes citizenship for foreign basketball players so that they can play for the Philippine team. We allow foreign volleyball players to play regularly in our professional leagues.
There’s a global war for talent, even if we don’t seem to realize it. Other countries, such as the US, provide secure pathways for talented individuals toward citizenship. Indonesia just launched a Golden Visa program wherein investors and talented individuals can get to stay for five to 10 years. Some give permanent residency to entrepreneurs, scientists, and artists. In contrast, we discourage foreign capital from coming here, encourage our talented professionals to seek greener pastures abroad, and make it difficult for foreign professionals to practice here. (Presently, even Indian graduates of our medical schools aren’t allowed to practice here.)
It’s too bad that talk of Constitutional change is dying down. (President Bongbong Marcos didn’t mention it in his SONA.) We need to remove all those Filipino First and Filipino Only provisions in the Constitution. Even RBH No. 7, passed by the House, opens only public utilities, advertising, and educational institutions to foreign investment.
Watching the rise of the Chinese EV industry, we can only sigh. The Chinese keep doing things right, while our false sense of economic nationalism keeps holding us back.
Calixto V. Chikiamco is a member of the board of IDEA (Institute for Development and Econometric Analysis).