POLICY BRIEF

Anders Hove
March 2025

Decoding China’s
Electric Vehicle Success:
Lessons for Europe
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March 2025
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ISBN 978-3-98628-702-3

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Anders Hove
March 2025

Decoding China’s
Electric Vehicle Success:
Lessons for Europe
Forword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 1 – Introduction and Present Status and Trends . . . . . . . . . . . . . . . . . . 4

Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Chapter 2 – The Origins of China’s Rapid Scale-Up of

Battery and EV Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Consistent Policy Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Fast-Moving Manufacturing Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Technology Characteristics and Manufacturing-Centred Innovation . . . . . 11

Chapter 3 – Industrial Policy, but Not Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Tech Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Localisation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Policy Pilots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Industrial Clusters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Chapter 4 – Lessons for Europe and Conclusions . . . . . . . . . . . . . . . . . . . . . . . 15

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

About the author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Picture credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Foreword

China’s rapidly-growing electric vehicle (EV) sales and whether such policies may present an alter-
and exports, as well as its dominance of battery native to tariffs, which are currently advocated as
manufacturing and critical minerals, present both a key solution for industrial policy in Europe and
challenges and opportunities for advanced econ- the US, will be evaluated in chapter 3. Specific
omies with existing automobile manufacturing EV and battery policies adopted in China include
industries, such as Germany. On the positive side, promotion and guidance of R&D and innovation,
the scale-up of battery manufacturing has not local content requirements, technology transfer,
only reduced prices through greater economies of encouragement of industrial clustering, and
scale and process improvements, but has also led subsidised capital costs for manufacturing in-
to improved performance that can enable faster vestment. Chapter 4 draws lessons for how the
uptake of electric vehicles worldwide. However, European automobile manufacturing industry
in recent years China’s EV developments have could evolve in a positive way despite the leading
come to be seen as a threat to the industrial position enjoyed by China across multiple aspects
competitiveness of countries such as Germany, of the EV supply chain. These lessons may in-
whose shift to electrification has taken more clude short-term strategies, such as local con-
time; despite efforts by policy makers and tent requirements and promotion of technology
carmakers to cultivate this emerging market. licensing, as well as longer-term scenarios with
a focus on R&D and industrial clustering.
This policy brief seeks to present an overview of
the future of EV in the context of EU-China trade It is an open question whether European compa-
relations. The policy brief will outline current nies can become as successful EV producers as
trends for EVs in the European and Chinese mar- the Chinese. However, this policy brief suggests
kets, implications for EU-China trade and invest- that critical factors in China’s EV success can
ment, and present scenarios for how the German be identified. It examines its structural underpin-
automotive industry and related policy could nings and shows that it was neither a linear,
respond to the challenges presented by China’s magical success story nor a monocausal planning
rising dominance over the EV supply chain. process. Although it is not easily replicable,
there are lessons to be learned for Europe.
Chapter 1 will briefly outline the present status,
trends, and policies underlying EV market devel- We wish you an informative read!
opments in the EU (especially Germany) and
China. The origins of China’s rapid scale-up of Niels Hegewisch
battery and EV manufacturing will be examined in FES Berlin
chapter 2, including factors that may be unique
to China (state planning) as opposed to those that Benjamin Reichenbach
could apply elsewhere (technology characteristics). FES Shanghai
The effectiveness of China’s industrial policies

Decoding China’s Electric Vehicle Success: Lessons for Europe 3

Chapter 1 – Introduction
and Present Status and Trends

For over a decade, there has been a global trend chase subsidies and falling costs for batteries.
towards electrification of light-duty passenger In the meantime, EV sales in the US and Europe
vehicles (LDVs). The worldwide EV market has have also been on an upward trend; albeit at a
exhibited impressive growth over the past ten more gradual and measured pace. This led many
years, and particularly since 2020, as more EV automobile manufacturers to call for curtailing
models have become available and manufacturers ambitions for electrification. The number of
scaled up production across Europe, North available models and the range of EV sizes and
America and Asia. It was only recently that China prices have expanded everywhere, but in China
began to pull away from Europe and the US in even more so. Most importantly, the speed at
terms of both vehicle adoption and technology, which Chinese firms introduce new models
achieving a monthly scale of over one million has accelerated dramatically, outpacing what
New Energy Vehicles (NEV): this is a category European and American players can manage.
that includes pure EVs and also plug-in hybrids,
but excludes hybrids without a plug. The causes Europe
and turning points are difficult to ascertain, but
China’s rapid increase in EV sales clearly began Since 2017, annual EV sales in Europe have grown
in 2020 and 2021 and was set in motion by pur- tenfold and rose to over three million units per

Figure 1. European EV Sales and Market Share, 2017 to 2024 (Thousands)

Source: EV Volumes

3,500 25.0%

3,000
20.0%
2,500

15.0%
2,000

1,500
10.0%

1,000
5.0%
500

- 0.0%
2017 2018 2019 2020 2021 2022 2023 2024

EV sales share

4 Friedrich-Ebert-Stiftung e.V.
year. (See Figure 1). Of this figure, pure EVs ac- share of large EV sales was close to 40 percent.
count for approximately two-thirds of sales and By early 2024, the average price had increased
the remainder are plug-in hybrids (PHEVs). by more than Euro 10,000 and the share of large
EVs sold increased to approximately 60 percent.6
While this growth has been impressive, the media According to the International Energy Agency,
this year have focused on the slower growth or two-thirds of worldwide EV models are large
actual decline in EV sales. Germany experienced cars, SUVs or trucks.7
a notable drop in EV sales following the elimina-
tion of purchase subsidies as of 2024. In July, Charging infrastructure poses a barrier to EV
German EV sales were down nearly 40 percent adoption in Europe, too. According to a report
from the same month during the previous year. by the European Automobile Manufacturers’
EV sales have risen in other markets, such as Association (ACEA), public charging has not kept
Belgium, the Netherlands, and France, but not pace with EV sales – EV sales grew three times
enough to offset the decline in Germany.1 The EU faster than the number of public chargers from
has also introduced import duties ranging from 2017 to 2023. Only three countries (Germany,
17 percent to 36 percent on EVs imported from France and the Netherlands) account for 61 per-
China. Still, this may only have a negligible impact cent of public chargers. Almost all public chargers
on Chinese EV sales based on present pricing.2 are slow chargers, with merely 13.5 percent of
BYD has said it plans to more than triple its public chargers offering speeds above 22 kW.8
market share in Europe by the end of 2025.3 Interoperability and ease of payment have been
a problem – which has only recently started to be
This recent sales trend has been accompanied by addressed by the Alternative Fuelling Infrastruc-
concerns expressed by automobile manufacturers ture Regulation (AFIR). Chargers are often poorly
that consumers “do not want EVs” or that “the maintained, leading to errors and failed charging
demand is not there”.4 Yet, EV Volumes projects sessions even when the charger is ‘working’. This
that growth in European EV sales will gradually is something I have experienced first-hand all
resume in the coming years as climate targets across Europe.
and fuel efficiency regulations tighten, new
models become available, and battery prices Furthermore, public charging is expensive in
continue to fall. Europe. The average so-called DC (direct current)
fast charging session in the Netherlands costs
Price is proving to be a more important factor in Euro 0.71/kWh, whereas according to Verivox,
the slower uptake of EVs than policy makers and the average German DC fast charging is Euro
manufacturers expected. The withdrawal of pur- 0.66/kWh; this makes DC fast-charging on
chase subsidies in Germany is indeed a recent longer trips eight percent more expensive than
factor, but price has been a sticking point for EV diesel.9 Pricing at fast chargers is also confusing
sales more broadly. In Germany and several oth- and differs for members of different networks. One
er markets, EVs currently on the market are still 150-kW station in Salzburg shows 66 different
priced at a significant premium to comparable charging prices available from various networks,
conventional options – up to 20 percent more in with prices ranging from Euro 0.24/kWh to Euro
Germany.5 While inflation and commodity prices 0.99/kWh, not including one-time sign-up fees,
partially explain the situation, analysts have noted which can be substantial.10 I recently rented an
that major automobile manufacturers in Europe EV in Italy and paid Euro 1.00/kWh for fast
and North America chose to offer larger and more charging, which made it an expensive short trip.
expensive EVs – perhaps with the aim of repli- While most EV owners save money by charging
cating Tesla’s early path to success. As Transport at home, the high cost of public charging is a
& Environment has noted, “in 2021, the average well-known deterrent to EV ownership.
price of EVs was below Euro 30,000 and the

Decoding China’s Electric Vehicle Success: Lessons for Europe 5

China In terms of both numbers and market penetra-
tion, China has the largest EV market as well as
China’s EV penetration stagnated at around five having become a major exporter of EVs to both
percent from 2018 to 2020, but then rose rapidly Europe and the developing world, especially
from 2020 to the present. In July 2024, the China Southeast Asia. While many of China’s exports
Passenger Car Association (CPCA) projected that are made-in-China Tesla vehicles, domestic Chi-
NEV sales would reach 11.5 million for the full nese brands recently gained a foothold in several
year of 2024;11 a roughly 45 percent share for the regions ranging from New Zealand and the
full year. This may be conservative, since NEV Middle East to Southeast Asia and Europe.15
sales tend to increase towards the end of the
year (see Figure 2). China looked as though it Several factors underlie the trend towards
would easily achieve a significant milestone in faster EV adoption in China. They can be briefly
mid-2024, as CPCA forecast that NEVs would summarised as follows: (1) rapid introduction of
account for well over 50 percent of passenger a large number of appealing, low-priced models
car sales in August.12 According to data by the with longer range and better charging, (2)
China Passenger Car Association (CPCA) NEVs purchase subsidies and tax exemptions, (3)
have held a more than 50 percent market share local government policies such as restrictions
in new passenger vehicles since November.13 on new license plates for conventional vehicles,
This is up from a full-year penetration of 36 (4) lower cost of charging and wider availability
percent in 2023.14 of charging infrastructure, and (5) consistent

Figure 2. China Passenger NEV Annual Sales and Share of Total Passenger
Vehicle Sales, 2017 to 2024 (Thousands)
Source: Anders Hove, data from China Passenger Car Association

14,000 50%

12,000

10,000 33%

8,000 26%

6,000
16%
4,000

6%
2,000 4% 5%
2%

-
2017 2018 2019 2020 2021 2022 2023 2024

EV sales share

6 Friedrich-Ebert-Stiftung e.V.
signals from automobile manufacturers and policy WeChat and AliPay for payment are available
makers that EVs are the future. virtually anywhere in the world – few drivers
would carry credit cards, bank cards or RFID
On the whole, the lower cost of EVs in China have (radio-frequency identification) cards.
been a major factor in their popularity among con-
sumers. The IEA estimates that average Chinese When driving myself in China, I estimated that it
domestic EV prices fell 25 percent from 2018 to took less than 30 seconds to activate and pay for
2023, and that 65 percent of EV models are cheap- a charge on my phone after arriving at a charging
er than a gasoline equivalent, with prices falling network that I had never used before – a stark
further in 2024.16 Over 50 models are available contrast with Europe. Charging at public chargers
at prices below RMB 100,000 (Euro 13,000). is now priced reasonably and the government has
Vehicle range, vehicle size, and battery capacity generally capped or ‘guided’ service fees for public
have all risen, which reflects falling battery prices charging to keep prices low. According to Auto-
and economies of scale in EV manufacturing. home, in 2024 DC charging at State Grid charging
What is more, Chinese EVs typically feature station cost between RMB 0.4 and 0.9/kWh (Euro
advance onboard electronics and infotainment 0.05 to Euro 0.11/kWh) depending on the time of
systems that appeal to Chinese buyers – offering day, while third-party DC fast chargers range
an incentive to purchase an EV for the overall between RMB 1.2 and 1.8/kWh (Euro 0.16 to Euro
experience, not just economics or the environment. 0.23/kWh).19 On my own EV road trip from Beijing
to Inner Mongolia, I estimate that I paid 77 per-
Subsidies have been a factor in EV adoption in cent less to charge than if I had used a similar
China as well as Europe and North America. In gasoline vehicle; paying an average of RMB 1.35/
recent years, however, the central government kWh (Euro 0.18/kWh) and generally using 50 kW
has withdrawn many direct purchase subsidies, chargers. For this reason, even owners of PHEVs
leaving mainly an exemption from purchase tend to say that they abide by the “charge if you
taxes. Direct subsidies to EV manufacturers are can” principle rather than saving time by fuelling
more difficult to estimate and come in the form when on the road. A full tank costs over RMB
of lower costs of capital, low or free cost for land, 100, while a charge costs only a couple of dozen
or access to low-cost manufacturing capacity at RMB. EV owners, too, are even willing to go out
state-owned automobile manufacturers. Many of their way to benefit from low-cost electricity
of these subsidies are passed on to consumers at night.20 Having said that, charging costs have
in lower purchase prices. been on the rise due to the charging infrastructure
industry shifting from a loss-making market-­
Low charging costs and the convenience of share-focused scramble towards developing
charging are major factors driving EV adoption financially sustainable business models.21
in China. Relative to Europe, a smaller proportion
of EV buyers have access to home or work charg- Still, charging infrastructure in China is not perfect.
ing, which is why the cost and ease of public Charging is more available on major motorway
charging is particularly critical. As of November corridors and large cities and there can be long
2024, China had 3.5 million public chargers: queues during major holidays. Maintenance is
half of which were DC fast chargers.17 Recently, also an issue. Reportedly, one-fifth of public
ultrafast chargers have been the trend, with chargers were broken as of 2023.22 During my
China now having more than 400,000 chargers years in China (2010 to 2022), I had several
at a charging capacity above 120 kW – almost as experiences with broken or non-functional EV
many as Europe’s public AC (alternating current) charging stations. However, this is mitigated
and DC chargers combined.18 Payment and in- by the overall greater ease and availability of
teroperability are scarcely an issue, seeing as charging generally.

Decoding China’s Electric Vehicle Success: Lessons for Europe 7

Chapter 2 – The Origins of
China’s Rapid Scale-Up of Battery
and EV Manufacturing

There are three important elements underpinning role in determining winners and losers. In the EV
China’s rapid rise to become the global leader in space, it was not long before the leaders saw an
EV manufacturing: (1) policy, (2) dynamic private-­ opportunity for China.
sector players and (3) technology characteristics.
This chapter will discuss each in turn, but the Policy-makers began to promote EVs as early as
three elements all contribute to one core feature the 2000s. This was based on advice by leading
of China’s EV transition: speed. Consistent policy officials who contended that international auto-
support for the EV transition has guided consum- mobile manufacturers were lagging in this field
ers and automobile manufacturers to rapidly and that China could build on its competitive ad-
make the transition without looking back – of vantages in manufacturing in order to get ahead
course, with the help of subsidies, but only as of foreign players.23 This resulted in the inclusion
one factor. The EV transition has also been led of NEVs in China’s Mid-to-Long-Term Development
by private companies that did not exist or were Plan for Science and Technology 2006 to 202024
scarcely known a couple decades ago: BYD, CATL, and the launching of several pilot programmes
Geely, Xpeng, and others. Seeing an opportunity, at local level; particularly in the use of buses.
the leaders of these start-ups did not focus on Electric buses and taxis were also piloted in the
building an expensive halo car, such as the Tesla lead-up to the 2008 Beijing Olympic Games.25
Model S, to fund future investments. Instead, Major battery technologies were also listed in
they pursued the low-cost model, competing government catalogues of R&D priorities.26 Chi-
at cut-throat levels to drive down costs by inte- nese firms were encouraged to invest in R&D
grating manufacturing and accelerating factory centres abroad and to acquire technologies.
upgrades. Third, the nature of batteries (and to
a lesser-extent EVs) as a manufacturing-intensive The speed and success of these efforts made
technology, fundamentally differing from design-­ policy-makers confident that China had compar-
intensive combustion engines, lowered barriers ative advantages in the field and could success-
to entry and encouraged players that were willing fully localise EV and battery manufacturing and
to invest in vertical integration in low-margin, technology. That led to the adoption of additional
hyper-competitive industries. policies, such as the more ambitious local EV
pilots under the ‘Tens of Cities, Thousands of
Consistent Policy Support Vehicles’ programme.27 To localise technology,
market access terms for foreign automobile
The fact that an analysis of China often focuses manufacturers were adjusted and NEV targets
on policy is no accident. When China became a were developed with the industry. Coordination
member of the World Trade Organisation, the state of EV policy was achieved in part through EV
never ceased to plan and guide economic devel- 100: an industry organisation set up under the
opment and it shaped all levels of investment guidance of the State Council to coordinate
even as the market economy played a greater between industry and government. NEVs were

8 Friedrich-Ebert-Stiftung e.V.
included as a Strategic Emerging Industry in Fast-Moving Manufacturing
201028 and prominently featured in the ‘Made In Entrepreneurs
China 2025’ policy adopted in 2015.29 Already in
2014, President Xi Jinping noted that EVs were Entrepreneurship is an additional layer that builds
vital for China’s strategy of transitioning from a on policies that supported China’s EV transition.
“big car country” to a “strong car country”30, and While the story of the entrepreneur as a scrappy
that EVs afforded the potential to get ahead of risk-taker and skilled inventor is often exaggerated,
Western automobile manufacturers. State policy China’s battery and EV space is filled with indi-
also included explicit elements of industrial policy viduals who fit this mould. China’s private sector
regarding technology transfer, publicly-funded leaders have often risen to prominence not due
research and innovation, and, above all, domestic to their financial expertise, but their technical
content and localisation requirements. (These will knowledge combined with experience in scaling
be discussed in Chapter 3). All of these policies, up manufacturing.
leader statements, and generally supportive poli-
cy signals from the central government guided The success of China’s battery champion, CATL,
state-led investments in EV manufacturers, is a case in point. The founder and CEO of CATL,
battery R&D, and the scale-up of manufacturing Robin Zeng, holds a PhD in physics and initially
capacity along the entire supply chain.31 founded the Chinese lithium-ion battery technol-
ogy company ATL (Amperex Technology Limited)
Although China has adopted a series of far-­sighted in 1999. This was later sold to the Japanese
strategic industrial policies and followed up with company, TDK. According to Zeng’s own account,
high levels of administrative and financial support, an approach from BMW’s Herbert Diess – then
China’s support policies have not always been head of purchasing and later CEO – persuaded
consistent. Each of the clean energy sectors now Zeng that making larger batteries for electric
dominated by China has undergone booms, busts, vehicles could become a major market, which
and periods of stagnation owing to short-term led him to spin out CATL from TDK as its own
policy shifts. One example of this was the 2016 company, with BMW as one of its first major
investigation of subsidy fraud in the EV and clients.33 Zeng’s technical knowledge and experi-
battery space that led to major changes in that ence supplying BMW, led CATL to compete in
programme and slowed the NEV market for the field of nickel-manganese-cobalt (NMC) bat-
some time. teries and to then become dominant in the global
EV battery space. This strategy also enabled
Despite China currently exceeding its NEV targets CATL to quickly grow at a time when China’s EV
to a great extent, it is also worth noting that at subsidy policies had begun to prioritise higher
an early EV policy target – the Tens of Cities, energy density in batteries, which NMC batteries
Thousands of Vehicles programme set in 2010 – offer. In Zeng’s case, a combination of business
it fell far short of its objectives in many cities. acumen, knowledge of industry trends, and his
That was especially the case in the early phases technology background proved a winning combi-
due to insufficient funding and a perceived lack nation – enabling CATL to achieve scale first and
of urgency at local level. At the end of the pro- dominate the EV battery industry in a way that
gramme, some pilot cities had deployed zero EVs, no other company (Chinese or otherwise, SOE
and a small minority of participating localities or private) can even begin to rival.
were responsible for almost all deployment.32
The policy’s results are not only a reminder of Several of China’s leading EV companies also
China’s size and diverse market conditions, but formed around charismatic, business-savvy
also of the varying results of policies pushed at founders with unique stories and ambitions.
central level. China’s entrepreneurs had already begun

Decoding China’s Electric Vehicle Success: Lessons for Europe 9

building the industry when China’s policy-makers celerating the pace of innovation and new product
identified the sector as a space where China could cycles; these are critical for growing and main-
develop policies that would enable Chinese firms taining market share in China’s ultra-competitive
to get ahead of major international players. In markets. China’s NEV manufacturers can move
particular, BYD and Geely established leadership faster than their US and European counterparts.
positions in the EV field at an early stage, before it Recent media reports indicate that Shanghai-­
was settled as a strategic priority at national level. based EV startup Nio can produce a new model
in 36 months, while Geely’s Zeekr sub-brand can
Wang Chuanfu, the founder of BYD, came from produce a new model in only 24 months – both far
a technical background. Originally from a poor faster than their counterparts abroad.40 Chinese
farming family in central China, Wang obtained a EV models average just 1.3 years of market life
Master’s degree in research on batteries. In 1995, before updates or new versions are released, com-
Wang relocated to Shenzhen, which was then pared with the 4.2-year cycle of foreign brands.
developing as a Special Economic Zone, to found What is more, the strong consumer interest in
a company to develop cheap batteries for mobile premium onboard electronics and software gives
phones and other electronics largely based on rise to particularly strong innovation and rapid
designs from leading Japanese players.34 turnover in this field compared with US and
European firms, whose EV customers are more
Once the central government began to support focused on range and battery performance.41
the New Energy Vehicle sector, BYD focused on
keeping costs down and creating mass-market There are several explanations as to how China’s
products. At first, the aim was not to dethrone automobile manufacturers can make products
Tesla or major international brands, but rather to so quickly. These include: (1) longer experience
create a mainstream market for NEVs – especially with and greater long-term commitment to EVs as
through PHEVs using less-expensive LFP (lithium-­ a core business strategy than legacy automobile
iron-phosphate) batteries.35 Eventually, BYD’s manufacturers; (2) more direct relationships with
strategy culminated in an ambition to ‘demolish’ suppliers, including tier two and tier three suppliers
old brands and create international brands based and especially suppliers in the critically important
in China.36 onboard IT systems; and (3) greater choice and
willingness to switch suppliers when problems
In many clean energy fields, such as solar, bat- arise. In some cases, such as Nio’s partnership
teries and EVs, labour costs are a minor factor, with Hefei-based JAC, access to a legacy auto-
with greater importance having been placed on mobile manufacturer’s production line without
the economic gains from scale, flexibility, and the responsibility for managing its entire busi-
immediate access to related parts of the supply ness has given Nio greater flexibility over design
chain.37 As early as 2011, research has shown and marketing.42
that China’s solar scale-up could be attributed
to manufacturing scale and supply chain locali- It is true to say that entrepreneurs have taken
sation, as opposed to labour costs or other advantage of state support, and both local and
country-specific advantages.38 Indeed, as Nahm national policy-makers have directed resources
and Steinfeld (2014) showed, China’s dominance and R&D funding to the private sector. China’s
in this field was largely achieved thanks to the energy sector has long been viewed as the pre-
speed of scaling up, which has enabled this and serve of large state-owned companies (SOEs),
other industries to both benefit from and speed particularly in the electric power sector. SOEs
up the learning rate for manufacturing-intensive are also leading players in the automotive and
technologies.39 electronics industries. Many of the most powerful
SOEs have a regional base and benefit from
In the EV space, proximity to local supply chains local government support, which they can use
and intense competition have contributed to ac- to monopolise local markets and quash new

10 Friedrich-Ebert-Stiftung e.V.
entrants from the private sector. Yet in other cases, learning rates in manufacturing-intensive technol-
private entrepreneurs can launch businesses in ogies such as solar and batteries – giving rise to
fields left open for competition, or even partner cost reductions to the same or a greater extent
with SOEs to scale up production with mutual than entirely novel technologies and materials
benefit – as in the case of Nio, which utilised would.
capacity at a state-owned automobile manufac-
turer’s plant to produce its own vehicles, as Two factors drive China’s dominance in manufac-
mentioned above. So while entrepreneurship and turing-intensive and process-oriented innovation:
the private sector have played important roles, and industrial clusters and vertical integration on
not simply slotted into government programmes one hand, and a fiercely competitive domestic
funded as a unified grand strategy under ‘China market, on the other. In a steady state, where
Inc.’, the private sector is better understood as an industry changes slowly and market shares
part of a mixed economy that has welcomed are relatively static, competition benefits from
start-ups and assisted them to rapidly scale up disaggregating production to benefit from the
and compete in critical and strategic areas of well-known gains from trade and comparative
the economy. advantage. Yet, in a rapidly-growing industry
undergoing radical disruption and creative de-
Technology Characteristics and struction, disaggregation leads to firms losing
Manufacturing-Centred Innovation access to the tacit know-how and knowledge
networks that they need to develop compelling
To beat the ‘China price’, traditional automobile products, ensure production is upgraded ahead
manufacturers often focus on seeking low-cost of competitors, and reduce costs through process
input from any qualified supplier, and disaggre- efficiencies. Today, it is clear that Western players
gating production to drive cost efficiency. In this are not only at the back of the line when it comes
context, innovation could focus on product design, to the latest battery technologies out of China,
final assembly, or basic R&D in the hope of obtain- but they face challenges in rapidly upgrading
ing leapfrog technologies in specialised fields. production and producing new models at lower
cost because the core EV and battery expertise
In contrast, China’s innovation in clean energy is located elsewhere.
has concentrated on process- and manufacturing-­
oriented innovations, which reflects both China’s Proximity to a thriving domestic market is essen-
latecomer status and its role in manufacturing tial, too. China’s intense domestic competition
supply chains.43 To many, this may appear to requires rapid innovation and product turnover.
represent a lower value aspect of innovation that With China’s EV output rising by over one million
cannot be compared with breakthroughs achieved units per year, it may seem like China’s automo-
through basic science and university laboratory bile manufacturers can sell whatever they make –
research, which may carry greater prestige. How- but this is far from the truth. Even generous sub-
ever, as the history of batteries and EVs shows, sidies and state support cannot help a player like
the commercialisation and scale-up of technology WM Motors that falls behind technologically.
require ongoing innovation, leading to new intel- Interaction with customers remains essential
lectual property and expertise that are essential for producing a compelling product. Whereas,
for developing an industry that can compete with historically, Japanese automobile manufacturers
incumbent technologies.44 After a standardised benefitted from testing and perfecting new tech-
design is established and commercialisation is nologies in their domestic markets, leading to
achieved, (process-oriented) innovation could advances in high-quality and fuel-efficient sedans
accelerate due to improved perceptions of a and hybrid vehicles,45 this advantage now seems
technology’s legitimacy, value to society, and to benefit China for EVs: not only are they low-
prospects for growth. This drives further scale-up, priced, but also have flashy onboard information
which leads to the emergence of well-known technology and innovative styling tailored to the

Decoding China’s Electric Vehicle Success: Lessons for Europe 11

domestic market. China’s recent shift towards charging – even though these were not set out
plug-in hybrids, extended-range vehicles, and by any policy or mandate. This then feeds back
fast-charging batteries can all be attributed to a into the upstream of China’s manufacturing-in-
strong connection with the domestic buyer’s tensive battery or parts sectors, as suppliers
preferences for long range and convenient quickly adapt to meet these new needs.

Chapter 3 – Industrial Policy,

but Not Tariffs

While the three factors cited above all connect to Although domestic players would face a strong-
industrial policy, this paper discusses the most er competitor, they would be forced to upgrade
critical industrial policies in a single chapter so their products while also potentially benefitting
as to help underscore the options available to from knowledge spillovers from local workers
those in other countries hoping to emulate Chi- and suppliers. Former Minister of Industry and
na’s success. Four industrial policy factors stand Information Technology Miao Wei referred to the
out: (1) technology transfer requirements, (2) strategy as the “catfish effect”: like throwing a
domestic content requirements, (3) market pilots catfish into a pond of smaller fish, they would
and (4) policies to support manufacturing tech- be forced to swim faster or be gobbled up.46
nology clusters.
In terms of fundamental technology, licensing bat-
Tech Transfer tery patents was an important factor, including
in LFP batteries, where a unique patent case
Technology transfer requirements have long been played a huge role in China’s eventual dominance
among the most controversial aspects of China’s in the space. In a 2010 patent dispute adjudicated
industrial policy. In some cases, requirements are in the Chinese courts, Canadian electric utility
explicit, and in others, they have been more Hydro-Quebec was unable to enforce its LFP
concealed. The automobile sector is perhaps the patent claims against a Chinese manufacturer.47
most well-known. Policies adopted in the 2000s In the competing battery-chemistry tech field
required foreign automobile manufacturers to of NMC batteries, Chinese automobile parts
form joint ventures (JVs) with local players in order manufacturer Wanxiang, a company with strong
to gain access to the Chinese market. Notably, links to the government, acquired American LFP
this requirement was relaxed for Tesla, but the battery startup A123 in 2013. In the competing
goal was explicitly to encourage technology NMC battery chemistry, Chinese firms were able
transfer, as Tesla was by far the leading EV player to license foreign technologies, encourage US
at that time. This is despite the fact that China and other firms to establish JVs with Chinese
already had many domestic EV players. By man- partners (such as that between Umicore and
ufacturing locally, Tesla could reduce costs and Jinmen Xinchang for NMC production) and
expand sales, exploiting the already growing lo- localise this battery technology.
cal supply chain for batteries and components.

12 Friedrich-Ebert-Stiftung e.V.
Localisation Requirements requirements may exist, but are never put down
on paper. Tesla’s willingness to shift to Chinese
Domestic content requirements in exchange for components was a key factor that led to Shang-
market access – this has been the fundamental hai’s decision to lobby the government in favour
design underpinning China’s industrial policy for of loosening restrictions to bring Tesla in. Today,
such a long time that it eventually almost came 95 percent of Tesla Shanghai’s suppliers are Chi-
to be taken for granted by China’s trade partners. nese.52 Other European and American players have
Yet a closer look at the EV case shows that Chi- underscored how changing suppliers – not just to
na’s domestic content requirements are not a Chinese players, but to local players – was criti-
simple trade, but include sophisticated structures cal for obtaining required permits or approvals.53
designed to ensure not just tech transfer, but the
emergence of home-grown players and innovation. Policy Pilots

When China launched its New Energy Vehicle As already mentioned, the central government
programme in 2009, subsidies for EV and EV has used pilot projects to test out EV policies,
battery production were tied to technology starting with electric buses and then continuing
transfer. The qualifying recipient firms had to to the ‘Tens of Cities, Thousands of Vehicles’
demonstrate mastery of one of three core ele- programme. While pilot programmes sometimes
ments of EV manufacturing: batteries, motors, or result in overcapacity or copycat development
control systems.48 In particular, for batteries with policies, pilot programmes initiated at central lev-
energy density suited for EVs (over 110 Wh/kg), el in the EV space have incorporated far-sighted
the minimum domestic content was set at designs that promoted development of manufac-
50 percent.49 turing alongside other necessary ingredients for
success. In particular, in the past, Chinese regions
Subsequently, a battery ‘white list’ was estab- have sometimes adopted copycat development
lished for companies qualified to receive NEV policies, resulting in duplication and waste, and
subsidies, and no foreign automobile manufac- even provincial protectionism. To guard against
turer ever qualified for the list up until shortly this, China established requirements for EV pilot
before the list was cancelled altogether in 2019. It regions, limiting some policy incentives to regions
was at this point that China already dominated selected on the basis of their existing manufactur-
battery supply chains.50 These policies pushed ing base, local policy incentives to promote EVs,
Chinese automobile manufacturers to shift bat- and charging infrastructure. After designating
tery purchases from leading Japanese and Korean pilot regions, Beijing monitored progress on each
suppliers to domestic players. Later, in 2017, of these fronts, and tied future support from the
requirements for recipients were set even higher, central government to metrics related to each.54
requiring domestic firms to demonstrate compe- This strongly deviates from policies in other
tency in all core areas of EV production. This countries where EV purchase subsidies are one
ruled out the Chinese supply chain’s specialisa- thing, support for manufacturers another, and
tion in just one element in the manufacture of any support for charging even more separate.
EVs, and in effect localising the industry from This means that manufacturers or suppliers may
top to bottom.51 be located in regions with poor charging infra-
structure and low EV adoption, which leads to
The above-cited central government policies may a vicious cycle in which manufacturers report
represent only the tip of the iceberg. At local that local market demand cannot support rapid
level, government approvals could depend on scale up, and cannot learn what customers want
arranging suppliers locally. Implicit local content without going outside the domestic base.

Decoding China’s Electric Vehicle Success: Lessons for Europe 13

Industrial Clusters creating a vertically-integrated manufacturing
cluster. Such clusters are not aimed at reducing
As already mentioned, vertical integration and transportation cost, but rather at forcing tech-
physical proximity between upstream and down- nology upgrading and enabling tacit learning
stream and end-users has been a critical element and pooling of skilled labour.
of China’s transition from a backward, low-cost
and low-quality EV manufacturer, to a technology Chinese manufacturers also perceive the benefits
leader. The Chinese private manufacturing play- of geographical clustering. Some of the largest
ers have long recognised the benefits of vertical solar manufacturers have sought to attract sup-
integration for learning-by-doing and technology pliers to settle in areas nearby their manufactur-
co-evolution through supplier interaction. How- ing facilities. Here, too, proximity is not just a
ever, there is an explicit policy component to matter of reducing transportation and logistics
vertical integration and clustering, too. cost, but it also enhances interaction on process
design and innovation in components and quality
China’s national and regional policy-makers have control. In the case of the solar industry, Chinese
tended to focus on promoting innovation connect- manufacturers recounted how, in the mid-2010s,
ed with manufacturing clusters. As already not- China still lagged far behind Europe and North
ed, pilot programmes for EV subsidies were tied America in the supply of high-end tools and
to local manufacturing bases at provincial or city parts. This was despite the fact that China had
level. Local governments have also encouraged long dominated the manufacturing of modules
clustering and supply chain integration. Besides and cells. Still, while foreign tools and production
offering cheap land and low-cost loans to suppli- lines were superior in reliability and efficiency,
ers that relocate into a related cluster, provinces local equipment was cheaper, and language
have also explicitly designated industrial parks differences made it difficult to resolve problems
and clusters for a given technology; even requir- when they arose. Gradually, Chinese players
ing the previous firms occupying the sites to move began to work with local tool providers. As
out to make space for firms within the chosen the industry upgraded and scaled up, Chinese
technology field – in some cases, without compen- manufacturers were eventually able to meet
sation.55 The case of Tesla, where the Shanghai or exceed the quality of foreign manufacturers,
government encouraged suppliers to move their demonstrating the direct benefits of supplier
facilities closer to Tesla’s, was explicitly aimed at interaction in manufacturing-intensive fields.

14 Friedrich-Ebert-Stiftung e.V.
Chapter 4 – Lessons for Europe
and Conclusions

Recently, many people have wondered whether ideally as a comprehensive approach at EU level.
China’s leading position in various clean energy EU industrial policy should encourage vertical
technologies is such that others could never integration and cluster formation to pool resources
catch up. This creates a self-defeating notion and promote domestic innovation. An active in-
that Europe or European companies could never dustrial and foreign direct investment policy that
manufacture vehicles once EVs from China or makes technology transfers and local production
Chinese companies get cheap enough and good a prerequisite for market access is needed.
enough that no tariffs can keep them out. This
is politically unacceptable, and potentially eco- The main obstacles to a faster transition to EV in
nomically ruinous for regions and countries like Europe are the high prices and lack of affordable
Germany with major automobile industries. But models. Purchase subsidies alone cannot solve
even more so, it ignores many of the lessons of this problem. Further incentives and requirements
China’s rapid rise to dominance, driven not only are needed for manufacturers to bring affordable
by subsidies, but by the nature of battery and electric cars onto the market as quickly as possi-
EV technology itself. As has been shown, manu- ble. The public charging infrastructure must be
facturing-intensive technologies not only exhibit expanded quickly and comprehensively. There
greater returns to scale, but also lower barriers to must not be any isolated solutions, and the charg-
entry and a higher proportion of learning-by-­ ing infrastructure needs to be easier to use for
doing or process-oriented innovation that can everyone; especially with regard to interoperability,
enable many players to thrive; provided the right price, payment methods, and maintenance. De-
conditions are available. After all, only five years bates about a possible delay of the 2035 dead-
ago, China’s EV players looked at Tesla with line for ending new sales of internal combustion
awe. Tesla itself was the object of ridicule by engines are rather symbolic and do not really
major global automobile manufacturers just matter in the context of an inexorable transition
over a decade ago. process of the automotive industry to EV at
global level.
The European automotive industry needs to draw
the right lessons from China’s success, which Indeed, as China assumes the mantle of a free
demonstrates that economic success and inno- trade champion to protect itself and its automo-
vation can be fostered by smart policies. The bile manufacturers from protectionist policies,
­industrial policy tools that China deployed do Europe is already actively adopting many indus-
not depend on central planning or a first-mover trial policies from the China EV playbook. These
advantage, nor do they rely on cheap energy or include licensing, technology transfer require-
cheap labour – often assumed as underpinning ments, and domestic content policies. Europe is
China’s supposed ‘comparative advantage’ in already considering requiring technology transfer
these relatively newly-emerging technologies. and licensing as a condition for receiving subsi-
Industrial policy must adopt an integrated ap- dies.56 Domestic content requirements for critical
proach to EV. Purchase premiums, support for minerals and batteries are on the cards or under
manufacturers, and the expansion of the charg- discussion. In many cases, such policies do not
ing infrastructure must be considered together; need to explicitly exclude Chinese players. On

Decoding China’s Electric Vehicle Success: Lessons for Europe 15

the contrary, Europe and other regions are now China’s incumbent automotive industry, but it is
in a position where they need to work together difficult to imagine how China’s local players –
with Chinese suppliers to ensure access to the whether start-ups or state-owned players like
latest technology and processes. SAIC or Great Wall – could have leaped to the
top of the global EV race on the back of tariff
Perhaps surprisingly, Chinese companies often policy. For one, in light of their need for key
see eye-to-eye regarding the need to localise technologies, other industrial policies were
production and develop regional economic more critical.
clusters in Europe. Chinese companies are also
drawing the lesson on the benefits of vertical Ultimately, the future of Europe’s automotive
integration as they expand abroad. Battery industry will never fully resemble China’s, nor
manufacturing leader CATL recently announced will Europe’s policies. Europe’s automotive indus-
plans to establish a USD 1.5 billion fund to invest try cannot and does not have to be like China’s
in local parts and suppliers in Europe.57 CATL in order to be competitive. In particular, the
already makes batteries in Europe, but production above-­cited slow growth of Europe’s domestic
and quality lag behind its facilities in China be- EV adoption puts the region at a disadvantage
cause local suppliers do not meet its needs or when it comes to technology innovation. Yet, the
cannot respond quickly enough to its require- presence of major differences should not lead to
ments. Even more recently, CATL and Stellantis the conclusion that German players cannot com-
announced plans to jointly produce LFP batteries pete, or that Chinese products and technologies
in Spain.58 In effect, like Tesla in Shanghai, need to be kept out. The nature of EV technology
CATL is becoming the ‘catfish’ for the European implies a radical reorientation of supply chains,
battery industry. but not necessarily the wholesale transfer of these
supply chains to Asia. China may have taken
One notable industrial policy that Europe is con- advantage of a unique combination of industrial
sidering was never a prominent feature of Chinese policy and technology characteristics to get
industrial policy. China employs tariffs, including ahead for now, but many of those same factors
during trade disputes, but these have not been that led to its success can and will be adapted
a prominent aspect of the country’s EV policies. and put to work elsewhere.
Shutting out competition could have helped

16 Friedrich-Ebert-Stiftung e.V.
Endnotes

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4 Rico Luman, ‘European carmakers are struggling amid historic EV shift’, ING, 6 September 2024, at [Link]
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Decoding China’s Electric Vehicle Success: Lessons for Europe 17

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34 Polly Thompson, ‘How BYD founder Wang Chuanfu went from orphan to billionaire EV empire builder, beating out Elon Musk’s Tesla’, Busi-
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39 Jonas Nahm and Edward S. Steinfeld, ‘Scale-up Nation: China’s Specialization in Innovative Manufacturing,’ World Development 54, 2014, at
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40 Selina Cheng and Yoko Kubota, ‘How China Is Churning Out EVs Faster Than Everyone Else’, Wall Street Journal, 4 March 2024, at https://
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18 Friedrich-Ebert-Stiftung e.V.
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technology at home before marketing it abroad, said Kazutoshi Tominaga, a managing director at Boston Consulting Group, which has
worked with Japan’s trade ministry to shape national electric vehicle policy. “If Japan, as a market, doesn’t shift to electrification, we don’t
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Decoding China’s Electric Vehicle Success: Lessons for Europe 19

About the author

Anders Hove is Senior Research Fellow at the

Oxford Institute for Energy Studies China Energy
Programme and Senior Expert at OIES Services
Ltd. Previously, from 2018 to 2022, he served as
Project Director at GIZ for the German Federal
Ministry for Economic Affairs and Climate Action
(BMWK)-funded Sino-German Energy Transition
Project, while also serving as a non-resident fellow
at Columbia University Center on Global Energy
Policy (CGEP) and a fellow at the Oxford Institute
for Energy Studies. He worked in Beijing from
2010 to 2022 and has more than 20 years of public
and private sector experience related to energy
policy and markets, including nine years on Wall
Street and twelve years in China. He began his
career as an Energy Policy Analyst with the Rand
Corporation in Washington, DC, followed by
equity research in the electric utilities and oil
services sectors with Deutsche Bank AG and
Jefferies and Co. In 2007 to 2009, he worked for
the hedge fund Two Sigma Investments looking
at private equity investments in clean energy
technologies and projects, particularly solar. Hove
has both a Master of Science and a Bachelor of
Science in Political Science from MIT, and he is
a Chartered Financial Analyst. He is the author
of numerous reports and articles related to the
energy sector in China.

Picture credit

picture alliance / dpa | Jan Woitas

20 Friedrich-Ebert-Stiftung e.V.
Decoding China’s Electric Vehicle Success: Lessons for Europe U3
Decoding China’s Electric Vehicle Success:
Lessons for Europe
It is an open question whether European companies can become as
successful EV producers as the Chinese. However, this policy brief
suggests that critical factors in China’s EV success can be identified.
It examines its structural underpinnings and shows that it was
neither a linear, magical success story nor a monocausal planning
process. Although it is not easily replicable, there are lessons to
be learned for Europe.

Further information on this topic can be found here:

↗ [Link]