As you hop across the border from the bustling streets of Hong Kong into Shenzhen, something immediately catches your attention. The skyline is just as towering, the streets are just as busy, but there’s something almost imperceptible at first. You continue your walk around downtown Shenzhen, also known as Futian district, and then it hits you.

Silence.

Walking through the heart of Shenzhen, one is struck by the impressively low levels of noise pollution. The usual urban cacophony is notably absent, replaced by the subtle hum of electric vehicles that glide almost soundlessly through the streets. In this article, I want to explore the profound developments happening in China’s electric vehicle industry. If you have the chance, I highly encourage you to take a trip to Shenzhen and hear the difference for yourself.

First, a bit of history

China’s journey into the world of electric vehicles began at the turn of the millennium. In 2001, the government initiated the “863 EV Project,” aiming to develop electric, hybrid, and fuel cell vehicles. This marked the beginning of a series of ambitious plans and substantial investments to transform the nation’s automotive industry.

By 2004, sixteen state-owned companies formed the China Electric Vehicle Association (CEVA) in Beijing, pooling resources and expertise to spearhead the development of top-tier electric vehicles. Fast forward to 2008, and the sales of new energy vehicles were starting to surge, buoyed by significant government support and the introduction of numerous pilot cities for electric vehicle usage.

The real acceleration, however, came in the following decade. By 2015, sales of plug-in electric vehicles had soared by 343%, a testament to China’s relentless drive towards innovation and sustainability. In 2018, China produced and sold about 1.2 million plug-in electric vehicles, making it the fastest and largest-growing market for electric vehicles globally. This rapid adoption saw cities like Shenzhen not only transform their public bus fleets to electric but also set ambitious goals for their taxis.

Current trends and challenges in China’s electric vehicle industry

Today, the landscape of China’s electric vehicle industry is a blend of rapid growth, fierce competition, and groundbreaking innovation. The market has witnessed a significant price war among manufacturers, leading to highly attractive deals for consumers. However, this has also squeezed profit margins to the lowest levels in a decade, with the average profit margin sliding to just 5% in 2023.

The industry is also grappling with overcrowding. Over 110 new models of new energy vehicles are expected to hit the market this year alone, creating a scenario of oversupply. Major players like BYD, Huawei’s Aito, and Li Auto are planning to significantly ramp up their production, contributing to a market that might soon have more cars than demand.

This saturation has led to a prediction of a “knockout round” in 2024, where many smaller manufacturers might not survive the intense competition. CEOs from major companies like Geely Auto and BYD have already warned of a brutal elimination round that will consolidate the industry, leaving only the strongest players.

Despite these challenges, the future holds promise. The market share of electric cars in China could reach up to 45% by 2024, driven by continued competition, decreasing costs of batteries and vehicles, and robust policy support. Companies that manage to weather the current storm are likely to emerge stronger, with significant opportunities in both domestic and international markets.

Legal and regulatory considerations

Safety and quality control have been critical focus areas for Chinese regulators. On January 6, 2017, the Ministry of Industry and Information Technology (MIIT) issued the Administrative Provisions on the Market Access for New-Energy Vehicle Manufacturers and Products. This regulation stipulates that both manufacturers and their electric vehicle products must meet stringent criteria and obtain approval before entering the market. These criteria cover design, development, production, and after-sales services, ensuring that only qualified manufacturers can produce electric vehicles.

To enhance safety oversight, the MIIT released the Circular on Further Enhancing the Safety Oversight of the Promotion and Use of New Energy Vehicles on November 11, 2016. This directive requires electric vehicle manufacturers to establish monitoring platforms and mechanisms, with user consent, to supervise the safety status of their vehicles. Additionally, the Circular on Strengthening the Safety Administration of the Demonstration and Promotion of Energy-saving and New Energy Vehicles, issued on August 18, 2011, mandates that electric vehicle charging stations implement safety management measures to prevent accidents during charging.

As the world relies increasingly so on technology, regulatory challenges facing the electric vehicle industry are not entirely unique: privacy and data protection is a key issue facing electric vehicle manufacturers as they are required to collect and process user data for safety monitoring. Manufacturers are required to obtain user consent and implement robust cybersecurity measures to protect data integrity. An interesting article on this topic has been published recently in The Diplomat.

A global context: trade tensions and market dynamics

The rapid expansion of China’s electric vehicle industry has not been without controversy. Recently, the European Commission announced plans to impose duties of up to 38.1% on electric vehicle imports from China, citing concerns over state aid to Chinese electric vehicle manufacturers. Beijing has threatened to challenge these duties at the World Trade Organization, arguing that they lack a factual and legal basis and could distort global auto production and supply chains.

This trade tension adds another layer of complexity to the already dynamic landscape of the electric vehicle industry. As China continues to push forward, the interplay between domestic growth and international relations will be crucial in shaping the future of electric vehicles on a global scale.

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And so, if you ever find yourself crossing the border from Hong Kong to Shenzhen, take a moment to listen to the sound of progress.