China's battery industry will stay ahead in the next decade

The opportunity for China's electric vehicle market to get off the ground is the huge pollution problem created by the development of auto manufacturing and other heavy industries.

Beijing began an aggressive emissions reduction program shortly after becoming the world's largest auto market in 2009 - Wan Gang, then minister of science and technology and known as the father of China's electric vehicles, led the push for strict controls on vehicles that emit heavy pollution.

In 2012, China's State Council made the electric vehicle industry a key strategic industry, and in cities such as Hangzhou, consumers could receive subsidies of up to about $20,000 (roughly 127,400 yuan) to purchase electric vehicles.

However, by 2015 progress across the industry had stalled - poor quality batteries and electric vehicles were on the market and subsidy fraud was rampant. By 2016, the Chinese government had spent at least another RMB 12.6 billion on new energy vehicle subsidies, with billions more in matching funds from provincial and municipal governments. But as the cost of raw materials and new technologies continued to rise, manufacturers' profit margins fell, and consumers of such products did not buy them.

In response to this situation, the authorities began to use the carrot-and-stick regulatory approach. On the one hand, subsidies are being increased, while the annual market regulation requirements are becoming stricter and stricter.

Under this industrial policy, the Chinese authorities have built an important supply chain of automotive batteries. According to UBS, China now accounts for 85% of the global market for battery cathodes, anodes, diaphragms and electrolytes.

China has significantly reduced costs for manufacturers operating in China through its control of the global battery supply chain. For example, Tesla has been able to reduce the purchase price of its cars by more than 30 percent by operating in China.

Western governments rely on market regulation Chinese battery industry wins first opportunity

In other countries, subsidies for new energy vehicles are currently focused on consumers, but there are few financial incentives for manufacturers. At the same time, free-market authorities do not prioritize key issues such as battery safety and battery standards, but instead let free-market innovation solve these problems.

First on technology, free market incentives don't seem to be working as well as they should either. in 2019, the EU approved €3.2 billion (roughly Rs. 23.044 billion) in state aid to support research and development of electric vehicle technology, and earlier this year dropped another €290 (roughly Rs. 2.088 billion). But the authorities only focus on the amount of money invested, not the type of technology or project they are funding.

Second, the huge supply chains and manufacturing facilities needed to scale up the industry are also ignored by Western authorities. As a result, many car companies hoping to lead the electric market are left to their own devices to expand their own supply chains. Toyota recently announced an investment of $13.7 billion (about RMB 83.748 billion) in batteries; VW CEO Dies also said that the pressure on VW's electrification transition is gradually increasing, limited by factors such as battery supply and factory capacity; BMW also raised its battery orders to more than 20 billion euros (about RMB 127.516 billion).

And South Korea and Japan, the two countries that initially had the technology leadership, have temporarily lost the battle in terms of battery costs. So now more and more car companies began to rely heavily on the Chinese battery supply chain, and turned to the embrace of lithium iron phosphate batteries.