China’s EV Mandate Driving Many Top Tech Giants to Enter the Auto Industry

China plans to eliminate internal combustion engine powered vehicles on the road and cease production of non-hybrid gas powered vehicles by 2035. This means the over the next 14 years Chinese consumer demand for electric vehicles (EVs) will be unrivaled throughout the world. Why? Well, the math is simple here, within the next 14 years all the current gas-powered car owners need to transition themselves into the EV market.

And this transition is already happening quite rapidly.

Industry forecasts put China’s new energy vehicle (NEV), including pure battery electric vehicles as well as plug-in hybrid and hydrogen fuel cell vehicles, sales at 1.8 million units this year, up from about 1.3 million in 2020. Statistic predicts that by 2025, annual sales of new energy vehicles in China will reach 7.8 million units and sales of NEVs are expected to make up 20% of China’s overall annual auto sales.

The sheer size of this market has caused numerous new Chinese electric car brands to emerge – NIO, LiAuto and Xpeng, just to name a few.

Many of China’s largest technology companies such as Alibaba, Baidu, Foxconn, Huawei and Xiaomi are all also rumored to be starting electric car production somewhere in the near future. Baidu is teaming up with Geely and Huawei is allegedly teaming up with Chang’An (a state-owned automotive manufacturer) to produce EVs at the end of this year.

Xiaomi’s founder Lei Jun visited Tesla’s factory twice in 2013 to learn more about making electric vehicles. Foxconn has partnered with Fisker to produce a model similar to the Fisker Ocean which is set to launch in late 2022.

Why are tech companies able to transition into the EV market with ease?

It is not ideal for tech companies to make a traditional internal combustion engine vehicle, the R&D cost is way too high, and the competition is fierce. The average internal combustion engine has 3000 to 5000 moving parts depending on the complexity of the engine; however electric vehicles are remarkably similar to a toy remote-control car.

The most complex part of an EV is the management system which controls every aspect of the vehicle, and these systems can be coded or updated through software – that is where the tech companies come in with a huge advantage. From autonomous driving to battery management, software is like our own consciousness. It tells the vehicle how to behave. For example, to increase horsepower on a gas-powered engine is difficult – modifications need to be made to timing, valve lift, cam duration and forced inductions just to squeeze out little bit more horsepower. On the other hand, electric vehicles can be tuned by wireless software update, which is no different than updating your iPhone.

Another advantage is a lot of the technology and telecommunication companies in China already have their own supply of semiconductors which is a crucial component in making computer chips needed for EVs.

What’s more, they aren’t trying to start from scratch and go it alone. Almost all the Chinese tech companies are teaming up with automakers that already have very mature manufacturing capabilities, eliminating huge amount of overhead startup costs such as location, workforce, and equipment.

Conclusion

By looking back, hopefully we can predict the future. In the past, when China imposed the license plate lottery policy in big cities such as Beijing in order to ease traffic and pollution, it actually caused more consumers to start buying cars because if they won the lottery and didn’t register a vehicle, they could potentially lose the plate. So, you had people who did not need a car but won the lottery and were forced to buy a car so they could hold on to the license plate. 

So, the policy to limit vehicles actually caused a dramatic increase in new vehicle sales in comparison with the pre policy era.

I predict there will be a surge of new electric vehicle sales especially in about 5-7 years from now because car buyers will want to get a vehicle that will meet the 2035 regulations instead of buying a vehicle they will quickly have to replace.

Even with the policy 14 years out, there has already been a significant uplift in EV and hybrid sales.