For years, the Chinese automotive industry has been chasing an ambitious goal: from big to strong.
The key breakthrough in this goal lies in new energy vehicles. From 2015 to the present, China's production and sales of new energy vehicles have consistently ranked first globally, dominating half of the global new energy vehicle market. According to data from the China Passenger Car Association, in 2023, China's sales of new energy passenger vehicles reached 8.87 million units, accounting for 63.5% of global new energy sales.
In this great transformation, China's new energy vehicles have emerged, giving the impression of vigorous development. However, behind the scenes, the development process of this industry is fraught with unusual twists and turns, involving multiple dimensions of technological innovation and market competition.
The recently published book "Switching Lanes: The Chinese Path of New Energy Vehicles" by former Minister of Industry and Information Technology Miao Wei meticulously recounts over 20 years of key events in China's new energy vehicle industry. It delves into the background and rationale behind the formulation of industrial policies at the time, along with the extraordinary experiences of this adventurous journey.
Just like the twists and turns on a racetrack, this journey of China's automotive industry brings both joy and many unexpected turns, prompting deep reflection on this exploration of Chinese automotive innovation.
In the fierce market competition, there's a tactic known as the "first-mover strategy" — entering the market before others to seize the opportunity, thus enjoying a piece of the pie while competitors are still figuring things out.
In the field of Chinese new energy vehicles, the most typical example is BYD. In 2003, by acquiring a company with the qualification for car production—Qinchuan Automobile, BYD embarked on its journey in the automotive industry. Initially focusing on traditional fuel vehicles, BYD capitalized on the booming Chinese automotive market and successfully established its presence.
Simultaneously, it was also one of the first domestic companies to invest in new energy vehicles.
From the production of BYD's first new energy vehicle, the F3DM, in December 2008, to the introduction of the second-generation DM hybrid technology in the Qin model in 2013, to the unveiling of the third-generation DM hybrid technology in the new generation Tang in 2018, and finally to the launch of the Han model equipped with blade battery in July 2020.
BYD's hit model Han DM-i | Image Source: BYD
Around 2020, when the era of new energy vehicles was burgeoning, BYD was arguably the only automaker well-prepared for it. It had thorough preparations in products, channels, and supply chains, while seizing the core of technology and cost.
Ultimately, BYD successfully captured the largest share of the market, far ahead of its competitors. In the full year of 2023, BYD sold a cumulative total of 3.024 million vehicles, a year-on-year increase of 61.8%. This figure not only made BYD the champion of the global new energy vehicle market in terms of sales volume but also successfully entered the top ten list of global automobile sales, ranking ninth.
However, striving for first-mover advantage is only a strategy, not the ultimate goal. In the automotive industry, the real key lies in quickly adapting to market changes and meeting the genuine needs of users.
Former Star Model - BAIC EU260 | Image Source: BAIC Blue Valley
A prime example is BAIC New Energy (now BAIC Blue Valley), which used to be a strong competitor to BYD and even surpassed BYD in terms of fame. For seven years from 2013 to 2019, BAIC New Energy consistently held the crown for the highest sales of pure electric vehicles in China, and in 2017, it even exceeded Tesla's global sales.
As mentioned in the book, BAIC New Energy's initial success lay in seizing the opportunity presented by the replacement of electric taxis in cities like Beijing, being among the first to experience the sweetness of To B services. However, it lagged somewhat in transitioning to To C services.
In 2019, BAIC New Energy reached a peak sales volume of 150,000 vehicles. However, facing industry upheaval, Beijing New Energy experienced fluctuations while adapting to adjustments.
In the full year of 2020, sales of new energy vehicles plummeted to 26,000 units, an 82.79% year-on-year decrease, with production notably lower than sales, indicating significant inventory pressure. However, there was a slight increase in sales by 0.82% in 2021, and although there was a recovery in 2022 with a growth rate of 92%, the momentum was far from what it used to be.
With the deepening electrification and intelligence of the automotive industry, many traditional automotive enterprises face enormous challenges: existing vehicle production capacity and traditional drivetrain production capacity are constraints, and there is a shortage of talent related to intelligent connected technology.
The hierarchical organizational structure, vertical industry chain management, and marketing models of traditional automotive enterprises are difficult to adapt to rapid changes in market demand. In this era of transformation, adaptability becomes the key to corporate survival.
02/The Revival Behind the Setbacks, Even Life-or-Death Moments
Over the past decade or so, China's new energy vehicles have experienced a series of critical moments, with the most notable being in 2020, becoming the "singularity" of industry development.
Between 2009 and 2019, the penetration rate of China's new energy vehicles climbed from 0% to 5%. However, in the following three years, the penetration rate soared to 13.4%, 26.7%, and 35.7%, respectively, far exceeding expectations and even causing Li Bin, the founder of NIO, to exclaim, "It's happening earlier than I imagined."
However, the development of any new thing is not smooth sailing, fraught with obstacles, and even several life-or-death moments for China's new energy vehicles. Especially the "subsidy fraud" scandal in 2016, which became a significant obstacle and dealt a severe blow to the momentum of new energy vehicles.
In fact, to promote emerging industries, governments adopt various support measures, including fiscal subsidies, which are a globally accepted practice. The United States, Europe, Japan, and other places have also been implementing various incentive policies to support the development of new energy vehicles.
However, in early 2016, the "subsidy fraud" incident erupted, with some companies being exposed for taking advantage of policy loopholes to fraudulently obtain national fiscal subsidy funds, dealing a fatal blow to the rapid development of new energy vehicles. The book reconstructs the situation at that time, with society widely condemning such behavior and casting doubts on government fiscal subsidy policies.
The truth behind the "subsidy fraud" is restored in the book: it did not involve over 70% of the reported cases as the media claimed but was confined to certain regions, companies, and models.
Subsequent departments plugged the policy loopholes and held the companies involved accountable. Although the decision-making process is not detailed here, it certainly involved various thrilling and epic stories.
In addition to this, in the course of China's new energy vehicle development, 2013 was another life-or-death moment, a milestone that many may not be familiar with.
Looking back to 2013, it marked the end of the "Ten Cities, Thousand Vehicles" pilot demonstration project. Initiated in 2009, the project aimed to promote 10 cities nationwide each year, with 1,000 new energy vehicles deployed in each city for demonstration operations, supported by financial subsidies.
However, by the end of 2012, the total number of new energy vehicles nationwide was only 27,800, with 80% being buses, while the total automobile sales that year had exceeded 19 million. It is evident that the operational scale of new energy vehicles was less than 1% of the automobile market share, severely falling short of the initial expectations of the "Ten Cities, Thousand Vehicles" project.
At the same time, the book also mentions that 2013 was a year of government transition, and the attitude of the new government towards the development of new energy vehicles was crucial, determining the fate of China's new energy vehicle industry. At the policy crossroads, was it to continue moving forward or let the market lead? Should the government continue to provide subsidies to vehicle purchasers?
Ultimately, after nine months of policy uncertainty, new subsidy policies for new energy vehicles and energy-saving vehicles were gradually introduced, and the first batch of 28 cities for promotion and application was determined. Although the subsidy standards basically followed those of the "Ten Cities, Thousand Vehicles" pilot project, they were gradually reduced in a "decreasing" manner annually, eventually being completely phased out by the end of 2020.
Moreover, to promote the construction of public charging infrastructure, the Ministry of Finance specially increased relevant funding subsidies. In addition, there was no longer a limit on the number of cities for the promotion of new energy vehicles, and promotion work was carried out nationwide, with clear requirements for local governments to support the promotion of new energy vehicles.
2013 marked the transition of new energy vehicles from the product introduction period to the growth period. In this year, with clear policies, the development of new energy vehicles began to gather momentum.
03/Pure Electric ≠ New Energy
Today, there are more and more new energy vehicles on the road, but many people often confuse pure electric vehicles with new energy vehicles. In some places, subsidies were only provided for pure electric vehicles for a long time, ignoring other types of new energy vehicles, which deepened this impression.
However, the reality is different. In our country's development plan for new energy vehicles, a "three verticals and three horizontals" technological route has long been established. Among them, the "three verticals" refer to pure electric vehicles, hybrid vehicles, and fuel cell vehicles.
With the passage of time, policies have been adjusted.
Hybrid vehicles, represented by Toyota and Honda, have been included in the ranks of new energy vehicles. Plug-in hybrid electric vehicles (PHEVs) and full hybrid electric vehicles (HEVs) are like twins, both equipped with two power systems, but they play slightly different games:
HEVs primarily rely on conventional engines for propulsion and cannot be charged externally by charging stations, whereas PHEVs are primarily driven by electric motors and can utilize external charging stations to charge their batteries.
The author describes several considerations behind this adjustment for policymakers in the industry:
Firstly, it's widely known that Toyota and Honda in Japan are pioneers in full hybrid electric vehicle technology.
Toyota's Prius, a full hybrid electric sedan, started its journey as early as 1997 and has been immensely successful ever since. By the end of 2011, global sales of full hybrid electric vehicles had surpassed 4.5 million units, with Toyota contributing 3.5 million of those. This has led many car companies to realize that with such high technological barriers, they must explore alternative paths.
Toyota Prius has shaped the impression that "Toyota equals hybrid." | Image Source: Toyota
Furthermore, from a national perspective, reducing dependency on oil is a major consideration for China's development of new energy vehicles. While plug-in hybrid vehicles can save fuel, they still rely on oil to some extent.
For large and medium-sized cities, the problem of air pollution caused by emissions from gasoline vehicles still exists. Therefore, controlling gasoline vehicles and vigorously developing electric vehicles is the general trend.
Lastly, in the field of traditional gasoline vehicles, there is still a gap between China and the international advanced level, mainly due to insufficient investment in basic research. If we blindly pursue the field of advanced hybrid vehicles, it may lead to an increasing gap with the international level. Therefore, in the development strategy of new energy, some trade-offs must be made to find new paths of development.
Considering these factors, after repeated discussions, industry insiders have reached a consensus: classifying advanced hybrid vehicles as "energy-saving vehicles" and plug-in hybrid vehicles as "new energy vehicles."
In 2012, the State Council issued the "Development Plan for Energy-saving and New Energy Vehicles Industry," which clearly stated the direction towards pure electric drive.
Here's a little anecdote: at that time, many people were confused by these professional terms and often mixed up "pure electric drive" and "pure electric."
"Pure electric drive" and "pure electric" differ by only one word, but their meanings are quite different: pure electric drive means that the vehicle mainly relies on the electric motor and does not heavily depend on the engine. This includes not only pure electric vehicles but also plug-in hybrid vehicles and fuel cell vehicles. However, the engine used in range-extended hybrid vehicles and the battery pack in fuel cell vehicles are mainly for generating electricity rather than directly driving the vehicle.
The development of new energy vehicles in China is like a dark horse on the racetrack, with a magnificent journey of counterattack. From the "Ten Cities, Thousand Vehicles" plan to the subsidy fraud controversy, and then to the turning point of new energy vehicles, each critical moment is an indispensable part of the industry's development.
However, this is just the beginning of the adventure, and the adventure of new energy vehicles never stops.
