Has the West lost the electric vehicle race to China?

Below is a transcript of our video webinar held for subscribers on July 11, 2023:

Barry van Wyk: Good morning, good afternoon everybody. Thanks so much for joining us on this webinar. It’s a great pleasure to have you with us. Has the West lost the electric vehicle race to China? That’s what we’re discussing today. We are The China Project. This is a subscriber-only webinar about the electric vehicle industry. Thank you so much for being one of our subscribers! Your contribution is what helps us be an independent voice reporting on China. We’re going to start this off with a panel discussion with our two panelists, which I will introduce shortly. Then we will endeavor to answer as many of your questions from the audience as we possibly can in the time that we have available to us. So just a couple of announcements. In order to ask a question, there’s a Q&A button at the bottom. If you have any questions, please place your questions there, and hopefully we can get to all the questions that we have. One last thing, there will be a short three-question poll for all our viewers at the end of this webinar. If you can, please fill that in very briefly before you leave, we’d really appreciate it so we can get inputs and feedback for our future events. So let me introduce our panel today. Firstly, we have Lei Xing, who is the co-host of the podcast, China’s EVs and More, and an independent analyst on the Chinese EV industry. Welcome to you, Lei. 

Lei Xing: Glad to be here!

Barry van Wyk: Thank you. Henry Sanderson, who is the Executive Editor of Benchmark Mineral Intelligence, the author of a recent book called Volt Rush: The Winners and Losers in the Race to Go Green, and also a journalist with various experience. Welcome to you, Henry.

Henry Sanderson: Thank you. Thanks for having me.

Barry van Wyk: Before we get going, let me do a very short introduction. The China Project has covered China’s EV industry since we first started in 2016. That was just after China actually became the world’s biggest EV market. We’ve been covering the industry in some depth since then. In the years since then, China has actually  become more and more dominant. Just to put a little flesh on the bone of this, in 2022, 64% of global new energy vehicles were produced in China and 59% of all global sales of EVs took place in China. So, we’re talking 7.65 million EV sales last year in China. That’s just talking about EVs. So when you talk about batteries, the scale is even more incredible. About 77% of the world’s battery production happened in China last year. That just gives you an idea of the scale of how central China is to the global EV industry. 

That brings us to our topic today. From the current vantage point where we are now in 2023, it really would appear as if China has already won the global EV race. It’s like the race is over and done. All, really, that’s left now is for Chinese brands led by BYD, but others as well, to become truly global brands; to become the main sellers in basically all EV markets around the world. CATL is also a large player— all of the EVs carry CATL batteries as well. So that’s kind of where we are. That brings us to our question. Has the West lost the electrical vehicle race to China? Is that where we are right now? It might seem like it is. I’m gonna put our first question to you, Henry. How did all this happen? How did the U.S. and Europe fall behind? It seems like it happened so quickly and so drastically. Given this current dependence on Chinese EV manufacturing and technology, is there just no way for the West to catch up?

Henry Sanderson: Thanks for having me. It’s taken many years for EVs to come to fruition. In fact, over 100 years, right, the history of EVs goes back to you know, Thomas Edison and Henry Ford back in the day. The West had a colossal advantage, and every clean energy technology you can think of. The lithium-ion battery was invented in the West, the silicon solar cell, etc. But, what I think happened, I think the financial crisis was quite a pivotal time, because both Obama and China wanted to stimulate clean energy and electric vehicles. I think Obama was calling for one million plug-in electric vehicles on the roads by 2015. That didn’t really happen in the U.S. for various reasons, mainly, I think, because of the legacy automakers that never actually really properly wanted to do it. In fact, we’ve seen them lobby against certain fuel efficiency rules. 

In answer to your second question, I think the answer is no, because what came out of that U.S. effort was the Department of Energy loan to Tesla early on. Tesla is really why I say no, because Tesla, obviously, is the leading EV maker, not only in China, but globally. But, it is aU.S. electric vehicle maker. So we really have a stake in this race, and Tesla is forging ahead. I think the challenge is for some of these legacy automakers who are losing lots of money on EVs, and making money out of legacy cars, or big pickup trucks, etc. How do they manage that transition? Can they actually compete against the Chinese rivals? I think Tesla shows that the West is certainly in this race and it’s early days, right? The global stock of EVs is still low. We mustn’t forget how big a challenge the energy transition is. It’s easy to forget that if you’re in London or cities, right, where you see lots of EVs. It’s a massive, massive challenge. So, we’re definitely in the race, that’s what I would say, and there’s still time for us to catch up.

Barry van Wyk: You want to add anything to that Lei?

Lei Xing: Yeah. I think the key word here is race. That’s exactly what it is. It’s ongoing. Definitely a yes to the question now of has the West lost the race? They are losing. Now, this is an ongoing tense. Because it’s going to be a marathon, and I think China, just last week, rode off with 20 million NEV— new energy vehicles. 20 million. Okay. The first NEV produced in China, believe it or not, on record was actually in 1995. I actually learned that just last week as well, I didn’t know that. But, if we look at the trajectory of the NEV sales, we started having NEV sales right around the time during the U.S. financial crisis, global financial crisis. 2008/2009 is when China had this 10-city 1,000-vehicle demonstration project, putting EVs on the road. From that point on, it’s basically been educating the market with a top-down approach. 

Then, starting in about 2014/2015, you have the national subsidies. There’s this cohesive effort in growing the market. Whereas I think in the U.S., because of various reasons, there wasn’t this kind of top-down cohesive plan. That’s why now China’s in the lead. I think that’s the primary reason, and it’s not a one-year, two-year phenomenon. It’s a 15-year phenomenon. So, China is leading now, but is it going to lead into the future? I think we put a question mark on that. They’re definitely far ahead, and the West has a chance to catch up, and we are seeing them catch up in the U.S.. But even here in China, we’re starting to see now these foreign brands besides Tesla, we’re seeing now more volume starting to happen. Actually, I just saw the first rankings of all the joint venture brands, like how we see the rankings of the top Chinese smart EV brands, and the volumes are slowly increasing. So, it’ll be interesting to watch going forward. 

Barry van Wyk: I think the important thing to say is that it really is a marathon, not a race. We really are still at the early stages of this marathon. Things can change a lot. We have a lot of growth potential in the European markets and in the U.S.. At the moment, we’re talking about 1000s or maybe millions of EVs. In the future. We might even get to a point where we’re talking about billions of EVs. So things might still change a lot. Another point to make is actually to consider where China is now in terms of percentage of passenger EVs on the road — it’s roughly about 30%. Therefore, China is way ahead of other markets. Inevitably, those other markets will catch up, and then things will change a lot. 

I’m going to put the next question to you, Lei. What do you think is the number one thing that has been under-reported with regards to China’s EV industry? What do you think is a lesser known fact that will rock the industry and rock the world?

Lei Xing: I don’t know if these are things that will rock the rest of the world, but they’re definitely under-reported. Today’s actually my third week in China after three and a half years away. Two things I want to mention are the keywords of smartification, and second, charging. I think these are the factors that are contributing to EV sales in China that are not as well reported. Being on the ground has given me the opportunity to experience this. I think charging is very important and we can forget about electrification. That race is behind us in China, I think. If you look at the volumes, it’s as simple as that. 

I think the second half of the game will be one on smartification. Simple things, such as steady or highway assisted driving is currently a very heated and tremendously cut throat competition going on right now. These features are no longer the differentiators. These features are the qualifiers. That’s why this actually relates to the first question, why the West has lost? At least in China, why the foreign legacies have not done well is because of these tech connectivity autonomous driving features. These are what the consumers are looking for. 

On charging, we see Ford, GM, Rivian, Polestar, Volvo, and the latest Mercedes going with a Tesla NACS in the U.S.. But here in China, there’s no NACS. There is no CCS. There is no debate. It’s only one standard, which is the national standard. It’s called the “Guóbiāo” which directly means “national standard”. At least me being in Beijing is kind of a caveat, but the number of charging stations infrastructure, whether it be swapping, whether it be charging or slow charging, DC, AC, or different platforms. You have the national state grid, you have the Tesla Supercharger network, you have these third party providers —Shell, TLD. Volkswagen has charging joint venture camps. These are well established in China, and it’s very often overlooked as a reason why sales are so strong. 

I’ve been driving an Avatr brand, it’s a Chang’an, CATL and Huawei jointly developed brand. It’s got good range in the first place, but I really don’t have any range anxiety, not because of the availability or the network, but because when you go to a station to charge, it just works. I’ve done it twice today; all fast chargers. Plug in. Scan with WeChat. Charge. Get paid. Get out. That’s all over China, although I’m in a big city, it’s just more convenient. I would say smart applications, specifically assisted driving, akin to what Tesla is doing with the FSD, is very competitive. You have to have that as a qualifier. And then the charging experience; convenience, simplicity. We see reports on BYD, Nio, we see the race on sales, but really the underlying reasons I think is the smartification and the charging. Driving is so easy. 

Barry van Wyk: Right, China has made it so easy. It’s not only easy to use the EV, it’s also easy to buy the EV.  You get a lot of support for buying the EV before using the EV, and then for whatever you want to do. Henry, do you want to add to that? 

Henry Sanderson: That is the issue in markets like the U.K. where charging is a real bottleneck, and it’s actually actively putting people off. It’s not consolidated. So, you have lots of different operators with different pricing, or the pricing is unclear. What we need to see is more consolidation, but obviously, more government money to improve the experience. The Tesla supercharging obviously is the best thing about the Tesla in the U.K., because most motorway charges will be out of order or not working properly. It’s a real issue once you’ve crossed a threshold of sales, right, and the sales are growing quicker than the charging. So that I think is one of those key issues in markets at the moment and, as Lei said, we don’t have battery swapping here. We don’t have those other sorts of avenues. So charging, I think, is fundamental.

Barry van Wyk: With all this being said, we all know what’s happening currently in U.S.—China relations, there is quite a bit of geopolitical friction. Is the EV industry immune to all of that? Is China over-reliant on the West to an extent to export its EVs and its batteries? Is the EV industry immune to that? You would think that China’s dominance of this industry gives it a lot of geopolitical leverage, right? Is the industry immune to that Henry, what do you think?

Henry Sanderson: Certainly it’s not immune. It’s right in the crosshairs of U.S.-China relations, but the reality is that the U.S. can’t reach its EV targets/climate change targets, and neither can Europe, without the involvement of China and Chinese companies because of the extraordinary dominance that China has in the battery supply chain. This goes from things like lithium, where it dominates processing, and areas like graphite, which we don’t pay enough attention to. Graphite is used in the anode of a battery, and China has 90%+ share of that market. So there’s just not a chance in hell that the U.S. and Europe are going to make a big dent in that dominance overnight, right? It’s just just not going to happen. Who’s going to fund all these synthetic graphite plants in the U.S. and Europe at a time of high interest rates? So, it’s a very challenging situation. 

That’s why I think it’s a complicated situation where the U.S. has to give some ground and let [there be] some Chinese involvement in the supply chain. But, that threatens the sustainability of the Inflation Reduction Act, because the more that people see the potential of Chinese companies getting involved, that sort of puts into question the aims of the IRA. That’s really the balancing act — how do you build a supply chain and reduce reliance on China to increase resilience? But, we can’t do that overnight. So, how do you include China in some way? 

In Europe, we’re seeing a lot of Chinese investment coming into Europe. There’s a more open approach. But again, how does that align with the EU’s goals of building its own supply chain? I think in terms of geopolitics, we certainly haven’t heard the end of it. We’ve seen recently that China is restricting exports of semiconductor materials. They have huge leverage over the whole supply chain. If you look at things like rare earths and graphite, I would say, China mines, processes most of these materials and produces the product. The anode or the rare earth permanent magnet. So, they’ve got huge leverage. There’s just no production outside China. There’s no people who know how to do it. They do have this leverage whether they use it or not. I’d like to hear Lei’s views because obviously, they want to export to these markets, right? So, do they use that leverage where they could invite a backlash against Chinese brands. So, that’s the issue.

Lei Xing: Recently, if we talk about the China-U.S. relationship specifically, we’ve seen some dialogue. Yellen was just here right on the heels of Blinken, right? I think it’s important to keep this dialog open. This is not only with respect to the EV, but with respect to overall relations. It’ll be good to see that. But as Henry pointed out today, as well, in our previous conversation on the podcast, that it will be premature to delete the so-called China Battery inc, China raw material/critical materials Inc., to delete that from the equation. 

Talking about the race, from the volume perspective, we talked about it, but also from the upstream perspective, we see the U.S. accelerating their domestic competence during the pandemic, right? I don’t know the numbers of billions of investment that has gone into local production not only of batteries, but involving the more upstream critical materials. These are the things that I think we will continue to see. We will see a balancing act going forward, with China dominating and the West trying to rely less on this China dominance. But, it’s going to take years. It’s not a matter of months. It’s going to take years.

Barry van Wyk: To take it a step further, Henry, you would say that places like Europe or the U.S., they’re never really going to become independent of those foreign supply chains, right? I mean, this brings us back  to our theme, if they’re going to catch up, are they going to ever make their own supply chains? Are they ever going to mine their own precious metals that go into these batteries? Are they going to actually build their own batteries? Are they going to be depending on Chinese companies who are setting up in Mexico or Chile to supply the U.S. market? If you look at it from the supply chain perspective, would you say, Henry, is it ever going to happen?

Henry Sanderson: Actually, the U.S. and maybe especially Europe are always going to be dependent on China. I think for the foreseeable future the West will be dependent on China. Now, there are home-grown companies that are looking to build lithium processing, like  Tesla, they’re building lithium refining, cathode, etc. manufacturing. There are companies coming up to do this, but it’s going to take time, as Lei said. Also, what’s the eventual costs going to be like? How is it going to be cost competitive? Because the whole issue is, you have overcapacity in China. They’ve invested a lot in cathode and anode, so prices are falling. If you’re a company building a new plant in the West, you have higher interest rates, as I mentioned, but also, you have to consider falling prices in a lot of these markets. So, it’s very, very hard to compete against the Chinese companies. 

Now, of course, there are subsidies and the Inflation Reduction Act, and some money in Europe. But, how long can these last? What’s the durability of the subsidies? Will Western governments continue to fund these companies to compete with China for geopolitical advantage? At some point, is the market going to reestablish itself? I think the problem is, with China we have these cycles of investment and overcapacity, and then they tend to export that overcapacity, and it depresses prices. That’s the real challenge. 

Just on the raw material front, the West is not in a bad situation at all. The West has many allies. We have Australia, which is a great mining country, and  Canada. It is not necessarily a question of raw material deposits, what we need to build is the rest of the supply chain, otherwise, the material gets sent to China to be processed. This is a real and huge industrial agenda. Processing plants are energy intensive. I mentioned graphite. Synthetic graphite— you’re heating it to 3,000 degrees. Is that the kind of thing you’d like in your backyard? It’s energy intense, right? So, we need to re-establish and build this whole supply chain out in order to reduce reliance on China. The raw material is not necessarily the huge issue. The issue is can we build this energy intensive processing industry? Or, can we innovate to make it cleaner, less energy intense, more cost competitive. That for me is one thing I’m really watching. Can these innovations make Western companies cost competitive with Chinese companies who have the legacy? They have legacy plants that have been going for many years. Whereas we can start from a blank slate. So maybe that has some advantages as well.

Barry van Wyk: Just a quick follow up question, can the West— Europe and the U.S. — build its own EVs? Right now, does the West have the capacity to build them? Or how long will it take? 

Henry Sanderson: This is interesting because Tesla says on its emails that all its vehicles are eligible for the tax credit on the Inflation Reduction Act. I think the reason is because they haven’t defined the foreign entities of concern, which is what kind of restrictions they’re going to put on Chinese involvement in the supply chain. Because I don’t see how Tesla is doing that without any Chinese involvement. They’ve got Chinese cathode suppliers and lithium suppliers. I don’t quite see how that’s going to work out. That’s what people are waiting for: how is Washington going to define this foreign entity of concern? Will it be a percentage of Chinese equity ownership, in which case they’ll adjust the equity ownership? What’s it going to look like? But I would say, now, it’s very, very difficult to do that without any Chinese involvement.

Lei Xing: I think it’s impossible. 

Henry Sanderson: I mean, you’re talking about dismantling decades of globalization as well. But, there are areas where China is extremely dominant, like manganese, right? China processes 90%+ of manganese. Battery chemistry is moving more towards including manganese, there’s graphite, as I mentioned, there are these areas where it’s 90%+. It’s not Saudi Arabia and oil; it’s a massive, massive share. So, it’s very difficult to overcome that.

Barry van Wyk: Yeah, interesting to see what it would be like if you force the U.S. to build its own EVs right now and see what they come up with. Lei, you go ahead.

Lei Xing: The answer to your question is no. Back to that second question on the things that matter; I think platformization is also key. We are just hearing Audi is trying to utilize one of several Chinese smart EV brands platforms. The latest rumor is that they might be utilizing their partner SAIC’s own smart EV brands platform, because they haven’t done well in China. Patformization [matters], and also batteries. If we look at the CATLs, if we look at BYD, they started out doing phone batteries. It was later that they moved into electric vehicles. In terms of chemistry and form factor, from that point of view, it’s been years of development. It’s been years being on the market, [providing] proven technology. 

Now, we’re hearing about these new chemistries, all sorts of acronyms I won’t mention here, that are coming out of China. While in the U.S. we do have similar startups. One being ONE: Our Next Energy. I think this is sometimes known as ‘America’s CATL’. Then a bunch of these startups, right? SES, Factorio. Then, when you go into the lithium metal, solid state side, I think you were talking about, Henry. But, these won’t materialize until well into the 2030s. At least, until then, you can’t really cut off China. If you do, then there’s no way you’re going to make any EVs.

Barry van Wyk: Let’s just turn this question around, Lei, for a little bit. Our question is, Has the West lost the race? But, what is the perspective from China? Where does China want to go from here? Obviously, it controls supply chains, it dominates production, it has most of the sales, but it wants its leading brands (e.g. BYD) to become globally dominant. It wants BYD to beat Tesla, not only in hybrids, but also at full electrics in every market in the world. The percentage of EV passenger vehicles is about 30%. China probably wants to raise that up how high? But, what does China want to do in terms of the rest of the world? Does it want to continue to dominate production and dominate sales? 

Lei Xing: I think the next stage, which is ongoing, is definitely the globalization of China EV, Inc. Look at it not only in terms of export, but [the news] just in the last couple of days. BYD in Brazil, SAIC talking about building in Europe. BYD is rumored to be purchasing a plant in Germany, but I think that’s probably not going to happen. There are quite a few of these announcements. Bringing production of not only vehicles, EVS specifically, into Europe and rest of the world, even Southeast Asia, with the supply chain. 

When we talk about the supply chain, we talk about the battery players that Henry mentioned. They are very active. These top battery cell suppliers are very active in Europe building plants. So, they are bringing the entire supply production globally on the production side. On the branding side, the intent is obviously, let’s say, the front runner is BYD becoming the next, let’s say, China’s Tesla. There are so many Tesla killers that China is trying to add. That race is going to take a bit of time because we are seeing all of these announcements. 

Europe specifically is not one market like the U.S., it’s 27 markets, right? So, that’s something that these Chinese brands will have a relatively harder time to get around. I think what we’re not seeing, we’re not seeing tremendous volumes, as of now, in the countries that they entered. [The focus is] building a brand. Then, there’s trouble bringing it home as well, because competition is so fierce. We’re in the middle of this price war that we just started another wave of just a couple of days ago. 

We talked about overcapacity. The need to build, not only for the Chinese market to sell, but we have the price war going on and then to export; to utilize the capacity. That’s why again, going back to this ‘race’, I think for the Western legacies, while they’re behind, they’re kind of watching this and thinking it’s the Chinese themselves competing. It’s very cut-throat. Maybe we have a chance because we are seeing the brands that are on the fence or are exiting the market, and there’s already quite a few smart EV brands that are pretty much dead. Even for BYD, I always say, whoever is on the top, BYD and Tesla’s on the top globally, but in China, it’s harder to go even a step further, then coming from behind. I think the sentiment from the foreign legacies is, “Yes, we’re behind, but we still have a chance with the next generation of platforms that we have that can better China for China products.” So, we put a question mark on that.

Barry van Wyk: Anything to add at this point, Henry, or should we go on?

Henry Sanderson: Yeah, I would say in the U.S. market, we’ve seen real efforts by General Motors to invest in building a supply chain and they’re building a massive project in Quebec in Canada where they’re looking to recreate those steps of the Chinese supply chain in an area with abundant hydropower. They’re looking at building cathode precursors, piping the nickel from Canada’s nickel mines, and building a cluster essentially to build up those steps of the supply chain that China dominates. 

I think in the U.S. market the Chinese EVs are not there. They’ve got the support of the inflation Reduction Act, and they’ve got the South Korean partners to build out. So, I do think the U.S. stands a good chance of competing with these Chinese companies. But, I do think in terms of what we’ve seen in Europe, the governments are so desperate for investment that Chinese companies are coming in and being courted, and are welcome to invest in Europe. As Lei said, European EVs are coming out of Europe. What we’re already seeing is successful brands that people don’t realize are Chinese, like MG in the U.K.. All around me are MG EVs. Volvo is another example, and Polestar. They’ve already been successful. That’s one way the Chinese are coming.  

But I do think, as Lei said, that the Chinese market might kill off a lot of the legacy competition and do the job for the Western automakers anyway. We see Nio is suffering at the moment. So, I think it’s the competition in the Chinese market, and we have yet to see how that plays out.

Lei Xing: Yeah, I think this speed which China has and enjoys is a double-edged sword. Speaking to many industry people back at the Shanghai auto show, I think there is a little bit of concern on how product development is shorter. How they change generations much faster than what is traditionally seen in the industry. Is that good or bad? But it’s working so far, because you have to keep up with the consumer, at least in China, the consumer demand, it changes. What the customers want; the features. I think it’s no longer range, it’s not a problem. I don’t think range is an issue. There’s something else; it’s the ease of using the system, the UI, the connectivity. If it doesn’t work, then the customers would shun the brand.

Henry Sanderson: Regarding markets, we haven’t really talked about where Chinese EVs are making big inroads, like Thailand, where I think BYD is the biggest seller. In South America, as Lei mentioned, BYD is really expanding into Chile and Brazil. These are the markets where the cost advantage plays well for Chinese EVs. India is obviously a huge market as well. But, if you think of the cheapest battery chemistry, which is Lithium Iron Phosphate (LFP), again, China’s got 90%+ production of LFP. Also, we saw Ford do a deal with CATL, because they acknowledged that they have the technology and the expertise. So, if you’re looking at low cost EVs, you’re going to go with a Chinese brand just because of the battery expertise that they have.

Barry van Wyk: We touched on an important issue here: China is leading the world in production and sales, but does it have global brands in the EV industry? It seems like BYD is sort of becoming a global brand; it’s getting there but not yet. As you say, Lei, and Henry as well, there is currently this incredible price war going on in China. 

Let’s move to questions now. Let’s see if we can go through these ones relatively quickly. Here’s one for you, Henry. So this one is about traditional auto companies. We know that these traditional auto companies have been slow to take up EVs. Maybe GAC is one in China that has actually been quite good with GAC Aion; that has been building some really good, very competitive EVs in China, at least. Anyway, the question is about VW and Toyota — they have a global manufacturing scale that is orders of magnitude greater than any EV manufacturer. Can they catch up from behind in this race now that they are actually trying harder?

Henry Sanderson: Yes, a very good question. I think Volkswagen is certainly catching up and putting up a lot of investment, trying to make its own batteries as well. I’m less certain about Toyota. They’ve promised a solid state battery breakthrough by 2027, but we have to see how that’s going to pan out. But I think definitely Volkswagen is overlaying on EVs. Maybe we have to thank the diesel emission scandal for that. But, you know, I think  Volvo and Volkswagen are  building up the supply chain capacity in North America, Europe, and in China. So that’s what they need to do, and also build their own batteries. It’s much harder than perhaps it sounds. Are they gonna be able to do that themselves at a decent amount of costs to their bottom line? This is a good question.

Barry van Wyk: Also, Volkswagen found out that doing the software actually is not as easy as it sounds. A lot of their ID series of cars have quite a bit of a problem with software. Let’s do another one. This one is a little bit of a moral question. Does China have any unfair advantages in the EV battery industry? This is open to interpretation. Henry, do you want to go first on that point?

Henry Sanderson: Yes, it’s certainly true that if you look under the hood of China’s clean energy dominance, most people will be quite shocked to see what’s actually there and what it relies on. This is one thing I tried to do in my book, which is to open people’s eyes to the supply chains, because we’ve offshored a lot of the consciousness of supply chains, the difficulty and where things actually come from. So, most people in the West are more disconnected than ever before to industrial processes, what it actually takes to manufacture things, and mine things as well. 

If you look at China’s battery cost advantage, a lot of that comes from coal fired power, obviously. Also, a lot comes from lax environmental regulations. In the past, not necessarily now, but in the past. When you think of rare earths mining, that’s environmentally damaging. Processing uses a lot of chemicals, sulfuric acid, and things like that. That all gave China a big cost advantage. Then you also have the Xinjiang issue, which I guess is more of a solar issue, but again, it’s cropping up in this battery space as well, with allegations of forced labor, etc. 

But, I think it’s really the energy cost advantage that China has had. The local governments are willing to support these industries. Plus, the environmental regulations, which have probably not been as strict as they would be in the West. So, as the West tries to build out these things, now, we’re seeing how difficult it is and how costly it can be. If you’re talking about building a lithium refinery in the West now, it can be double the cost of one in China. If you’re talking graphite, it’s maybe three or four times the cost. China has built a veritable machine that’s very good at manufacturing at very low costs. 

What’s so difficult for the West is on that low cost manufacturing base, China’s innovating, and more quickly scaling up innovations, like sodium-ion batteries, which promise cheaper batteries, maybe as low as $50 per kilowatt hour, something like that. So, they’re moving very fast into innovating. So the West is trying to catch up with a moving train, in a sense as well. Unfair is kind of a loaded term, but they have certainly benefited from protectionist policies; things like the whitelist, where they essentially banned foreign battery producers to stimulate Chinese battery producers. For sure there have been some unfair practices that the Chinese have engaged in, but the West has done similar things in its history as well.

Lei Xing: I would add that if we look at it from an ESG perspective, yeah, definitely, there’s probably lax regulations in China than probably elsewhere in the world. Henry mentioned the whitelist. That was back in the day, I don’t know, a dozen years ago. But, it’s almost the same as the IRA. It’s kind of protectionistic. But, it’s part of the history. If we look at it even from a development perspective, like I mentioned before, from a legacy perspective, especially foreign legacy perspective, what processes goes through in a development of a vehicle, it’s probably shorter speed, meaning that they will bypass maybe some testing, winter or summer testing, or things like that. But if we look at the quality in general, I think it’s improved significantly, whether it’s ICEs or EVs. 

Also, at the expense, I think China as a society, living here, everywhere you go is a kind of a scam society. Meaning you’re getting this convenience at the expense of your privacy, personal privacy. I think there’s a lot of things behind it, we talk about these — speed and that loaded word unfair. So, even for me living here, sometimes I have to think about that. You think, it’s so convenient. And then… right. Paying with a casual coin, it’s non-existent. Things like that.

Barry van Wyk: Okay, we’ve got about 10 minutes left. One issue that I think we still should touch on is the issue of technology and innovation inherent in this question, Has the West lost the race to China? Maybe another way of asking this question is, Can the West build better EVs than China? What does that actually mean? Does it mean can the West build better batteries? Can the West actually build new types of batteries that’s going to be even better than CATL batteries? [Can they build] new types of batteries using new types of energy? 

Is anybody except China going to  be building the world’s newest batteries running on sodium, or that runs on something else that’s super efficient? EV software is really important, Li Auto is building its SUVs that you can transform into a camping experience with a big screen. [There are] all kinds of gadgets that you see in Chinese SUVs and Chinese EVs these days. Maybe that’s a question for us to answer. The question about technology and innovation is central to this industry. These days, most of the mass-produced technology; the mass-produced batteries are actually coming out of China. So that’s another question we should ask, can the West build better batteries or EVs than China? Henry, what do you think? 

Henry Sanderson: Not necessarily. No, I don’t see that happening at the moment. I think, as I say, the Chinese have built this massive scale, and now they’ve got huge R&D teams. Is it easier to innovate when you’ve already got the scale, or, is it easy to innovate as a startup with the lab, going on a pilot plant? I think that the Chinese are already doing sodium-ion quicker than the West — solid state, as well. I wouldn’t say there’s an advantage that the West can build better batteries. I’d say the opposite. In fact, what we need in the West is to get the expertise of Chinese companies to come over and help us do it. This is the Ford-CATL deal in a nutshell, which is you come over and essentially train us how to do it. Training and staff is also a big part of the issue. 

It’s not necessarily a very easy position in the West to try and say, we’ll build a better battery. Now, some companies have said, We’ll build a more sustainable battery. But again, I also think that’s tough to compete in, because in China, as Lei said, there have been improvements taking place in China in terms of improving the sustainability of the battery. That’s because companies like CATL know that they’ll get locked out of foreign markets unless they improve ESG and sustainability. Now, we can have a separate conversation about whether it’s all true or not, but I think it is hard for the West. I think the Chinese companies are innovating and improving the sustainability of the batteries. So it’s quite hard to compete against that.

Lei Xing: I would add, let’s say, again, going back to Tesla, as an example. Tesla, I think that they’ve said on the record that Tesla makes better cars than the Shanghai Giga, than probably a Fremont, whether it’s from a quality or efficiency perspective. That’s one perspective, a way to look at this question. The other one is, we have these up and coming startups; the SES, the ONEs, the Factorials, the QuantumScape. I don’t know Northvolt is bankrupt, or something? All of these battery players are still in the lab. So let’s see, SES is a company based in Massachusetts, where I live, that has been around for 10 years. They’re probably going from A to B sample right now. So, when do we actually see a major step forward? A credible step forward from these startups? We have not seen that. In the meantime, I think we’re going to continue, in the case of these U.S. automakers, aside from CATL, being dependent on the Panasonic/LG cams to scale innovations for batteries.

Barry van Wyk: Okay, so we got only a few minutes left, I’m going to see if we can do one-minute answers on a couple more audience questions before we conclude. Here’s a question that says— Is China actually able to build its own EVs completely independently of the West? [Can they] do it completely independently without any Western tech? That’s a very interesting question. Henry, do you want to go first on that one?

Henry Sanderson: Yeah, they can’t either. China imports all its lithium from Australia. China has its own vulnerabilities. Oil and gas — obviously everyone knows they import those. But, lithium is the same. They rely on Australia massively for lithium imports. If Australia would turn that off, that will not be a good situation for China. So China can’t build an EV without Australian lithium. So that’s a classic example.

Barry van Wyk: You agree with that, Lei?

Lei Xing:  Then the other perspective is the chips side of it. In China, what sells? NVIDIA sells. The ORAN chip sells. The Qualcomm Snapdragon 8155 sells. Infotainment. These are the autonomous driving infotainment chips. More often than not, you’ll see the Chinese smart EV brands mention these as selling points. “We got dual ORAN X chips.” “We got 8155 chips. “We got 8295 chips,” often appearing in China EV models first, rather than anywhere else in the world. I think that’s a path that will be interesting to watch, because there’s a lot more homegrown players that are trying to rely less on that. Horizon Robotics, Black Sesame; these types of companies I think is another area to watch going forward.

Barry van Wyk: All right, unfortunately, we can’t get to all the questions as we are out of time, but I do want to let you guys each give your closing remarks. If we come back to where we started, Has the West lost the electric vehicle race to China?, it seems pretty obvious that it hasn’t lost the race. It’s well behind in the race, but this is a very interdependent industry, whichever way you look at it, even though China is ahead in various ways. China’s also ahead in terms of sales and production, and there’s actually a lot of leeway, a lot of catch up that the West can do, that might eventually start to even things out. So it hasn’t lost the race, but it’s certainly well behind in the race, though it can catch up, for sure. Let’s do concluding remarks, just less than one minute for you, Henry, and then we’ll get to you, Lei, to conclude.

Henry Sanderson: My concluding remark is that we’ve got to stay in the race, right? This means in the U.S., we’ve got to finish what we started. We got this Inflation Reduction Act and all this great policy, but we got to make sure this policy support lasts. That’s the way to catch up to China. The problem with the U.K., where I am based, is policy flip-flop. There’s been no concerted effort to have serious policy to kickstart these industries of the future. So, we’ve got to focus our policy and not let it become a victim to the democratic cycle, which of course, I prefer, but we need to have a sustained focus.

Lei Xing: Yeah, the West is definitely behind in the race. But, the word I would use is losing, they are losing the race. But going forward, what I expect to happen is, as these companies go global, as competition continues to get cut-throat, there will be casualties from both the Chinese brands and the foreign brands. That’s because in a race, there’s casualties, and we can’t just look at this as the foreign companies losing and the Chinese going to be winner-take- all. I think we still have to be a little bit more diligent at looking at this market. I think there will be surprises going forward.

Barry van Wyk: Henry Sanderson, Lei Xing, we probably can talk for another couple of hours. This has been fascinating. Thank you so much. It was a fascinating discussion on a really very interesting, fast moving industry that’s probably going to change a lot more. It’s going to be really interesting to go along for the ride. Thank you both so much. Please do join us again next time.