A Prelude To An EV Price War?

China’s top electric vehicle (EV) battery maker CATL’s reported big discounts to Nio, Li Auto could force rivals to cut prices, with benefits cascading to consumers. As components become more affordable, the electric vehicle market will enter into a price war.

Tesla famously slashed its prices to make their vehicles more affordable. Unfortunately, it failed to outdo BYD in China as the latter has American investment titans’ support.

One of them is Charlie Munger, who proclaimed having Berkshire Hathaway pump in capital to support BYD is one of his best decisions. He was quoted at a meeting with Daily Journal Corporation, “I have never helped do anything at Berkshire that was as good as BYD. BYD is so much ahead of Tesla in China. It’s almost ridiculous.” Munger pointed out that BYD increased the price of some of its more popular models, while Tesla had to offer discounts for its cars. Expiring consumer subsidies for electric vehicles may be pushing car companies to slash prices to retain customers.

The Big Factor

Why are American investors more interested in a China-made electric vehicle than its own native? Both nations (China and United States) have government support in terms of incentives. Labour costs in China are certainly more affordable — a well-known fact.

In terms of government support, Tesla has lost its first-mover advantage resulting in lacklustre performance. Kristin Dziczek from Federal Reserve Bank of Chicago noted in a Trade Talk podcast last December, “Despite Tesla’s early lead, the United States really is lagging behind other countries in EV adoption. In 2021, just 5 percent of US vehicle sales were EVs. In China and Europe, that number is more like 16-17 percent.”

She added, “In 2009, as part of the American Recovery and Reinvestment Act (ARRA), the federal government offered up to US$7,500 of EV tax credit per vehicle. These credits were structured so that any American buying a qualified EV could get the credit, and the more battery power in the vehicle, the bigger the credit.”

As of February 2023, General Motors (GM) and Tesla have reportedly reached their respective sales limits, so the credit for their vehicles was phased out. For GM, the credit began to phase out in April 2020.  Tesla’s began to phase out in December 2019.

China’s Edge In EV

Apart from government support, what gave China its pole position in the electric vehicle turf versus America? Giving credit where it is due, BYD has been smart in navigating technology challenges in the business world.

The technologies from both countries are certainly on par. However, it is notable that BYD has become a patent leader with a whopping 19,837 domestically by end of 2021 registered by Statista.com. It clocked 297 overseas patents in the same year, amounting to 3,411 as at 2021.

The republic has become a major producer of EV batteries, with many of the world’s largest battery manufacturers located in China, with Contemporary Amperex Technology Company Limited (CATL) taking the lead. This has allowed Chinese EV manufacturers to have better access to battery technology and be more competitive in the global market. 

Putting it altogether, China’s pole position in the electric vehicles market is well-deserved. The Chinese government is still actively offering subsidies to promote electric vehicle adoption, including that for infrastructure. The latter is for companies that install and operate public charging stations. Nonetheless, it is important to note there is also a cap in China’s subsidy – except it has not reached its limit.

Hence, it would not be surprising if an EV price war occurs. With various measures in place to make it affordable, it would not be long when the industry witnesses a price war between the two titans. The irony remains: American investors are more keen on Chinese EVs. Not to mention, the “biggest winners” are the consumers.

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