New Paper | On the Road of Excess: How Startups Are Driving China’s Electric Vehicle Boom
Thursday, September 12 — The Asia Society Policy Institute’s Center for China Analysis (CCA) has published “On the Road of Excess: How Startups Are Driving China’s Electric Vehicle Boom” by G.A. Donovan, CCA Fellow on Chinese Political Economy and Society.
“A host of factors have enabled China’s emergence as a dominant force in electric vehicles, but a key ingredient in the industry’s breakneck development has not been fully appreciated: the availability of market-based financing that provides companies with the wherewithal to experiment, innovate, and expand without worrying about short-term profits,” writes Donovan.
China’s early support of the electric vehicle industry can be traced back to its struggles with “near-apocalyptic” air quality and traffic congestion in the 2000s and 2010s. In an attempt to get cars off the roads, many cities severely limited the number of license plates issued, but, starting in 2016, electric vehicles could be registered and obtain “green-colored” license plates without a waiting period.
“Around the same time, the government ramped up industrial policy support for the electric vehicle industry. A recent analysis found that sales tax exemptions accounted for most, if not all, of the increase over the past five years,” adduces Donovan. “In addition, central government rebates for electric vehicle purchases rose sharply over the course of a decade, reaching $9.2 billion in 2022, though that was the last year they were offered... With all these factors in play, investing in China’s electric vehicle sector seemed like a slam dunk.”
China’s electric vehicle startups have raised billions from global investors eager to finance potential unicorns in innovative, environmentally friendly industries. Taking inspiration from Tesla, Google, and other Silicon Valley pioneers, these startups have relied on rising valuations to attract new investment to sustain their operations despite years of financial losses. However, fundraising has recently become more difficult, adding to pressure to achieve profitability, and China’s electric vehicle startups no longer look like a sure bet.
“China’s leading electric vehicle makers—most notably BYD, Geely, and Tesla—are all deeply integrated into the global trading system and generate substantial cash flows, but many weaker players have already shut down or exited the market,” notes Donovan. “The survival of those who have yet to turn a profit will depend in large part on how investors gauge their future prospects.”
Read the full paper here. Members of the press interested in contacting G.A. Donovan should email [email protected].