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Under the Banyan Tree - China EVs: cost, competition and karaoke machines
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Fred Neumann sits down with Head of China Autos research Yuqian Ding to talk all things EV in China, from scale and competition to autonomous driving and tank turns. Disclaimer: https://www.research.hsbc.com/R/101/DXgQnBt
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Transcript
Introduction to HSBC Global Viewpoint
00:00:01
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
00:00:24
Speaker
This podcast was recorded for publication on Thursday 24th July by HSBC Global Investment Research. Analyst certifications, disclosures and disclaimers must be viewed on the link attached to your media player.
China's EV Market Overview
00:00:45
Speaker
Hello and welcome to Under the Banyan Tree with me Fred Newman, Chief Asia Economist at HSBC. Today we're talking about electric vehicles in China. They're a beacon of innovation right now and a major competitor to the US on the global stage. My guest today is head of Chinese Auto Research, Yuxian Ding.
00:01:02
Speaker
We're going to take a look at industry trends, innovation, autonomous driving and really just the all-around cool stuff that Chinese EVs are capable of. That and much more coming up right here under the Banyan Tree.
00:01:26
Speaker
Let's kick off with a few stats to set the scene here. China is the world's number one EV market by quite a margin, making around two-thirds of electric vehicles worldwide. At this point, pretty much one in two vehicles, if not more than that, sold in China is electric. And prices have come down to as low as $8,000 for a quality EV. Experts are also ramping up massively, with Chinese car makers expected to ship around 5 million vehicles abroad in 2025.
00:01:56
Speaker
So, Eugene, let's start off with very big picture. The Chinese auto market is on fire. There are new models coming all the time. They're really innovative, etc.
00:02:07
Speaker
How would you describe a Chinese car today relative to other cars that were produced elsewhere in the world? What makes a chinese the Chinese automobile producers so special in the eyes of the Chinese and many other consumers elsewhere in the world?
00:02:21
Speaker
Yeah, sure. I would say keywords this year will be smart EV. That is good quality EV with um advanced driving assistance functions. And the broader backdrop I would share is that China have over 1,000 car models on sale, and they're pumping around 200 new models into this market.
00:02:39
Speaker
So it's highly competitive. Therefore, the consumers are getting good deal. Post the the latest price action coupled with government subsidy, you can get BYD entry model Seagull at less than $8,000 and be aware of that model is equipped with a highway navigation.
Market Dynamics and Competitive Landscape
00:02:56
Speaker
So my head is already spinning with all the things you said. I mean, it sounds exciting. Let's just unpack that a little bit. ah You said 1,000 models being available in China right now, 200 new models this year.
00:03:10
Speaker
How many producers are we talking about here in China currently that churning out cars? Yeah, I would say there's over 60, 70 car ems producing EVs in China. So OEMs being original equipment manufacturers, these are essentially the brands, the Chinese car brands. Yeah.
00:03:28
Speaker
So we have 60 to 70 of these OEMs in China. That is a vast number. I think if if we talk about U.S., there are basically three large car companies, a few more brands, but ah three large car companies. Germany has about three large ones. Japan, Korea, similar small numbers.
00:03:48
Speaker
Nobody has more than 12, let alone 20, 30, 40, 50 or 60. So how can these small car guys, do they just spew out a few hundred vehicles a month? Or how should we think about this whole tale of of large producers in China?
00:04:03
Speaker
Exactly. You're pointing to one of the key debate of the industry, which is the the consolidation is happening. The top 10 EV brand takes around 77% of the market share, while the rest, more than 40, 50 brands, are sharing the rest of the pie, which makes them um subscale and very hard to stay relevant, especially when we're talking about raising bar of autonomous driving on top of ah having a good quality EV.
00:04:28
Speaker
So ah because China is currently going through a painful consolidation process, it has to get worse before it gets better, which makes the pricing pressure part of life now. so So you're saying that there are clearly too many producers. A lot of them don't really make money. It's hugely competitive because everybody wants to stay in business. But you're saying that actually we're going to see a lot of these fall by the wayside, either merging or disappearing because They can keep up ultimately with the massive price competition and the investment that's still needed in
Technological Advancements in EVs
00:05:02
Speaker
China.
00:05:02
Speaker
Is that right? Exactly. That's what we're saying. um The competition bar has been raised on top of producing ah good quality, cost-efficient EV. On top of that, you have to develop autonomous driving capabilities because that's what the consumers especially the next generation Gen Z consumers would command as the necessity equipment in the car.
00:05:22
Speaker
So obviously the bar has been raised and it will make the subscale laggers find it harder and harder to stay relevant in the competition. Now, the hot thing is, of course, EVs, electric vehicles in China, or new energy vehicles, which includes hybrids as well. But we're moving away from the classic ICE engine, which is the internal combustion engine.
00:05:44
Speaker
And China, obviously, has fantastic technology. But when we look at what's sort of defining the competition, is it right to think there are really two categories? One is... sort of the EV technology itself, the battery, how quickly it charges, the range, the quality of of the vehicle.
00:06:04
Speaker
And the other one is something you hinted at is probably the autonomous driving, which is still an area where we still have to invest and get better. um Now, within that too, first let's talk about the EV technology itself.
00:06:16
Speaker
Where are we right now? Because many consumers in the West are still saying, oh, my God, you know, it's i can't I can't buy an EV because it will only drive me 300 kilometers and then I get stuck in the road and I can't charge it.
00:06:29
Speaker
Is that still the picture of the EV you buy today in China? what what What are sort of the range and the charging speeds we look at with Chinese technology at the moment? So first of all, more than one out of the two new cars sold in China is now EV. The internal combustion engine might ah ah increasingly become more obsolete or vintage in that sense. um The current and average EV product in China will give you more than 600 to 700 kilometers range. That's the average electric vehicle. Yeah, the new model. new model. Yeah, the new model. But that that means that some models go way above that.
00:07:03
Speaker
Yeah, somewhere more than 800 kilometers. so I would say that's on average very similar um over the range a tank of gas would last. Is that a hybrid or is this a pure electric vehicle can get up to 800? Yeah, pure electric vehicle. I'm glad you brought that up. I think with fifth generation technology of BYD launched last year, plug-in hybrid EV can have the range of 2,000 kilometers.
00:07:30
Speaker
Now, BYD, of course, being the leading EV manufacturer in China and has been by far and away the leader in the industry. ah But you're saying they have they have now cars out that essentially get you up to couple thousand kilometers?
00:07:43
Speaker
Yeah, with their plug-in hybrid, so basically with a battery and tank of gas. um The model can give you more than 2,000 kilometers range. And for BYD's EV, they can give you 600, 700 kilometers range with the fast charging they've just launched earlier this year. Basically, as a consumer, you will get within five minutes that the car can be charged 50 percent of the capacity or equivalent of 400 kilometers.
00:08:10
Speaker
So basically a charging experience and now is just as convenient as using an internal combustion vehicle. And the cost of parity is just much cheaper. so So this is extraordinary. And this would allay the fears of when many of consumers outside of China, where you don't have the charging infrastructure necessarily, but the longer you have a range, the less you know reliant you are and on a good charging infrastructure as well.
00:08:33
Speaker
But there was another concern earlier on, which is that these batteries don't last very long. You know, back in the day, the fear was once the battery dies and I can throw my car away, there's no resale value.
00:08:44
Speaker
Is that still the case with batteries today? That's a great question. and And that has been changing. The answer has been changing. In the early days of the EV adoption, um the vehicle outlasted the battery. But nowadays, the battery will definitely outlast the car.
00:08:57
Speaker
So after the the car retired, the battery company can actually harvest the battery out of the EV and put it into other applications such as energy storage.
00:09:09
Speaker
That's today's battery. um So tremendous advances in the EV technology in itself, the batteries, the charging, the range, the recycling of the batteries.
Autonomous Driving and Smart Features
00:09:20
Speaker
Let's now focus on the other part, which is the new kind of area where you've seen a lot of investment go in, and that is autonomous driving. Where are we now? Can I just – we just had actually I should say in our last episode our colleague Erin Shin was just in Beijing. She's our China economist and she just booked a autonomous taxi in Beijing and drove around. it was fantastic experience. so So describe that to us. Where are we in terms of Chinese technology here?
00:09:49
Speaker
Yeah, I would say currently the autonomous scenario is like s three scenarios. So usually ah you would want autonomous driving in parking, in highway, and also the daily commute.
00:10:01
Speaker
um For example, from your parking lot of your residency to your office parking lot. So I would say the highway and parking... Many of the new cars, many of the smart EV models have the functionality like that.
00:10:15
Speaker
You can self-drive a highway. The cars can do self-parking. Most of the competition can provide that. That's increasingly become the new criterias for the car. the necessity equipment a new car should have.
00:10:28
Speaker
Now the key differentiation is the daily commute scenario, which is more complicated because it's the urban. um There's pedestrians, there is a lot of traffic light. So this is the most ah complicated and many of the industry leaders are competing within that scenario.
00:10:43
Speaker
So at some time, end of this year or early next, we'll probably have some company can deliver you parking lot to parking lot experience with less engagement. I think that's where the industry has been focusing on.
00:10:56
Speaker
ah That's very interesting. There's happening. You're saying we're talking even the next few months. We're not talking about next five years of this this capability coming in parking lot to parking lot with, and you said limited intervention, not no intervention, right? That's, that's I think, key.
00:11:10
Speaker
But give us a sense of how Chinese technology compares to that elsewhere. Because we established, I think, that When it comes to battery technology, the Chinese producers now have a lead probably vis-a-vis others. Charging speed, range, price point, which plays into that.
00:11:27
Speaker
But what about the autonomous capabilities? How how would you rate in general ah where the Chinese industry is? vis-a-vis the Germans, ah the American auto companies, Tesla has been in the forefront of this, but we also have companies in the U.S. like Waymo, for example.
00:11:45
Speaker
how How do the Chinese compare here? Yeah, two sides of the comparison. So technology and commercial deployment. So I would say China and US are leading in terms of technology. But i will I would also stress the technology cannot be compared Apple to Apple because for obvious reasons, China data has stays on China server and US government also have the algorithm cross-border regulation.
00:12:07
Speaker
So you can't have ah u algorithm running on the China market because it's not a a fair comparison. The algorithm in the itself is tuning into is not yet tuning into the local data.
00:12:19
Speaker
So we cannot have Apple-to-Apple technology comparison, but I would say in general, ah both sides been doing a good job. And then the other side is the commercial deployment at scale. China does leading because we have more smart EV companies. It's an industry consensus. so um Look at the equipment level. China, on average, is much advanced even versus U.S. Yeah.
00:12:41
Speaker
and And you mean more advanced in terms of price points, or do you mean the underlying technology is more advanced? I think both. First of all, the pricing point. We talked about BYD is democratizing the autonomy, which means the high-level autonomy functions is not just appearing on the upscale EVs, but also on the budget end. You can get it with less than $10,000.
00:13:04
Speaker
And secondly, i think um the volume, the new model coverage, more consumers across the pricing category would be able to enjoy the the latest advanced technology.
00:13:15
Speaker
That's also leading from a commercial perspective, China versus U.S. Now, at what point would we go to China and most of these vehicles drive themselves? At what point do I live in this future scenario where i go to Shenzhen or I go to Beijing and really 80 percent of the cars I see around me just drive themselves? Is this 10 years away, 20 years away or could you see that happening within this decade?
00:13:39
Speaker
Yeah, also a great question. I think there's a hidden assumption of smart EV and a robot taxi. So if you are step into a zone that they have the robot taxi running, you're surrounded by them.
00:13:50
Speaker
But if we're looking at the smart EV countrywide coverage, that might take a little bit longer time to ramp it up. But in general, I would say if you go to Shenzhen, Beijing, Shanghai, these high-tier cities, you will find increasingly more availability of the robot taxi service because that's where the robot taxi company started.
00:14:11
Speaker
Same applied to if you travel Palairo or Austin, you will also that. San Francisco or yeah, in certain US cities, you have it before others. And yeah and so, but um sometimes we underestimate the speed with which technology gets deployed. And so maybe it'll happen It's happened in front of our eyes and might just happen faster than than many people even thought possible a couple of years ago.
00:14:32
Speaker
I think that's a great point to take a quick break. And when we come back, I want to talk to you about what makes these Chinese cars so jazzy. We talked about the technology and that what's under the hood.
00:14:44
Speaker
But there's something else that's giving Chinese cars a buzz. And so when we come back, we'll pick that up.
00:14:59
Speaker
Okay. Well, welcome back. I'm here in studio with Yujin. And we're talking about the Chinese car sector. And so much has happened there. And thank you, Yujin, for putting it into context for us. So we talked about battery technology, which has really been key here with China leads. We talked about autonomous driving, where there's a lot of competition. And China may not necessarily lead per se, but has exceedingly good technology and especially has it at a cheaper price point, which is also an advantage.
00:15:27
Speaker
But it's not just that they look good and the interior design is is very good. but But give us some examples about the the cool features you can have in there. I gather that a fridge comes as a standard in some of these models in China.
00:15:40
Speaker
Yeah. So I would take one example. My Gen Z associate and and I went on test road the other day. So I asked the sales guys, like, how do I adjust the mirror? My team basically yelling at me, say, just to say it. said, say what? Say to the car.
00:15:56
Speaker
So everything is all digital, it's all um the human-machine interface. There's no button at all. There's only voice control and the screen, the touchscreen. So I think that's the basic digital experience we're talking about within the car.
00:16:09
Speaker
And then during the driving scenario, you feel bored. You're stuck in the traffic and you put the car in autonomous driving mode and it self-drive itself and you can at least check your email.
00:16:22
Speaker
Now, I hear it's not just about checking emails, but also you have inbuilt karaoke machines. Is that right? Oh, yeah. That's another road trip our team took. ah We took one of the Li Auto's L9 model.
00:16:34
Speaker
It's a spacious six-seater. um You have karaoke. You have the iPad at every row, at every seat, and you have an onboard ah fridge. So the comfortable seating, the big screen, and also the fridge basically um give you a living room experience.
00:16:50
Speaker
in a mobility sense. That is fascinating. I think you can see how Chinese customers have different demands from Western consumers, for example, and and that's why Chinese companies are so innovative in this area. I don't think karaoke machines were necessarily something that American consumers were thinking at first, but certainly caught on in Asia ah much more quickly.
00:17:11
Speaker
I have to say, there's it's not just high tech stuff. I saw the other day that Xiaomi, for example, they In some of the models they have, both for the driver and for the front passenger, they have built in an umbrella ah into the door. Now, I'm not Generation Z. I don't really need all the fancy you know electronics. But I think having an umbrella, ah given how much it rains here in Hong Kong in your car, is is a fantastic idea.
Innovations in Chinese Automotive Technology
00:17:34
Speaker
Last thing, um what what is the most exciting thing you've seen on wheels in China in terms of innovation in the last year or so? I will take a BYD Yangwon U8. The car can not only be drove as a tank, they can do the tank turn. and beyond that, they can also drove as a submarine in the water. So within the water, it can drive like five minutes. I even read the news, some of the car owners are using that to rescue people during the flood times.
00:18:04
Speaker
So wait, were you telling me that BYD has a car out there that drives like a tank? What do what do you mean by that? Yeah, I mean, and the car drives like a powerful car, but they can do the tank turn.
00:18:16
Speaker
So they turn on the spot, you're saying? On the spot. within the parking lot at a supermarket, I can turn on the spot and essentially I can just squeeze in anywhere because I can turn on the spot. Exactly.
00:18:27
Speaker
But then, of course, the kicker must be that I can drive underwater. Can you drive underwater on the spot as well? no Usually, you will not find yourself in that situation. But I would say, I mean, technically, yes.
00:18:38
Speaker
Well, there you have it, ladies and gentlemen. If you want to have any example of the innovation of the Chinese ah car industry, it certainly must be a car that drives like a tank underwater. Eugene, it's always a pleasure to talk to you. And I'm sure we'll come back to you and just see how this rapidly evolving story unfolds in the next few months and years. Thank you very much. Thank
Conclusion and Future Discussions
00:18:59
Speaker
you. Pleasure.
00:19:00
Speaker
Well, we're going to have to leave it here, dear listeners. Always a pleasure to have you with us under the banyan tree. We're going to take a little break over the next couple of weeks, but we'll be back in August doing what we do best, that is putting Asian markets and economics in context.
00:19:13
Speaker
My co-host Harold van der Linde will also be back then, and we look forward to picking up after the summer lull. From all of us here in Hong Kong, take care and talk to you again soon.
00:19:49
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.