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Under the Banyan Tree – Charging ahead: The rapid rise of China's EV market
34 Plays2 years ago
Herald and Fred sit down with Yuqian Ding, Head of China Autos Research, for a wide-ranging discussion on the Chinese electric vehicle industry, which is giving big names in the West a run for their money. Disclaimer: https://www.research.hsbc.com/R/51/VzbQbR7 Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research.
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Transcript
Introduction to HSBC Global Viewpoint Podcast
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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.
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And now onto today's show.
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Focus on Asian Markets and China's EV Dominance
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Hello from Hong Kong and welcome to Under the Banyard Tree, where we put Asian markets and economics in context.
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I'm Harold van der Linde, Head of Asia Equity Strategy at HSBC.
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And I'm Fred Neumann, Chief Asia Economist.
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We are putting the spotlight on a key market for Asian investors this week, electric vehicles and the outlook for production and sales in mainland China.
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It's by far the world's number one market for electric vehicles, accounting for more than 60% of all sales globally in 2022.
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But despite the rapid rise in popularity, challenges from growth to competition must not be ignored.
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Our head of China Auto's research, Yuxian Ding, is our special guest on the podcast today.
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Let's get the conversation started right here under the banyan tree.
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Let's start with a few key stats just to set the scene.
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One in three new cars sold in mainland China is now an electric vehicle.
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I believe that 60% of all the fast charging stations on the planet are in China.
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So there are more fast charging stations in China alone than in the US and Europe together.
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So the infrastructure is there as well.
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There are more than 400 electric vehicles models on the Chinese market, with close to 200 more set to be launched in the next 12 to 18 months.
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That's right.
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In fact, of all the new cars to be unveiled in China from 2023 onwards, 75% will be electric.
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It's time to welcome our head of China Autos Research, Yuchien Ding, to the Hong Kong studio.
Factors Driving China's EV Growth
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Welcome, Yuchien.
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Thank you, guys.
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Well, Yujian, let me kick it off.
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The Chinese market is clearly much bigger than other markets.
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It's done really well.
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Why?
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Yeah, great question to start.
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I would say China government has been starting to subsidize EV ahead of most of the country in the world.
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Strong government subsidy in the beginning, early phase, really helped to ramp up the industry.
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China car market is also one of the largest across the globe.
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So per annum sales scale is around 20 to 25 million.
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So that's a huge market that can support a significant scale to grow during the process.
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And also one of the key elements to the EV adoption is the cost of parity.
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And the most expensive item among EV would be the battery.
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And on that perspective, China has the world's most competitive battery supply chain.
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And the EV company, EV makers in China have access to the world's most quality and cost advantage battery.
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So that helps to support the market to grow from here.
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That is really interesting, Eugene.
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Let's unpack that a little bit.
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So you talk about scale and then batteries and technology, and I think we should come back to that.
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But you also highlight a lot of government focus on developing the sector.
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Harold mentioned, for example, a lot of...
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China leads in terms of charging stations, the infrastructure.
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You mentioned they were early on with subsidies.
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It feels like China was ahead of the game compared to other countries.
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Why is this focused by the government on trying to develop the EV market in particular?
China's Strategic EV Industry Goals
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Yeah, sure.
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Interesting to talk about this this year, because as the time we talk, there'll be no cash subsidy on the EV side, but we used to have in the past decade.
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I think originally, a couple of angles.
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The first is the national champion.
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They really want to have national champion on certain important industries, such as automaking.
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But during the past, internal combustion engine was the dominating force, where the Japanese car makers and the German car makers
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They have been quite dominating for the past century.
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So it's very hard for China local car makers to compete really on the internal combustion engine.
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So EV seems to be something new, and that's the angle the government wants to try.
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And also in terms of infrastructure, that's where the China government has been very good at.
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They historically been asking all the newly built, for example, parking lot need to have 10 to 20 percent of the parking slot equipped with the charging.
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So they're sort of setting the tone ready for the industry to grow from there.
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Good.
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So they wanted national champions.
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They put up the infrastructure.
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But I think Fred's question is maybe even a step further.
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Why did they want to go for it?
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I suspect also that they want to reduce their reliance on external fuel, buying oil from the Middle East and these other things.
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Yeah, exactly.
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That's also part of the original reason.
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China have heavy reliance on imported crude oil and transportation.
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The vehicle usage consists of a huge portion of that.
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So if the vehicle goes electric, not only there will be a strong carbon emission benefit out of it, but also reduce the reliance on the imported crude oil.
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Because from an electricity perspective, that can be generated locally.
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Now, you mentioned one of the advantages was scale.
Competitive Landscape and Battery Technology in China
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Of course, China has a huge car market, but electric vehicles are really dependent on the battery.
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That seems to be the key item there.
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Does China have a lead in the technology there over other companies in other countries?
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Or is it purely the scale that drives the competitiveness really of the battery?
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Yeah, I do believe these two angles are sort of bounded because a huge scalable market can sustain strong, intense R&D at even a larger scale and faster speed.
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But to begin with, I think China battery company, from a status quo perspective, they are now world-leading.
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So not only in the current battery technology, tenor battery or LFP battery, that's the two mainstream solution currently dominating.
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And also in the next generation, perhaps a solid state battery and a sodium battery.
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They also have a very advanced progress on these fronts.
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So technology itself supports the EV adoption in a way.
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If the average China new EV being made on average have around 400 to 700 kilometers range and the fast charging enable them to charge within five minutes more than 200 kilometers, that will heavily reduce the consumer's mileage anxiety.
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Now, the issue, I guess, now is that they got the infrastructure, there is the demand, the batteries are produced, the technology is globally competitive, but there is a lot of producers, right?
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We just mentioned there's about 400 models coming up and there's a price war going on, right?
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I mean, everybody's cutting prices.
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Is that correct?
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Yes, that's the biggest debate since the beginning of the year.
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We do see the industry consolidation to accelerate.
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So we see the long tail 60 brand taking 30% of market share and many companies who cannot be profitable at this moment or cash flow sustaining cannot sustain the business model going forward.
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So the pricing pressure will be here until the consolidation materially happens.
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Now, that's fascinating.
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I think, well, it's a great time to take a quick break here.
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And when we come back, I think we should talk about the international aspects of this, because, of course, a price war within China means also that these vehicles are very price competitive on the global market.
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And that has big implications for global car producers in other markets as well.
China's Export and Innovation Success
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Hello listeners, just want to take this opportunity to remind you that Fred and Harold will soon be appearing live on a special Under the Banyan Tree edition of HSBC Live Insights.
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This is your opportunity to ask the guys any questions you may have on markets and economics in Asia.
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The event takes place live on LinkedIn on Tuesday the 20th of June at 9.30am London time, that's 4.30pm in Hong Kong.
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To register, head to the HSBC Global Banking and Markets page on LinkedIn and click Upcoming Events.
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Now, back to your podcast with Fred, Harold and Yuchan.
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Yuchian, so we've spoken about the market in China.
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We know that they've used subsidies to really build it out, demand, supply.
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A lot of OEMs, car producers, have come in.
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There's an intense competition in the Chinese market.
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And as you mentioned, some big ones are gaining market share, but a lot of them are not, and they probably have to leave the industry at some point in time.
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They're obviously going to look for other markets.
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Can they export these products?
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Do we see exports going up?
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Yeah, we do.
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First of all, last year, 2022, China became the net vehicle exporter for the historical first time.
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And there is a strong driver coming from the EV side.
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Four years ago, there's limited EV export, but now we do see good portion in terms of the vehicle export.
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And also a new highlight is that historically, the China vehicle has been mainly distributed to emerging market.
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But last year, starting from EV, we see China local brand has been breaking ground in Europe, although currently still very early stage, very small.
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But from a competitiveness perspective, a very good start.
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Now, it sounds like Chinese car producers are giving foreign car producers a run for their money.
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They're gaining market share.
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You said record exports out of China.
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They're exporting now into developed markets, not just into emerging markets.
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Can you give us a sense of how good are these cars really?
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Are they comparable to the top line electric vehicles that Western car makers produce?
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Are they better?
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How would you characterize these new cars coming out of China?
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Yeah, right.
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So from a China EV perspective, from a product perspective, I would say it's probably leading the globe.
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US EV makers model has been selling in China.
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Europe's top selling EV models has also been localized in China.
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Although it's the same model they're running in Europe.
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But in China market, because of the market scale, because of the competition level, the product has been upgraded or pushed to the new boundary, the quality, the innovation embedded with that, not just electrification.
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We do see the China EV has evolved to be the smart EV.
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They are offering unique and superior experience in terms of the connectivity and intelligence.
ASEAN Expansion of Chinese Battery Companies
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So they're exporting these OEMs, these car producers, but I understand that they're also looking at other markets in Asia, right?
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So not just the US, in Europe.
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What are they doing?
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And is it some of the battery companies are moving to Indonesia?
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What is their strategy now?
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Yeah, we see two perspectives.
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First is the EV battery company starting to build in the ASEAN plant.
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And also from a resource perspective, for example, nickel is part of the critical material that has been used to build the battery.
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But in China, we don't have that much of the nickel.
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So you see the China battery makers, they have been sourcing and localizing the
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the nickel material in Indonesia.
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So they have a strong operation over there.
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And from the EV makers perspective, since ASEAN market started to offer better growth opportunity, we do believe local production is in order, especially they are also offering tax benefit if you are producing them local.
00:12:06
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Now, Eugene, taking a step back, you've been watching this market boom over the last two years.
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New models coming out.
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The adoption rates are rising.
00:12:19
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When do you think we're going to be in a world where really every single vehicle that's being bought is a century electric vehicle?
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Because the majority is still...
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combustion engine vehicle.
00:12:29
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So when do you think that that will be?
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Are we talking decades here or do you see in your numbers such a quick adoption rate that really it's a question of years?
00:12:38
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Yeah, taking my number on the China market, but we do emphasize China in terms of EV adoption is leading the globe.
00:12:46
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We see close to 50% of new cars sold in China by 25 would be EV, and the EV conversion largely would happen by the end of the decade, meaning by 2030, majority of the cars sold in China would be EV.
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This is supported by the product competitiveness
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and also the car makers active direction.
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Because nowadays, more than 80% of the R&D has been invested towards EV.
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So for the internal combustion vehicle, they barely get maintained well.
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If you want fancy new stuff, you're only going to get it from the EV.
00:13:22
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And also EV consists the majority of the model supply already, which will also help to accelerate the consumer's adoption from there.
Future of EVs in China by 2030
00:13:31
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Well, that's breathtaking, Harold.
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I mean, people say 2030.
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That's only seven years away, you know, six and a half years away.
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So this is purely, absolutely stunning.
00:13:41
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And I suspect in Europe, these things might go a little bit slower, but with the lower prices coming out of China, as you say, it's a good product that they put in the market.
00:13:51
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Those adoption rates could suddenly really catch up there as well.
00:13:55
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Well, thank you so much, Yucin, for coming into the studio here and talking to us about the EV market.
00:14:02
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And I think we need you back here in a few months to update us to what's going on in the market.
Personal Reflections on Car Ownership and EVs
00:14:08
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Thanks a lot.
00:14:08
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I've learned a lot.
00:14:10
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Pleasure.
00:14:10
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Thank you for having me.
00:14:22
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So, Fred, there was a really great discussion with you, Chen.
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She clearly knows a lot about the whole industry in China.
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But that got me a little bit thinking.
00:14:31
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You have seen some family enlargements.
00:14:33
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So that red, nice sports car, are you going to switch that into a family transporter?
00:14:41
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Well, Harold, I haven't owned a car in decades or never had that red sports car.
00:14:47
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But, you know, we are looking at potentially buying a car because if you have a larger family, the trouble is now, though, what car do you buy?
00:14:54
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If you buy a combustion engine car, then it might be obsolete in a few years.
00:14:58
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You can't resell it, really.
00:15:00
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But if you buy an electric vehicle, they're really, really cool vehicles on the road.
00:15:03
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But presumably the technology is improving so fast.
00:15:07
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That too might be obsolete in a few years.
00:15:09
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So it's kind of like almost you're better off waiting maybe a couple of years or so for the latest model.
00:15:14
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But then by that time your son wants to go to soccer games and stuff like that.
00:15:18
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So you get forced to make a decision.
00:15:20
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What about your situation?
00:15:23
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Well, my situation is rather unique because I've never bought a car in my whole life.
00:15:30
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That is for a variety of reasons.
00:15:31
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I've lived in cities where you don't want to have a car, like Jakarta.
00:15:34
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And actually, there was a car I could use from somebody else.
00:15:37
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I lived in Taiwan.
00:15:39
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We didn't have a car, but we, again, could use a car from somebody else once in a while.
00:15:43
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In Hong Kong, we don't need a car.
00:15:45
Speaker
And my family is getting smaller.
00:15:47
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My son has left.
00:15:48
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He's studying in Europe.
00:15:49
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So it's me and my wife.
00:15:50
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And
00:15:51
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And you're Dutch, you use bicycles anyway.
00:15:54
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So funny enough, I've never bought a car in my whole life.
00:15:57
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And I'm getting to a stage where maybe I should try not to buy a car in my whole life.
00:16:02
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And maybe in a couple of years time, you get autonomous drivers and you can just rent one on the road.
00:16:08
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And that would maybe be my way out to accomplish that great mission.
00:16:12
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He arrests Harold Linder, never owned a car.
00:16:15
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Something like that.
00:16:16
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That's right.
00:16:22
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Well, this was a fantastic podcast yet again.
00:16:25
Speaker
We'll see you again next week on The Banyan Tree for another episode.
00:16:29
Speaker
Next week.
00:16:30
Speaker
Cheers.
00:16:30
Speaker
Thank you.
00:16:46
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:16:49
Speaker
We hope you enjoyed the discussion.
00:16:51
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