China has an electric vehicle advantage but can it maintain its edge?

Chinese automakers account for more than half of the electric vehicles (EVs) produced in the world. As they build scale, cost advantages, and expertise, speculation is rising that Chinese EV brands will eventually flood the global market.

The World Economic Forum gathers later this month in Dalian for the Annual Meeting of the New Champions to discuss “next frontiers for growth.” The discussion takes place at a time when multiple trends – including decarbonization, artificial intelligence, rapid digitization and the acceleration of e-commerce – open up considerable opportunities.

The global auto industry’s potential, particularly for Chinese automakers, should not be overlooked. And the discussion should be guided by a desire to collaborate on a brighter future than motivated by fear.

AlixPartners’ recently published Electric Vehicle Consumer Sentiment Survey indicates China’s EV market, by far the largest in the world, is poised to flourish. Some 97% of 1,000 China-based respondents to our study said their next vehicle purchase is likely to be an EV, compared to 35% in the US and 43% in Europe. Chinese consumers are overwhelmingly willing to consider a domestic model. Bottom line: China has a clear advantage in the EV race. But that could change.

Our study, which polled a total of 9,000 respondents in eight countries, found that while EV demand has cooled recently, the growth outlook is strong through 2035. The question for Chinese automakers is what role will they play in the global industry as international rivals take steps to catch up in a slow but steadily growing EV marketplace?

To date, Chinese automakers have struggled to find success in mature markets, including Western Europe and the US. While EVs represent a potential ticket to gaining a more influential seat at the table, Chinese brands must keep several factors in mind when considering their future role.

While Chinese EVs aren’t prevalent on European or American roads, they are increasingly on the radar. More than half of respondents in the US, Germany, UK, and France are aware of at least one Chinese brand, including BYD, Leap Motor, and Nio. Across the board, respondents say that they would consider a Chinese EV if priced 20% lower than a similar non-Chinese model.

EVs sell in China for the equivalent of $34,400, considerably lower than the $55,242 average selling price in the US. Many factors drive this disparity. Chinese automakers have a notable cost advantage due to lower labour rates, increased scale, healthy government subsidies, and more favourable battery costs (many of the world’s EV batteries or components are sourced from China).

When it comes to maintaining this advantage, there are some factors outside of China’s control. For instance, today China-built vehicles encounter a steep 27.5% US tariff and face the threat that those duties could exponentially rise.

China has, however, proven it can mount a credible vehicle export effort in the face of trade barriers, having become the world’s biggest auto exporter in 2023 (mostly due to shipments of internal-combustion engine cars to markets like Russia and Mexico). The trick will be figuring out how to replicate that success with EVs in mature markets.

Chinese brands are gaining appeal on the strength of exterior and interior styling; components that enhance user experience; and advanced technology, including safety and connected-vehicle features. This has propelled Chinese brands from their long-held position of being laggards in their home market (the world’s biggest) to now owning more than half of the market share in China.

The global EV landscape appears ripe for similar disruption. While Tesla has dominated the global EV market, other US and European brands have been slow to follow suit either because of high EV sticker prices, a lack of compelling features and design, limited availability, or a combination of all these factors.

Chinese brands have taken a different philosophy than most Western automakers. While long-established brands in the West often focus heavily on features buyers can’t readily see – such as ride, handling, or vibration – Chinese rivals have focused on appealing to drivers’ immediate senses. This philosophy is being carried over to EVs. In years to come, the challenge is maintaining that edge in an industry where many global rivals have infinitely deeper pockets to fund R&D.

We’re still in the early days of the automotive industry’s EV revolution. Of the roughly 90 million light vehicles expected to be sold in 2024, only 17 million will be electric and a majority will be sold in China.

Key to fuelling global demand is a willingness to address the hurdles prospective car buyers say stand in the way of them opting for an EV. These include battery range, vehicle cost, and – most of all – concerns about charging infrastructure.

Our EV study suggests a key factor fueling Chinese EV demand is the confidence consumers have when it comes to how quickly and aggressively these challenges are being addressed in China. Respondents are far less confident in the West. In the US, for instance, 43% of EV intenders say there are not enough places to plug a car in (that number is lower by nearly one-third in China, where millions of chargers are in service). Similar progress needs to be made in other parts of the world.

The EV revolution will have plenty of opportunities for various players around the world, but with every winner will likely come players who struggle to keep up. If Chinese EV makers hope to continue their progress on the international stage, they need to vigorously maintain their advantages while taking steps to address many of the challenges that still exist.