'Tesla Village': how electric vehicles are the new frontier of China’s rural economy

Tesla has had a lot of success in China’s megacities for years, but it is now rapidly expanding to other more remotes regions throughout the country. Indeed, one small mountain town in Yunnan province is now nicknamed “Tesla village”.

Entrepreneur Cai Run, who is originally from Panzhiga, had worked in big Chinese cities for years when a new bridge was built connecting his hometown to a major road, thereby bringing tourism to the area. Seeing an opportunity, he returned to Panzhiga and opened a small hotel, taking his Tesla Model Y with him.

His neighbours soon became enthralled by his Tesla, and now the small village boasts a fleet of more than 30 Model Ys. These villagers are also entrepreneurs: in addition to using them for transportation, they love using their Model Ys as part of their local businesses. Hence the moniker “Tesla village”.

The evolution of Tesla village Panzhiga is another giant step forward for the digital transformation of China’s rural economy, from the earlier years of “Taobao villages”.

In recent years, the mobile internet and digital technologies have had a profound impact on China’s rural economy. There are many villages with a majority of farmers working on Alibaba’s shopping site Taobao – earning them the name of “Taobao villages”.

A Taobao village is defined by Alibaba as “a village in which over 10% of households run online stores and village e-commerce revenues exceed RMB 10 million (roughly $1.6 million) per year”. According to Alibaba’s data, there are more than 1,000 Taobao villages in China.

Of course, "Tesla villages" – or “EV villages”, as Chinese electric vehicle brands are quickly catching up and competing with Tesla head-to-head – are still few and far between. The snazzy, high-end electric cars are often associated with environmentally-conscious urban elites, but this will soon change.

In June 2022, China announced a broad campaign in which 26 automakers will create incentives for people in rural China to buy electric vehicles (EVs). Car manufacturers will be encouraged to work on sales incentive programmes, in collaboration with e-commerce platforms, to generate offline car sales in rural areas and lower-tier cities.

To put all these into context, China views the EV development as strategically important to transform its automobile industry. First of all, car ownership in big cities in China already reached a saturation point and thus needs a breakthrough.

Secondly, China vowed to reach “carbon neutrality by 2060”, and consequently, it has declared that by 2035 all new car sales in China must be either full EVs or hybrids (collectively known as new energy vehicles). As such, the rural area is an under-explored market with great potential.

However, new energy vehicles still face big hurdles for sales in rural market. Here’s why:

Rural populations are especially sensitive to the price tag of new energy cars. In fact, millions of low-speed “mini electric cars” are already sold in China each year, which can cost as little as $1,500. They mostly run on cheap lead-acid batteries, instead of much pricier lithium battery, and they don't need drivers' licence for people to operate. Not having been through the rigours of crash safety testing, mini electric cars may easily break if they speed into something, even at a moderate speed. In many Chinese cities, they have been banned by local authorities altogether due to safety concerns.

The advantage that new energy vehicles have over mini electric cars is safety. The cheaper end of new energy vehicles could be found below RMB 100, 000 ($ 15,000), but the price may need to drop further to go below RMB 50,000 ($7,500) to make EVs attractive to rural buyers.

The electric car price can be further compensated by multiple-use, such as the business usage in the case of entrepreneurs in the Tesla villages. That means innovative models of electric vehicle could be designed specifically for rural residents to stimulate that market.

Going forward, the market may see a highly-segmented Chinese EV market developing: an upper tier of vehicles aimed at family-oriented, upwardly mobile professionals, a lower tier of affordably priced, youthfully styled vehicles for younger buyers, and a cheap tier of multi-use models for rural buyers.

China has by far the largest number of publicly available charging poles, but the existing stations are concentrated in the top-tier cities. That’s because building one fast-charging station for electric vehicles requires a huge down payment. The dilemma is that greater access to charging stations will help accelerate the adoption of new energy vehicles in rural areas, but building charging stations currently is unprofitable until more of the rural population buys them.

The national charging infrastructure push must therefore come from the government. In January 2022, China’s National Development and Reform Commission (NDRC) and other nine government departments issued a guideline to boost EV charging services to meet the demand of 20 million such vehicles by 2025. The country will move faster to put in place a smart, efficient, well-balanced and moderately advanced network of battery charging facilities, according to guidelines.

These emphasized the construction of a charging facility network in rural areas. As part of the country's rural revitalization efforts, China expects to equip all counties with charging stations and all villages with charging poles. And, according to the June promotion announcement, the ministries will also team up with provincial governments to push supportive measures that will encourage more people to buy EVs, such as more investment in public charging infrastructure.

Just like the charging stations, the service shops for new energy vehicles are concentrated in major cities where there are already critical masses of EV owners. In rural areas, many post-sale services promised by car companies, such as emergency charging and equipment repair, are not as readily accessible to rural populations as those in coastal cities. The waiting time difference could be a few days versus a few hours.

In the aforementioned multi-ministry guidelines, the government also planned to strengthen maintenance and internet services around the charging facilities. It’s worth noting that the country still has hundreds of millions of non-internet users – mostly villagers, due to the lack of internet infrastructure in remote areas.

Since 2020, China has started the push for “digital villages”, which may provide the financial support from the central government for investments in internet infrastructure in remote areas. Improved internet connection is critical for the “online promotion, offline sales” strategy contemplated by the promotion campaign, and we may see many “digital villages” and “EV villages” to emerge together.

In summary, innovative models of electric cars will meet the demands of consumers in rural areas, which is a large market remaining to be tapped. But to get EVs deep in the countryside, there is still a long way to go.

Despite of challenges, there are still certain advantages when it comes to the adoption of electric vehicles in rural China. Compared with residents in big cities, rural residents may find it easier to have parking spots and can install charging facilities at their homes. In lower tier cities and rural China, e-bikes and e-scooters are already widely used, so EVs may soon become popular there, too.

China’s pilot “digital village” and “EV village” initiatives therefore may also become a valuable reference for the world to close the digital gap and combat climate change. When governments across the continents focus on the digital transformation of their rural economy, they could also find a huge user market for new energy vehicles.