China’s Risky Drive into New-Energy Vehicles

China has made developing new-energy vehicles (NEV) a top priority. The hope is that NEVs will help the country transform from a follower to a technological leader in the automobile sector, reduce China’s dependence on imported oil, and improve the country’s overall air quality. To achieve these goals, China has employed an intensive, government-led effort to generate a steady supply of NEVs, batteries, and other key components, as well as promote consumer demand.

The results of these efforts are mixed. China has by far the world’s largest NEV market and boasts an eclectic mix of NEV makers. China’s battery makers have also improved the quality of their batteries. At the same time, the sector faces some immense challenges, such as insufficient domestic demand, lack of commercial profitability, potential overcapacity, inadequate product quality, and relocation, but not overall reduction, of pollution. The future of the Chinese NEV sector also depends on how some wild cards play out: efficacy of changes in government policy, development of quality and technology, availability of more commercially viable batteries, and progress of the mobility revolution are all key.

Given these developments, it would be a mistake to assume that just because China has a larger NEV sector currently than other global leaders in the sector, it is somehow leading a “race” that the United States must join to catch up or win. Unless the relative benefits of one kind of energy creation and storage technology become overwhelming, the United States should promote technology diversity and competition amongst the various options. In addition, promoting technology development will not result in technology deployment on a wide scale without additional incentives that generate both sustained supply and demand. Finally, given the size and significance of the Chinese market, the United States must hold China accountable to its existing commitments and promote greater commercial opportunities for US companies in their market. The health of the global auto industry is too important to allow it to be threatened by China’s potential market distortions.

Scott Kennedy is deputy director of the Freeman Chair in China Studies and director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies (CSIS).

This report was made possible with generous support from our initiative partners: Microsoft Corporation, the General Electric Foundation, the United States Chamber of Commerce, the Semiconductor Industry Association, the Japan External Trade Organization (JETRO), and the Smith Richardson Foundation.