China's EV supremacy is its vehicle to overtake US economy

Electric vehicles are giving China an economic and even military advantage

Visitors wait to sit in a Xiaomi SU7 Ultra at the Shanghai automobile exhibition on April 27. Ford boss Jim Farley was so impressed he imported one to the US for his personal use. AFP

In the Battle of Muye, fought in 1046 BCE, the 45,000 soldiers of the rebel Zhou army defeated the 170,000-strong forces of the Shang. The Zhou dynasty became the longest-lived in Chinese history, ruling over most of northern China. Their decisive weapon was chariots drawn by horses. Today, another novel vehicle is gaining modern China a crucial advantage over an adversary, the US.

Innovations in transport have often led to geopolitical transformations. First the chariot, then the horse archers of the Mongol conquerors, followed by the sailing ship that allowed Europeans to colonise the Americas. The 19th century brought the steam ship and the railway that knit together Germany, Russia and India of the time.

The 20th saw the internal combustion engine that allowed modern mechanised warfare, and the container ship and jet aeroplane that have spurred trade globalisation. The need for coal helped the economic rise of Britain. Oil then helped make the US and Soviet Union superpowers, and brought extraordinary riches to the Gulf.

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The rapid rise to supremacy of China’s electric vehicles could become a similar turning point. First, because it enables Beijing to wage a successful economic contest with Washington. Second, because it removes a key Chinese strategic vulnerability while undermining an American strength.

Three crucial data points illustrate this shift. At the Shanghai Auto Show, which opened on Wednesday, more than 1,300 vehicles were on display – 70 per cent of them new-energy vehicles, that is electric (EVs), plug-in hybrid or hydrogen-powered.

CATL, the world’s biggest car battery maker, said at the show it had built a new charger that can power up a vehicle to 515 kilometres’ range in five minutes, beating the earlier and also ground-breaking claim by rival BYD of 400km in five minutes. The company also says that by 2027-2028, it will have dual-battery technology that can give 1,500km range from a single charge. This far exceeds the 400km-600km a typical petrol car can manage on one tank.

In sharp contrast, US market leader Tesla released its first-quarter results on Tuesday. They were dismal, undershooting already low expectations. The company made a loss on its underlying operations, profits were down 71 per cent and its vehicle sales dropped 13 per cent year-on-year. In particular, purchases in Canada and Europe have plummeted as motorists recoil from the political toxicity of chief executive Elon Musk.

EVs will be a crucial motor of Chinese economic growth, even as its overall economy matures and decelerates. Entrepreneurial energies, supported by patient, long-term government policies, have allowed the new Chinese automakers to leverage expertise in batteries and consumer electronics. They have built out supply chains and taken control of key raw materials and their processing, such as Congolese cobalt and Indonesian nickel.

Overcoming an earlier reputation for cheapness and shoddy quality, their cars are now innovative and fun to drive. Ford chief executive and car fanatic Jim Farley liked Xiaomi’s SU7 so much that he had it specially imported and drove it for months.

The US had one chance to counter. That was to work with its allies who have battery-making expertise – Japan and South Korea. But that opportunity has been squandered by protectionism and needless political fights.

American companies may be able to sell electric cars in their tariff-protected market. But with costs for imported inputs driven up, facing retaliatory measures abroad and basking in complacency at home, they will not be successful internationally.

Their lack of critical mass will see them fall ever farther behind in developing new battery and charging technology, and in gathering the data and experience for the ultimate prize, self-driving cars. For all the cleverness of Silicon Valley, this quest will be set back even more by the offensive on immigration and the vendetta against scientific research.

Even excluding China’s exports, domestic sales of almost 23 million vehicles last year give it the edge in volume over the US’s 15.9 million new cars. Chinese brands made up 62 per cent of global EV sales last year. New-energy vehicles captured nearly half of the domestic market, compared to 20 per cent electric and hybrid in the US.

And that addresses a key Chinese strategic weakness: its lack of domestic hydrocarbons. The US’s shale oil looks less like a boom and more like a curse, or at least a gift that was squandered. “Energy independence” followed by “energy dominance” has not delivered victory over Tehran, nor Moscow, nor now Beijing. But along with Mr Musk’s missteps, it did prevent Washington from capitalising on Tesla’s early running.

China has to import most of its oil requirements. That is a similar vulnerability to those of Japan and Germany in the Second World War. Its crude imports in the first quarter ran at 10.85 million barrels per day, to meet demand estimated at 16.8 million bpd. Only 0.93 million bpd came overland from Russia or Kazakhstan.

It has an estimated 914 million barrels in stock. In the extreme case of conflict or naval blockade, China could theoretically run without seaborne imports for only about three months. In reality, rationing and other emergency measures would stretch this period, at the cost of disruption and economic pain.

The US military presence in the Gulf is not, as is so often pretended, about securing oil supplies for the US, which now imports very little oil from the region, or even for its erstwhile allies. It is about having the ability to deny that oil to adversaries.

Now China’s oil demand is expected to reach a peak in the near term, because of EVs, high-speed rail and the growing use of liquefied natural gas in heavy lorries. Road transport demand of 8.5 million bpd, more than half the national total, has not noticeably increased since shortly before the Covid pandemic. The electricity for these cars will be provided by domestic coal, renewables and nuclear, three areas where China leads the world.

Chinese EVs are going to reshape the global car industry, and give it the strength to win an economic and even military confrontation with the US. The shock that the Shang soldiers felt when they saw the Zhou chariots bearing down on them, is what American car makers, motorists and oil executives will feel when they encounter BYD, CATL and Xiaomi.