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Global Equities
Episode 29 – Can China continue its EV dominance?
Jason Zhang
Equity investment analyst

It's increasingly apparent that China has moved into pole position to dominate EV production and battery technology. The country made a strong push into EV development around 2009 and now accounts for about 80% of global EV production. In this episode, equity investment analyst, Jason Zhang discusses the current state and future prospects of China’s electric vehicle (EV) industry, exploring whether China can maintain its leading position in the global EV market. With deep knowledge of the Asian automotive sector, Jason delves into the factors contributing to China’s success and the challenges it may face in continuing its dominance. 

Jason Zhang  has research responsibility for Asian and European auto & auto components companies, in addition to brewers and distillers for Asia. He has 15 years of investment experience, all with Capital Group. He holds a bachelor’s degree in biology and economics from Brown University. He also holds the Chartered Financial Analyst® designation. Jason is based in Hong Kong. 

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Rev Hui: Jason, welcome to Capital Ideas Investment Podcast. Great to have you here today.

Jason Zhang: Hi, Rev. Thanks for having me.

Rev Hui: Before we begin, I would just like to tell our listeners today just how amazing Jason's coverage actually is. On one hand, he covers Asian automobile companies, and on the other, he actually covers Asian alcoholic beverage companies. That's fast shiny new cars and alcohol. That is such an amazing combination.

Jason Zhang: Absolutely. And they're very complimentary when you think about self-driving cars.

Rev Hui: Very complimentary indeed. There you have it, folks. Less than one minute into the show, and we've got our first very important insight of the day. But jokes aside, for today's topic, China and electric vehicles, when people think about it from a global perspective, we usually think about electric vehicles in the form of Elon Musk. We think of Tesla. However, China and Chinese EV companies are actually playing a huge role in the global supply chain as well. Would you be able to help us better visualize it now? Just how dominant Chinese companies are in this space?

Jason Zhang: Sure, Rev. So, what many people don't perhaps realize is that China is today the largest market for EVs by far. There are more EVs sold in China than in the rest of the world combined. And while Chinese automakers never succeeded in ICE or internal combustion engines, they dominate in EVs. So, in the domestic China auto market, it's long been controlled by foreign brands like Volkswagen or General Motors. And traditionally Chinese brands only make up one third of the market. But in EVs, Chinese automakers dominate with 80% market share. And there's only one notable foreign brand, that's Tesla. I think China today produces some of the most competitive EVs in terms of the cost base and the overall product.

Rev Hui: That certainly sounds like a very competitive market. It seems like there are more companies in China that's eager to have a bigger slice of the pie as well. And we've seen recent news that likes of Huawei and Xiaomi also entering the EV space. I guess the question is, do we have an overcapacity issue in China right now when it comes to EVs?

Jason Zhang: Yeah, that's a great point, Rev. It's already an extremely competitive market in China. And now we have two more heavyweights entering. Huawei is not building its own EVs, but it's partnering with multiple automakers. They're supplying them with operating systems, software, assisted driving features. And because Huawei's tech is so good, it's able to elevate some of these second, third tier automakers into much more credible competitors. And you can see that in the sales numbers. Xiaomi is the third largest mobile phone maker in China after Apple, Huawei. They have a very large and loyal customer base and decided three years ago to get into EVs, and they committed to investing $10 billion over the next decade. So, they've just released their first products and they'll be ramping production over the course of this year. So, I think there definitely is over capacity from an industry perspective. I think the problem is you have all these EV makers, they all have aggressive growth and market share ambitions and they're all building their capacity accordingly. So, at some point I think, we’ll have to go through a period of consolidation, but we're not there yet.

Rev Hui: It seems like these companies are all vying for the same pie. But Jason, do you see any segments of the market that's perhaps less crowded and where there's more profits to be had?

Jason Zhang: Yeah, I think increasingly not. It's so competitive that basically every product segment or niche has become very heavily saturated. So, you have mass market brands like BYD or GAC Aeon trying to move up market by launching new premium brand at higher price points. At the same time, you have a more premium brand like NIO introducing cheaper brands into the mass market. If we look at product segment, one niche product is the seven-seater MPV. It's a small but very profitable segment. It's dominated by the Toyota Alphard on the ICE side. But we've seen numerous launches over the past 12 months of electric seven-seater MPVs. The luxury Zekor MPV, for example, sell at half of the Alphard's price. And you have Denza, Maxxis, Xiaopeng MPVs at closer to one third of Alphard's price. And you know, just to anecdote, some of these products are now making their way to Hong Kong. And two of my colleagues in the Hong Kong office have already swapped their Toyota Alphard for Chinese made electric MPVs because they cost half the price, and the charging electricity cost is way lower than what they previously spent on gasoline.

Rev Hui: Ah, I see. So, they're cheaper and they're more cost efficient. But what about build quality? One phrase that we tend to hear when it comes to cars is German made quality. Are China EVs comparable to German cars?

Jason Zhang: Yeah, absolutely. The quality of Chinese cars has improved vastly over the past couple of decades. And some of these cars, I would say, rival the Germans in terms of build quality, interior and design.

Rev Hui: But Jason, given how intense the competition is within China at the moment, how will EV makers in the country even are even able to grow.

Jason Zhang: Yeah, Rev, you know, as you say, the competition is very fierce, but the Chinese EV makers, they continue to invest because they see the growth in the size of the market. You know, EV penetration today in China is about 35%. So that means two-third of the market is still ICE cars. And they see that as the opportunity to compete and to gain from the ICE makers. They also see huge opportunity in overseas markets. So recently they've been aggressively expanding their export businesses. They see these overseas markets as very attractive profit pools because they are much less competitive. It's very early days, but Chinese EV makers at the moment are making much higher margins and profits overseas than they are in China.

Rev Hui: A very important point you've just made there, Jason. Now that more and more Chinese EV makers are selling their products, selling their cars overseas, should global EV makers be afraid of the competition?

Jason Zhang: Yes, I think so. And in fact, Elon Musk on the recent earnings call, he said that Chinese car companies are the most competitive car companies in the world. And he says, frankly, I think if there are no trade barriers established, it will pretty much demolish most other car companies in the world. They're that good.

Rev Hui: But Jason, there must be some huge competitive advantage that the Chinese EV car companies enjoy that for Elon Musk to even say that, isn't it?

Jason Zhang: So, I think the biggest advantage is the cost base. Chinese EVs, I think, are 30 to 40 percent cheaper than those produced elsewhere. This is mainly due to the massive scale, the supply chain advantages, and the continuous kind of process engineering and cost reduction. So, we look at the size and the scale of the China market. I mean, the China auto market is the largest with about 30 million units sold last year. That's two times the size of the U.S. car market. And one-third of China's new car cell is now EVs. It's around 10 million units. So that's a massive market. And it also has a very established supply chain. Everything from the processing of minerals like lithium, battery components, you know, like cathode and anode and separators, to cell production, to machinery. It's all dominated by China with over 70% market share in most of these areas. And so, I think that is the biggest advantage is the lower cost base.

But also, I think the Chinese EV makers excel in software. So, they followed Tesla's model of centralized software platform, which is really foundational for advanced features like assisted driving over their updates. They run with a tech consumer electronics mindset and the benefit from the very large talent pool of software and tech engineers in China. And I'll say the last point is that the speed of development is just so much faster. The development cycle on average, it's about 18 to 20 months for the Chinese automakers versus the fastest of the global automakers is about a 36-month cycle. So, I think the market is just so competitive in China that you have to continuously just innovate and improve your products.

Rev Hui: EV makers obviously need a lot of money, a lot of funding to continue to grow and to maintain their technological edge. But given the well documented issues the Chinese economy and capital markets have been going through, has it impacted the ability to access funding?

Jason Zhang: Well, initially, I would say the funding, or the support came from the Chinese government in terms of land grants, tax cuts, incentives. And then the EV startups like NIO, Xiaopeng, Liado, they raised tens of billions of dollars from the capital markets when times were better, including their IPOs in the US during the 2020-21 period. But now, as the capital market has really slowed down in China, we've seen investors from the Middle East step in, for example. Abu Dhabi has invested $2 billion in NIO. Saudi Arabia also invests in another Chinese EV maker called HiFi. We've even seen some European automakers investing directly into Chinese EV makers as a hedge and to gain technology. Volkswagen spent $700 million to buy a staking of Xiaopeng and they're collaborating on EV development. And Stellantis, which is a Fiat Chrysler Peugeot, they paid almost $2 billion for 20% stake in lead motor, and they're considering producing lead motor EVs in Europe.

Rev Hui: So, if you can't beat them, join them.

Jason Zhang: Absolutely, I think that is an element of it. And also, kind of abiding their time before they come up with more competitive products.

Rev Hui: Out of curiosity, just where do you see China EV companies in terms of their global market penetration in the next few years?

Jason Zhang: Yes, they are starting to go very aggressively to overseas markets. And if we look at early examples in some of the open, unimpeded markets, they're having great success. So, I take Thailand as an example. Last year, there's been a big surge in EV penetration to about 10%. And that was largely driven by the entry of Chinese players. And if you look at the market share in Thailand, it's basically a mirror image of China.

The Chinese brands have more than 80% share of the EV market there, and the only notable foreign brand is Tesla. And this is starting to get repeated in other markets where Chinese are entering aggressively to countries like Indonesia, like Brazil, into Europe. The question is whether some of these markets will be protected. So, I think if we look at some of the major auto producing countries with indigenous brands such as US, Japan, Germany, I think those markets will be largely protected. And so, I think that will present a hindrance to the Chinese EV makers. But I think in the open, unimpeded markets, Chinese EV makers are likely to dominate over time.

Rev Hui: Is China's EV dominance replicable? Or are they actually so far ahead in the race in EVs that it's impossible for other countries to catch up?

Jason Zhang: Yes, it is replicable, but it will be, I think, very difficult and other countries are trying to do it. So, for example, the US with IRA, Inflation Reduction Act, essentially the key aim is to bring EV production to US and to cut out the EV battery supply chain, essentially build a parallel battery supply chain. So, I think this will be very expensive and it will take a while, but that's the direction where they're headed.

Rev Hui: How many years do you think the US is going to take in order to build their own independent EV supply chain? Is that like a rough number in your head?

Jason Zhang: Well, it's hard to say how many years behind because there's also a question of the, you know, the EV market evolution. I think US, for example, will move to EVs much more gradually versus China, in my view, much longer driving distances in the US and much larger vehicle sizes just means that it's a market that's less conducive to EV. So, I think it'll be a much longer or more gradual EV transition. And from that perspective, I think they have more time to make that transition.

Rev Hui: Given it's such a rapidly evolving sector and there's like new innovations happening all the time, how do you conduct your research on EV companies and your products?

Jason Zhang: Well, I find it's just very important to go and test out the products, go see the factories because it's changing so quickly and it's amazing the speed at which they develop. So, what I like to do is just go to the factories and kind of drive the products. And it's just, I think, you know, if you're not there in six months, you kind of miss the developments, what's going on. And it's just amazing how fast they evolve.

Rev Hui: Wow. So, they actually allow you to test drive the latest prototype?

Jason Zhang: Sometimes I do and sometimes I would just go to dealers or go to the showroom and yeah, try it there.

Rev Hui: I've read interesting articles online about self-driving vehicles crashing during prototype testing. Have you had your fair share of scary experiences?

Jason Zhang: No, I haven't, fortunately. But recently I was in Guangzhou and sat in an autonomous vehicle from Pony AI. And Pony, I think, is the most advanced and it is a bit strange sitting the car with this in the backseat with no drivers in the front in the car I think it was a 30 minute route in the car went up to 100 kilometres per hour so initially certainly is a little bit scary, but you get used to after a while and you realize actually it's probably safer than the human drive.

Rev Hui: Define the China EV space in terms of investable opportunities.

Jason Zhang: I personally think that this is a very difficult space to invest in just because it's so hyper competitive. And I think the biggest beneficiary here is the consumer because the products are just getting better and getting cheaper every day. So, I would, I would be cautious in terms of investments just because it's early days, it's super competitive and even the winners, we're not sure what kind of sustainable returns they can make over time.

Rev Hui: Jason, you've obviously been covering the auto sector for many, many years now. How has that shaped the way you approach investments?

Jason Zhang: Well, Rev, I'm still kind of constantly learning and evolving my investment style, but I cover two very different sectors. Autos is very, very cyclical. And so those you kind of have to just wait for things to be really bad when you think the world is ending, and that's when you buy autos, and you sell when things are very good. On the other hand, beverage is a much more stable sector.

And I think I tend to prefer kind of more compounders, great companies that are in a good industry structure, generate very strong returns with good management and just to wait for market dislocations and to buy them at a discount and to hold them over time.

Rev Hui: Your investment style, has it changed a lot over the years?

Jason Zhang: Yeah, I think, you know, when I first joined, because my first coverage was autos, I tend to be a bit more short term, try to trade the stocks a bit more. But I think over time, I realized that is a more difficult way to make money because you have to time it on the downside and time it on the upside, do it correctly and over and over again. Whereas if you're able to find just great companies that can compound their earnings over time, and you buy them at a discount and you can just hold them over the long term. And to me that's a much easier way to invest.

Rev Hui: Thanks a lot Jason, because that's a perfect segue to a key message that many of Capital Group's investment professionals have been preaching for many years now. And that is, when you fund a good company, it's time, not timing that matters. Now, since we've talked about how you first started out as an auto analyst many, many years ago now, 17 years to be exact. How about we go further back? How did Jason Zhang ended up becoming an analyst and ended up at Capital Group?

Jason Zhang: Well, Rev, I think I was just very lucky being at the right place at the right time. You know, I studied biology and economics in college, and I did internships in a pharmaceutical company I did an internship at Goldman Sachs. And I didn't really want to do either of those wasn't sure what I wanted to do, and Capital was recruiting on campus for the TAP program, which is a two-year program with four-month rotations in different business areas. And I thought that was an amazing opportunity to learn about Capital, to learn about the investment business. And through those two years, I just was amazed at the kind of the people, the business, and knew this is where I wanted to work. And luckily, there was a position available for me in the Hong Kong office in the investment group at the end of the rotation.

Rev Hui: And you've not looked back since. Well, Jason, thank you once again for joining us today. I hope you've enjoyed yourself and I thank you very much for sharing your insights on China and EVs. Hopefully, there'll be many more exciting developments in the years to come. Thank you.

Jason Zhang: Thank you, Rev. It's been a pleasure.

We're always trying to get better, so if you have any feedback, including topics you'd like to see addressed in future episodes, send us an email at

For Capital Ideas, this is Matt Reynolds reminding you that the most valuable asset is a long-term perspective.


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