So, they are using this for "control purposes" to fully eliminate where possible western supply chains. Little wonder they want to control all of the REE market/supply chain along with many other critical minerals.
**Zhang Monan, researcher at China Center for International Economic Exchange, boils down the strategy for doing so to two steps: increase “strategic mutual dependency” between China and the west; and leverage open markets to counter the US and EU’s de-risking efforts.**
Car exports are a function of a larger strategic goal: “whole industrial chain output"
FORCE DISTANCE TIMES 2 MAR 2024
This week: China is exporting its entire EV industrial chain. The automotive story goes beyond unit sales. Car exports are a function of a larger strategic goal: “whole industrial chain output,” which can, in turn, be leveraged to win influence over global commerce.
The China EV narrative you’re probably most familiar with is the country's surging EV exports, which grew 64% last year.
Car exports are certainly part of the story. But the broader narrative goes far beyond unit sales. Car exports are a function of a larger strategic goal: exporting China’s EV industrial chain.
A recent article in Securities Daily on the changing competitive landscape for autos makes this succinctly:
“Product export is the form, and the business model is the essence. The significance of cars going overseas goes far beyond car sales themselves. In addition to bringing out products and industrial chains, it also involves a wide range of services, management models, trade logistics, cultural exchanges, and even the display of national image.”
In other words, China’s EV exports are a step towards an even greater prize: more influence over industrial chains, technology standards, trade flows, business models, and global commerce writ large. That, in turn, further complicates US efforts—like the investigation launched this week—to check possible national security risks from foreign-made EV components and software.
There’s also a larger point to all this. Assessing how China competes in strategic industries requires understanding what metrics are used and prioritized. Those metrics often differ, whether in kind or in relative importance, from those that guide Wall Street. Think: market share and leverage over key supply chain nodes,versus quarterly profits and losses.1 This is a generalization, of course. But it’s a point worth keeping in mind when thinking about, say, Chinese EV exports—and whether more sales is the end goal or a means to a larger strategic objective.
A state-led automotive full court press Little wonder, then, that the Chinese government—at both national and local levels—is leading a coordinated and comprehensive push to export and expand various segments of the EV supply chain.
Shenzhen this week unveiled a plan to support car exports, including measures to speed up export license approvals, opening new shipping routes, offering tax refunds and export credit insurance, and building overseas factories and R&D centers.
The measures are much like those proposed by the Chinese ministry of commerce last month, which called for the “healthy development” of automotive trade, largely through government-directed coordination to juice Chinese EV makers’ competitiveness overseas. They also echo directives from the State Council last year, among other things called for state-led matchmaking between car makers and shipping companies.
The effects of these policies are already being reflected in data. According to Rhodium Group, China’s new EV overseas foreign direct investment last year hit $28.2 billion and was overwhelmingly driven by greenfield investments. Or, as a top Chinese government agency put it, “More and more Chinese car companies are not stopping at ‘products going overseas,’ but are moving towards ‘manufacturing going overseas.’”
In short, the Chinese government is putting its full weight behind not just exporting cars, but what the vice chairman of the China’s top EV think tank calls “whole industrial chain output.”
What “whole industrial chain output” looks like
Recent developments give us an idea of what Chinese EVs’ “whole industrial chain output” looks like:
BYD is reportedly in talks with Italy about potentially setting up a second European plant there. BYD’s first plant on the continent will be in Hungary—no doubt with an eye to avoid potential punitive tariffs levied by Brussels. BYD is eying a plant in Mexico, too, in an attempt to dodge US tariffs.
Fiat maker Stellantis, which last year bought a 21% stake in Chinese EV maker Leapmotor, is considering building Leapmotor EVs in Italy—in a historic Fiat plant, no less.
US automotive supplier BorgWarner inked a deal with BYD’s battery subsidiary, FinDreams. The US firm will manufacture EV battery packs using components from its Chinese partner.
The tie-up shares similarities with the controversial Ford-CATL partnership, in which the US carmaker would license technology from the Chinese battery giant to build an EV battery plant in Michigan. In both instances, neither BYD nor CATL increases their physical footprint in the US, but their technologies become more deeply embedded in US automotive supply chains.
Driving these various developments is China’s desire to leverage dominance in EVs and batteries to counter geopolitical headwinds and sidestep (or undermine) trade barriers.
Zhang Monan, researcher at China Center for International Economic Exchange, boils down the strategy for doing so to two steps: increase “strategic mutual dependency” between China and the west; and leverage open markets to counter the US and EU’s de-risking efforts.
So far, it looks like that strategy is bearing fruit.
IXR Price at posting:
1.8¢ Sentiment: Buy Disclosure: Held
(20min delay)
