How to Build an EV for Half the Price (Step 1: Be China)

[00:00:21] Hello everyone and welcome to Kilowatt, a podcast about electric vehicles, renewable energy, autonomous driving, and much, much more. My name is Bodhi and I am your host. And this is our third and final episode of the Chinese EV special series that I was doing. Even though it really wasn't much about Chinese EVs, this episode is about Chinese EVs, but the other ones, not really.

[00:00:48] I mean, they all kind of started off to be about Chinese EVs, but they got more general as they got into them. But this one is specifically about Chinese EVs and why they're so affordable. So let's go ahead and dig into that, shall we?

[00:01:04] So the average price of an EV is different around the world, right? It's about $55,000 here in the US. In Europe, it's around €40,000 or €43,000. In Asia, it's, you know, €46,000. Asia is a continent. But in China, which is on the continent of Asia, in China, the price of the average EV is closer to €35,000.

[00:01:32] So how are they able to achieve that? Well, first we should look at how were they averaging the price out. So in the Asian EV market or the Asian auto market, what they do is they do the average price, but it's volume weighted.

[00:01:49] So if you sell, let's say, 100 vehicles that are $100,000 and you sell 10 vehicles that are $50,000 and then you sell three vehicles that are $8,000, they don't take those three numbers and combine them. They take how many of each vehicle at each price point and then they weight it and then average it together.

[00:02:19] So it's not exactly an apples to apples comparison when you're comparing it against the US market or the European market. But still, we all know that cars or EVs in China are pretty affordable. So I just want to get that out there before we start, though. I found that interesting.

[00:02:44] Another thing I found interesting was that Chinese automakers produce more than half of the EVs in the world, which is insane. Just the Chinese automakers, they produce more than half of the EVs in the world. That's just an insane number to me. Anyway, we're here to talk about why Chinese EVs are so affordable. And I could say so cheap, but it doesn't mean that they're built cheaply, even though they're affordable.

[00:03:12] So we're going to use the word affordable. So about 20 years ago, China was importing a huge amount of oil. And on top of that, they had a real problem with air pollution. We've all seen the pictures of smog hanging around these Chinese cities. It's not a pretty thing. It's not good for the health of the citizens, and it's not good for the environment. So China came up with a solution. And that solution is they were going to start investing in EV technology.

[00:03:40] So we're talking like 2003, 2004, 2005, that time frame, right? They are already investing in EV technology. And the goal, or at least one of the goals, one of the stated goals, was to improve air pollution and gain some energy independence. So that was probably more the energy independence side of things. So when a government wants to kickstart a sector, they subsidize it.

[00:04:08] So according to some estimates, the Chinese government gave out about $29 billion in subsidies between 2009 and 2022. And that was just for EV production. Some of that $29 billion came in the form of cold, hard cash. And that paid for things that were, you know, upfront costs like building factories or R&D, that kind of thing.

[00:04:32] But some of the subsidies that were counted in the $29 billion also came in the form of tax breaks. The Chinese government also handed out another $71.8 billion in subsidies for cheap land leases, low-interest loans from the government. Some of this money even benefited consumers when they would go to buy an EV. They would get a little money back or some sort of tax credit or something towards the car, whatever the subsidy was.

[00:05:01] But those subsidies mostly were phased out in 2022. So that's the step one of why EVs are so cheap is largely subsidized by the government. And we hear a lot about that, right? That's one of the reasons why Europe put subsidies on Chinese EVs or Chinese-built EVs because of the subsidies. But there's another reason for this low cost, and those are low materials costs.

[00:05:29] So in terms of the battery, the battery accounts, depending on where you read, for between 25% to 40% of the cost to produce the vehicle. In 2016, that number was very close to 50% of the vehicle. So now we're looking, you know, 25% to 40%, and I'm sure it's closer to 25% than it is to 40%.

[00:05:53] But it's expected by 2030, that number will be 19% of the cost of the vehicle. So that's good. Battery prices will come down. Six of the top 10 EV battery makers are Chinese companies. We have CATL, BYD, CALB, some other ones, Pharisis, Sunwada, and Gotion. I did not say the last three right at all. But the good news is I don't have to say them again.

[00:06:23] At least I don't think I do. Anyway, in the same way that China was like, hey, we need to subsidize this industry and prop it up with money. They also realized that they needed to secure those critical minerals needed for batteries early on. And they did. They put things in place to make Chinese EV makers and battery makers successful. They subsidized early on. They put a lot of money into R&D.

[00:06:50] They went out and they secured contracts for the critical minerals needed. And a lot of the critical minerals that you need for a battery pack can be found in China. So that's really convenient on that side, too. But they went all around the world to get this stuff. But it doesn't stop there, right? You need to refine the battery materials. And those Chinese companies we talked about earlier, which I won't butcher their names again,

[00:07:17] they were able to set up refineries to refine all the... I don't even know if that's what they're called, refineries. But they were able to put up factories that refined all this raw material so that they could eventually create battery cells modules and battery packs. So that's part two of why Chinese EVs are so affordable. Next, we have economies of scale. Remember what I mentioned that Chinese EV makers produce more than half of the EVs in the world?

[00:07:45] Well, they're able to spread that cost of R&D, factory cost, mining, whatever else they have to pay for to build a car. However, they're able to spread that over a greater number of vehicles, which reduces the price of the vehicle. That's how economies of scale works. The next thing is supply chain. So the good news is for these Chinese EV makers is a lot of the supply chain happens to be in their neighborhood.

[00:08:13] You know, if they are looking for somebody that makes this specific chip, it's probably somewhere on the Asian continent that they can get this from. They don't have to ship it around the world, right? It could literally be to them in a few days, depending on where it's located and where the automaker's factory is. So that lowers transportation costs. It lowers logistic costs. It minimizes delays. And because some of these companies build so many EVs, they can negotiate better prices,

[00:08:42] and they can even pre-buy inventory, which depending on how much this supplier is able to produce, they might buy it all up and nobody else can use that particular supplier. So they got to go somewhere else. And maybe that supplier is the best at what they do. So anyway, the whole point is having your supply chain or a lot of your supply chain in your backyard is going to reduce costs. And now we're going to go to labor.

[00:09:11] Now, labor, this is one of the downsides when it comes to having an affordable EV. In 2023, BYD had a job posting in their factory, and that job posting had a base monthly salary of $2,361, which is right around $324 a month. It sounds like Chinese EV makers do something that's a little bit different,

[00:09:41] or at least Chinese companies maybe do something that's a little bit different when they hire. They give you the base salary, and then they give you the estimated monthly income for that position. And the estimated monthly income for that position was $5,000 to $7,001 a month, which would be $686 to $910 a month. Hourly, that works out to somewhere between $1.92 and $4.27, depending on how many hours worked and how much money and all that stuff.

[00:10:09] I found another article that said the starting hourly wage for assembly line workers is right around $4.20 an hour, so not a lot. If you're like, well, in China everything's cheaper, that might be true, but the average monthly wage in China is $11,301, which is about $1,400.

[00:10:34] So the labor side of this is a little problematic for me. So that leads us to competition. According to CNN Business, there are 200 EV manufacturers in China. I don't know how many manufacturers, auto manufacturers we have here in the U.S., but I doubt it's more than 50. Like, I can't even, I'm going to say it's probably 20 or 25. It's not that many. I might be wrong.

[00:11:04] I didn't take the time to count. But right now there are 200 EV manufacturers in China. In 2019, there were 500 EV manufacturers. So in the, we'll say five years, we've dropped by 300. There is a lot of competition, and that competition has fostered a price war. And this is not sustainable if everybody wants to stay in business,

[00:11:30] which is why in 2023, 16 Chinese automakers signed an agreement to not disturb fair competition in the market with abnormal pricing. This sounds, and I reported on this when it happened, this sounded a lot like price fixing. But there was a minister, I can't remember if he was a finance minister, there was some minister from the Chinese government that was there and they witnessed the signing.

[00:11:58] And this agreement ended up lasting one day. They, the 16 automakers got together and Tesla was involved in some other companies like Volkswagen and whatever. But they got together, it lasted one day. And the way that I remember this, and I might be getting some of the details mixed up here, but basically Tesla announced some sort of new incentive program if you buy a Tesla.

[00:12:25] Tesla and then another automaker in China was like, well, wait a minute, if you're going to do that, we're going to lower our prices by this much. And then the house of cards just came tumbling down and then went right back to the price war. Which, you know, we don't, obviously the price war is good for consumers in the short term. It's not good if you want choice, because eventually everybody's going to, or not everybody, eventually we're going to have a few companies rise to the top.

[00:12:52] And then when that happens, there's usually an awful lot of gatekeeping that happens to keep other startups out of the market, which is probably why we only have a handful of automakers here in the United States. But yeah, so that is, what is that, point like five, one, two, three, four, five, six. That's point six. The final thing that I have for you today isn't so much of why Chinese EVs are so affordable.

[00:13:21] This one is more of what makes Chinese EVs really appealing. So Chinese EVs look good. They're full of technology that are typically reserved for more expensive cars. In a lot of cases, like, what is it? Xpeng just announced, I think, that they're releasing their level three or whatever it is, self-driving for free. BYD said that they're going to do this as well.

[00:13:49] So, you know, we have really affordable, capable self-driving or autonomous driving systems. We have connected vehicles with a lot of different safety features. And it's not just the features that you can see. It's the kind of things that you won't notice immediately. Like, the cars tend to ride really nice and handle really nice, especially when you consider what you're paying for them. And Chinese automakers pay a lot of attention to the experience, the features that people see directly in front of them.

[00:14:19] Like, NIO's got their personal assistant where, you know, I talk about this all the time, but you can talk to the personal assistant and tell it to roll up the windows or change the channel. And it's got a little round face on the dashboard. And it looks really cute. And it's kind of a fun thing to play with. I don't know how it is long term, but it's a neat idea. And then you have BYD with all of their technology. One of the cool things that I like about BYD is it's got a rotating screen. It'll go from landscape to portrait.

[00:14:49] The point is here, Chinese EV makers, they really embrace those tech forward features in a way that a lot of Western automakers are still trying to catch up. So for around, let's say, $9,000 to $15,000 US, somebody can go in, they can buy this really nice affordable EV. And sure, there's going to be compromise when you have a vehicle that costs $50,000 in China versus a vehicle that costs $15,000 in China. There's going to be compromise.

[00:15:19] But I would argue that the people who can afford a $50,000 car in China probably wouldn't go down to the price point of $15,000 for their personal vehicle. They might. There's very frugal people out there. But I think most people are going to buy a car that meets their needs without breaking the budget. Now, I know and I have plenty of friends that have bought cars

[00:15:46] that more than meet their needs and also more than break their budget. But a reasonable person might say, I can afford a $50,000 EV, but I'm going to spend $40,000 and I'm still going to get a really nice EV and you're going to get a really nice experience. But even if that person who is going to buy the $50,000 EV or could afford the $50,000 EV went and bought a $20,000 EV or a $15,000 EV,

[00:16:12] I don't think they're going to be disappointed by the experience. There might be other things that they're disappointed by and there are probably too many to mention right at the moment. But you get my point. You want to buy a car and you don't want to feel like you have gotten something that's lesser than. And I don't think you're going to do that with a lot of Chinese EV makers. Again, you're still going to compromise, but you're going to have some things that smooth over

[00:16:42] that feeling that you compromised. All right, everybody, that is it for me today. I hope you all enjoyed the three-part series on Chinese EVs that really wasn't about Chinese EVs. It was kind of more just about EVs and the last thing was kind of about Chinese EVs. But I really hope you enjoyed it. I have all of my sources in the show notes if you want to go back and review my work and give me a fact check.

[00:17:10] I'm always happy for that to happen. You can email me. It's Bodie, B-O-D-I-E, at 918digital.com. And you can also find me on X at 918digital. And if you like what I did this month and all of the hard work that I put into this episode in January, February, and March, and even some of December, go to patreon.com forward slash kilowatt or support kilowatt.com and become a patron. For as little as a dollar, all the ads go away.

[00:17:38] And that dollar number used to be a very popular tier, and a lot of creators have done away with it. I have not. I'm keeping the dollar for as long as I can afford to. So patreon.com forward slash kilowatt. If for some reason you're not a fan of Patreon, you can go to ACAST Plus and sign up there as well and get an ad-free experience. All right, everybody. I hope you all had a wonderful week, and I will talk to you next time.