How can China make EVs that sell for less than $20,000?

In southwestern China’s Chongqing city, full-time driver Zhang Fenglian doubles as a local guide and takes visitors on a scenic route along the Yangtze river. Like many rideshare cars in China’s megacities, Zhang’s car is an electric vehicle.

His car is from top Chinese EV seller, BYD. It’s one of the lower-range models with a basic interior with no air vents for back seats. The car is not perfect, but it is practical, according to Zhang.

“[The BYD Qin’s] standard range on one charge is supposed to be 280 miles, but I can get only 255 to 260 miles, and only if I don’t turn on the air conditioning,” he said. “Of course, if you care about appearances, you wouldn’t use this car to pick up important clients or a big boss because the car looks cheap, but this car can fit five passengers comfortably. Plus, the trunk is big.”

Zhang bought the EV for 130,000 yuan ($18,000). The cheapest EV in the states is around $29,000. 

China has been able to produce lower-cost EVs due to a combination of intense domestic competition, subsidies, a low-paid labor force and a comprehensive supply chain.

Competition in China

China has about 100 or so electric vehicle brands. Five EV brands, which include BYD and Tesla, account for 60% of the market, according to the Shanghai-based strategy and investment firm, Automobility. An ongoing price war in China has driven EV prices lower. Plus, there is weak domestic consumer demand.

“Many of the Chinese companies are starving, and that’s another reason why they want to go global,” Automobility’s founder and former head of Chrysler’s northeast Asia division, Bill Russo, said.

However, Chinese EVs are effectively shut out of the U.S. and Canada, with punitive tariffs of 100%. The European Union also plans to impose extra tariffs, but at lower rates from 9% to 36%, on all electric cars made in China, including Teslas.

The EU, U.S. and Canada argue that Chinese EVs are given an unfair edge via subsidies.

“In theory, there’s nothing wrong [with affordable Chinese EVs outside of China], but in practice, there’s a lot wrong,” U.S. ambassador to China Nicholas Burns said. “The government of China and the provincial governments are subsidizing the Chinese EV manufacturers so there’s no level playing field, and they take the cars, they sell them below the cost of production into Europe or Brazil or the U.S.”

Subsidies

An investigation by the EU Commission, which is the EU’s executive branch, found that Chinese EV brands were given preferential financing, direct grants, cheap land and below-market rates for raw materials essential for batteries and tax breaks.

China denies the charge of unfair competition and said its industrial subsidies are “reasonable and legitimate.” It has hit back by launching its own anti-dumping investigations into imports, the latest against Canadian canola and chemicals.

“[Chinese EV companies] formed their own unique advantages through fierce market competition, including innovation, industrial and supply chains and market,” China’s ministry of commerce spokesperson He Yadong, said at a May press briefing.

It is not just domestic carmakers that benefit. The Chinese government also offered Tesla a sweet deal to set up a factory in Shanghai, said Russo.

“They got the first 100%-owned factory in China for a multinational company,” he said.

Tesla CEO Elon Musk has previously denied a report that the company might ship its China-made cars to the U.S.

“It was Tesla who broke through and showed you can be profitable,” Russo said.

Cheap labor

Another reason Tesla and Chinese brands can make increasingly affordable EVs is because of China’s hardworking and low-paid labor force.

In the central Chinese province of Hunan, Changsha city, a steady trickle of people go through the gates to the BYD recruitment center. They are all carrying suitcases because they’re out-of-towners. If they get hired, and many do, they can stay in the company’s dorm and start work the next day.

“I can earn about 7,000 yuan ($990) a month,” a BYD car assembly worker who only gave his surname Wu, said.

That is a decent salary for factory work in China these days, especially in a lower-cost city like Changsha. However, Wu must work a lot of overtime to make a livable wage.

“Per month, I work 270 to 280 hours and get one or two days off,” Wu said.

That means he works at least 67 hours per week with almost no rest during weekends. Wu earns, at best, about $3.60 per hour versus an average of 43 hours a week and $28 an hour for auto factory workers in the U.S. last year.

A workers rights group, China Labour Bulletin, said Chinese auto workers, including those at BYD and Tesla, have complained of having their pay docked, bonuses cut, workload increased and sometimes not given severance pay. BYD and other major China EV makers did not respond to Marketplace’s request for an interview.

Despite worker complaints on social media, BYD is still regarded by locals as one of the better employers. A 23-year-old man who told Marketplace he had quit working at a BYD battery factory earlier this year said he was back at the firm’s recruitment center in mid-August seeking work.

“The company had jobs that require doing day shifts one month, and then switching to night shifts the following month. I haven’t done night shifts for a long time. My body can’t physically handle this,” he said, adding that he did not take a BYD job in the end.

Fewer young Chinese want to work in factories. To cope, manufacturers have raised wages and automated factories, which is slowly eroding China’s labor advantage.

Supply chain

Perhaps China’s biggest edge is its comprehensive supply chain, or vertical integration.

“Vertical integration means you are your own supplier of the critical ingredients that go into the electric vehicle cake,” Russo said.

Ingredients like batteries.

“If you can control and scale the most expensive component of an electric vehicle, then you can significantly improve on the pricing,” he said.

Back in Chongqing, driver Zhang is playing music from his cell phone app because his basic model bought two years ago does not include an entertainment system.

However, BYD commercials advertise that its latest models, even one selling for $10,000, are automatically equipped with its DiLink system, which includes tech features such as voice control to play the radio, roll down the windows and an app to start the AC from a cell phone.

“[China’s EV companies] are appealing to a more technology-oriented buyer,” Russo said. “This coolness factor of, ‘I’m bragging about something other than how it drives.’”

The next wave of Chinese EVs come with more smart device features, and Russo said compared to their foreign counterparts, they will be less expensive.

Additional research by Charles Zhang.