1、 itif.org How Innovative Is China in the Electric Vehicle and Battery Industries?STEPHEN EZELL|JULY 2024 China is at the global forefront of the electric vehicle(EV)and EV battery industries.Its firms produce nearly two-thirds of the worlds EVs and more than three-quarters of EV batteries.They also

2、have produced notable innovations in EV products,processes,and customer experiences.KEY TAKEAWAYS Chinese automakers produce 21 percent of the worlds passenger vehiclesa figure analysts estimate will reach 33 percent by 2030and as of 2022 they produced 62 percent of the worlds EVs and 77 percent of

3、EV batteries.From 2020 to 2023,Chinas global EV exports increased by 851 percent,with the largest share of those exports(nearly 40 percent)going to Europe.Collectively,Chinese EV and EV battery enterprises have at least equaledand in some cases surpassedtheir Western peers in innovation capacity and

4、 product quality.Chinese EV companies are 30 percent faster in developing and releasing new car models than are so-called“legacy”American,European,and Japanese carmakers.Chinese institutions today account for 65.4 percent of the high-impact research publications in electric batteries,substantially o

5、utpacing U.S.institutions 11.9 percent.Chinese entities global share of patents in the field of electric propulsion increased from 2.4 percent in 2010 to 26.9 percent in 2020.Chinas EV and battery manufacturers have benefitted from a range of innovation mercantilist policies,including over$230 billi

6、on in subsidies from 2009 to 2023,plus local content requirements,intellectual property(IP)theft,and forced tech transfers.Americas long-term response to Chinas dominance in EVs should include investing in R&D to accelerate technological innovation,stimulating consumer adoption of EVs(e.g.,by deploy

7、ing charging infrastructure),and defensive trade measures.INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 2 CONTENTS Key Takeaways.1 Introduction.3 Background and Methodology.5 Importance of EVs and EV Batteries and the U.S.Role.5 Chinas Electric Vehicle Industry.6 How Innovative Are Chi

8、nas EV and EV Batteries Industries?.12 Product Innovation.13 EV Battery Innovation.13 EV Innovation.15 Other Vehicle Innovations.18 Process Innovation.18 Market-and Customer-Experience-Driven Innovation.20 Innovation Inputs to Chinas EV Sector.21 R&D Intensity.21 Scientific Publications.22 Patents.2

9、5 Company Case Studies.28 BYD.28 Li Auto.29 Chinas Government Policies Supporting the EV Sector.30 Subsidies.30 JVs and Technology Transfer Requirements.32 IP Theft.32 Favoring Domestic Enterprises.33 Other Policies.33 Analysis of Chinese Policies Supporting the EV Sector.34 What Should America Do?.

10、35 Conclusion.38 Endnotes.39 INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 3 INTRODUCTION In 1985,Chinese enterprises manufactured a grand total of 5,200 passenger vehicles.1 In 2024,they will manufacture a total of 26.8 million21 percent of global productiona share automotive analysts

11、 expect will reach one-third by 2030.2 The now more than 200 EV manufacturers operating in China will produce an estimated 10 million EV units in 2024,up from 8.9 million vehicles in 2023.In 2022,China accounted for 62 percent of global EV production(though this figure also counts Western manufactur

12、ers operating in China,such as Tesla)and 59 percent of global EV sales.3 Similarly,Chinas battery manufacturing capacity in 2022 stood at 0.9 terawatt hours,roughly 77 percent of the global share.4 Chinas two largest EV battery producersCATL and FDBalone account for over one-half of global EV batter

13、y production and in total,Chinese manufacturers produce 75 percent of the worlds lithium-ion batteries.As The Wall Street Journals Greg Ip wrote,Chinas global lead in EVs stems from“a unique combination of industrial policy,protectionism,and homegrown competitive dynamism.”5 Indeed,theres no doubt C

14、hinas EV industry has benefited greatly from aggressive industrial policy,spearheaded in particular by Chinas lavish expenditure of over$230 billion in subsidies to the sector from 2009 to 2023,principally in the form of buyers rebates and sales tax exemptions.6 Chinas EV and EV battery companies ha

15、ve also benefitted from other“innovation mercantilist”policies including local content requirements,forced technology transfer,and state-blessed IP theft.Yet,they have also benefitted from less injurious(to foreign competitors)forms of government support,including world-leading levels of public rese

16、arch and development(R&D)investment in EVs,proactive government procurement policies,aggressive deployment of electric charging infrastructure,and consumer incentives to purchase EVs(such as free vehicle licenses or exemptions from roadway restrictions).The Chinese governmentat both the federal and

17、provincial levelshas made EV competitiveness a national priority.Its important to note that Chinas drive toward EVs stems from a recognition made in the mid-2000s that Chinese enterprises were unlikely to become globally competitive in the dominant technological paradigm of internal combustion engin

18、es(ICE)at the time(despite aggressive technology transfer requirements)and so Chinas leaders identified EVs as a breakthrough,or“leapfrog,”technology that could at once enable China to develop a globally competitive domestic industry while breaking the countrys dependence on foreign automotive techn

19、ologiesand,crucially,the imports of ICE automobiles(and their oil)that this entailed.As one industry observer explained,“The primary motivation for China to push for EVs was energy security.Second was industrial competitiveness,and a far distant third was sustainability.”7 Today,Chinas push toward l

20、eadership in EVsjust as for artificial intelligence(AI),aerospace,biotechnology,nuclear power,semiconductors,high-speed rail,or any another advanced technologyshould be construed as an effort to accumulate and extend its national power.But while Chinas EV industry has certainly benefitted from inten

21、se government support,Chinese EV and EV battery enterprises have become increasingly innovative in their own right across a number of dimensions of product innovation,process innovation,business model innovation,and even customer experience innovation.In EV batteries,Chinese enterprises have made im

22、portant breakthroughs in battery chemistry,with some Chinese EV battery start-ups now working to develop EV batteries they assert will have a 2,000 kilometer(km)(1,300 miles)range.With the INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 4 battery accounting for as much as 40 percent of t

23、he value of an EV,the countrys dominance in EV battery production gives its EV manufacturers an important first-mover advantage.Moreover,Chinese enterprises are leading in other aspects of vehicle technology,from innovative vehicle suspension systems to the incorporation of a range of novel digital

24、features;from autonomous driving,interactive voice control to multiple touch screens that enable everything from watching movies to singing karaoke.Chinese firms are also aggressively innovating vehicle production processes,from robotic automation to digital production systems(i.e.,digitalized manuf

25、acturing execution systems)to innovative aluminum diecasting processes.Chinese EV manufacturers are also accelerating the pace of product innovation.One assessment finds that Chinese EV companies are 30 percent faster in developing and releasing a new car model than“legacy”American,European,and Japa

26、nese carmakers are.In short,the quality and innovativeness of EVs from leading Chinese manufacturers such as BYD,Li Auto,Xiaomi,and others increasingly rival or exceed offerings from Tesla or BMW.Chinese EV enterprises are backed by an increasingly capable support ecosystem,including everything from

27、 the quality of the R&D conducted at Chinese universities and research institutions to a deep local supplier base.In particular,the number and quality of Chinese scientific publications pertaining to EVs and EV batteries has increased markedly in recent years.For instance,the Australian Strategic Po

28、licy Institute(ASPI)found that Chinese institutions account for 65.4 percent of the high-impact publications for electric batteries,substantially outpacing the United States 11.9 percent.And,as ASPI wrote,“The Chinese Academy of Sciences is a stand-out performer in the Critical Technology Tracker da

29、tasets.It leads in six of the eight energy and environment technologies and is no.1 globally for electric batteries.”8 Meanwhile,Chinese entities global share of patents in the field of electric propulsion increased 11-fold from 2.4 percent in 2010 to 26.9 percent in 2020.The quality and innovativen

30、ess of EVs from leading Chinese manufacturers such as BYD,Li Auto,Xiaomi,and others increasingly rival or exceed offerings from Tesla or BMW.Chinas EV makers have undeniably become critical global players in the sector,and certainly a long-term threat to once-dominant Organization for Economic Coope

31、ration and Development(OECD)nation auto manufacturers.In response to this threat(in no small part a result of Chinas industrial subsidies),the United States has introduced tariffs of 100 percent on Chinese EVs and the European Union has established tariffs of up to 38 percent.While thats a stopgap t

32、o prevent what the Alliance for Automotive Manufacturing referred to as a potential“extinction-level event”(should Chinese EV companies come to significantly penetrate the U.S.vehicle market),market limitations alone will not be fully effective.9 Rather,the leading OECD nations will need to double d

33、own on genuine technological innovation.Here,policymakers should support the sector with robust R&D funding,R&D programs such as a“BatteryShot”initiative that could help produce EV batteries with longer range and better price performance,and supportive policies to stimulate consumer adoption,such as

34、 the deployment of a nationwide EV charging infrastructure.Moreover,policymakers must recognize that green technologies such as EVs will only become attractive to American buyers once they reach price/performance parity(P3)with existing technologies,meaning that for a given level of performance,a gr

35、een technology has reached price parity with an existing dirty technology without subsidies or taxes on the latter.INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 5 BACKGROUND AND METHODOLOGY The common narrative is that China is a copier and the United States is an innovator.That narrat

36、ive often supports a lackadaisical attitude toward U.S.technology and industrial policy.After all,America leads in innovation,so there is nothing to worry about.First,this assumption is misguided because innovators can lose leadership to copiers with lower cost structures,as has been the case in man

37、y U.S.industries,including consumer electronics,semiconductors,solar panels,telecom equipment,and machine tools.10 Second,its not clear that China is a sluggish copier and always destined to be a follower.To assess how innovative Chinese enterprises and industries are,the Smith Richardson Foundation

38、 provided support to the Information Technology and Innovation Foundation(ITIF)to research the question.As part of this research,ITIF is focusing on particular sectors,including EVs and their batteries.To be sure,it is difficult to assess the innovation capabilities of any countrys industries,but it

39、 is especially difficult for Chinese industries.In part,this is because,under President Xi Jinping,China discloses much less information to the world than it used to,especially about its industrial and technological capabilities.Notwithstanding this,ITIF relied on three methods to assess Chinese inn

40、ovation in EVs and EV batteries.First,we conducted in-depth case study evaluations of two Chinese EV companies randomly selected from EV companies listed on the“2023 EU Industrial R&D Investment Scoreboard.”Second,we conducted interviews and held a focus group roundtable with global experts(to whom

41、we offered anonymous participation)on the Chinese EV industry.And third,we assessed global data on EV innovation,including scientific articles and patents.IMPORTANCE OF EVS AND EV BATTERIES AND THE U.S.ROLE Concerns over climate change have prompted governments to start focusing on finding alternati

42、ve sources of energy.As such,EVs,and the battery technologies associated with them,have gained an increasing importance in recent years.In an effort to reduce greenhouse gas(GHG)emissions,governments have adopted various strategies to spur investment in and adoption of EVs.For instance,between the 2

43、021 Infrastructure Investment and Jobs Act and the subsequent Inflation Reduction Act,the U.S.Congress has allocated over$245 billion in public expenditures toward supporting EV development and adoption.11 Despite their increasing popularity,EVs have existed longer than most appreciate.U.S.inventor

44、William Morrison invented the first operational EV in 1890.12 More current interest arguably started in the 1970s,when the rise in oil prices and attendant gas shortages sparked an interest in alternative energy sources.This motivated Congress to pass the Electric and Hybrid Vehicle Research,Develop

45、ment,and Demonstration Act of 1976.13 Lithium iron phosphate(LFP)battery technology originated in the United States(particularly important breakthroughs were made at the University of Texas in 1996),but,as one observer argued,“U.S.companies abandoned it for lack of a near-term payback.”14 Instead,th

46、e technology was initially commercialized in Japan in the 1990s and was long dominated by Japanese and South Korean manufacturers.15 However,LFP battery technology has been refined and improved over the past two decades by several Chinese companies,notably CATL,FDB,and BYD.INFORMATION TECHNOLOGY&INN

47、OVATION FOUNDATION|JULY 2024 PAGE 6 Tesla has become an important American innovator of EV and EV battery technology,while others such as Rivian and Lucid Technology have stepped into the game,along with traditional manufacturers such as Ford and General Motors(GM).GM,which in 2010 introduced the Vo

48、lt EV as a response to Toyotas Prius,promised in 2021 to produce only EVs by 2035,although GM CEO Mary Barra backtracked on this in January 2024 by saying GMs product introductions henceforth“will be guided by customer demand,”and that it would reintroduce a gasoline-electric car with a plug.16 From

49、 2018 to 2023,4.1 million EVs were manufactured in the United States,making America the worlds third-largest EV manufacturer(after China and Germany)and giving the United States a 16 percent global share(among the top-six EV-producing nations)of EV production over that timeframe.17 While the United

50、States has fallen off the global lead in EV battery production,several innovative start-ups including QuantumScape,Factorial Energy,and Solid Power are now trying to develop a next generation of so-called“all-solid-state batteries”(ASSBs)that would reestablish an American foothold in the field(while

51、 foreign firms such as Koreas LG and SK have recently expanded their EV battery manufacturing operations in the United States).Lastly,its imperative to note that a healthy automotive sector is critical to the U.S.economy.The sector has historically contributed from 3 to 3.5 percent of overall U.S.gr

52、oss domestic product(GDP).18 The industry supports a total of 9.7 million American jobs,or about 5 percent of private sector employment.Each job for an auto manufacturer in the United States creates nearly 10.5 other positions in industries across the economy.19 In 2022,U.S.entities invested$48.4 bi

53、llion on automotive R&D,which represented about 39 percent of global automotive R&D spending.20 The industry represents the core of U.S.metal working and related production capabilities,which also entail very important dual-use applications(such as the key role GM played in building tanks,vehicles,a

54、nd even aircraft during World War II).In short,the U.S.automotive industry is simply too big to fail if the United States is to have a robust manufacturing sector and vibrant advanced-technology economy.CHINAS ELECTRIC VEHICLE INDUSTRY There exist several types of new energy vehicles(NEVs),with the

55、most significant being fully battery electric vehicles(BEVs),plug-in hybrid electric vehicles(PHEVs),and hybrid-electric vehicles(HEVs).21 By year-end 2024,analysts expect that BEVs and PHEVs will account for 21.8 percent of all new vehicles sold globally,an increase of 2 percentage points from the

56、19.2 percent they accounted for in 2023.22(See figure 1.)China has become the dominant market for both EV production and EV sales.Analysts expect that 11.5 million new EVs will be sold in China in 2024(compared with 3.3 million in Europe and 2.7 million across the rest of the world),which they expec

57、t will account for 44 percent of new vehicles sold in the country this year.(See figure 1.)In 2023,sales of EVs in China increased by 37 percent from the year prior.In December 2023,China accounted for 69 percent of the worlds EV sales for that month,while for 2023,China accounted for 60 percent of

58、global EV sales.23 By 2030,analysts expect EVs to account for over 70 percent of annual vehicle sales in China.24 INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 7 Figure 1:EV sales by country and EVs as a share of all car sales25 Overall,Chinese enterprises have come to be the leading p

59、layers in the global EV industry.As of 2022,Chinese manufacturers accounted for 62 percent of all EVs produced in the world,a tremendous increase from the 0.1 percent of global EV sales Chinese enterprises accounted for in 2012.26(See figure 2.)In 2023,Chinas total NEV production reached 8.91 millio

60、n units,up 34.2 percent over the previous year,and analysts expect Chinas total NEV production will exceed 10 million units in 2024.27 For 2023,China produced 6.11 million BEVs(accounting for 68.6 percent of its NEV production)and an additional 2.8 million PHEVs.28 Figure 2:Global EV sales in millio

61、ns of units29 0%5%10%15%20%25%0246810121416182020172018201920202021202220232024Global EV shareMillions of unitsChinaEuropeRest of the worldGlobal EV share 02468101214162010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023ChinaRest of the worldINFORMATION TECHNOLOGY&INNOVATION FOUNDAT

62、ION|JULY 2024 PAGE 8 According to market research firm TrendForce,as of year-end 2023,Tesla commanded 19.9 percent of the global BEV market,followed by the Chinese firms BYD with 17 percent,GAC Aion with 5.2 percent,SAIC-GM-Wuling with 4.9 percent,and Volkswagen with 4.6 percent.30(See figure 3.)(Al

63、l other manufacturers outside the top 10 accounted for 34.9 percent of sales.)However,based on Q1 and Q2 2024 production(and remainder of year forecasts),analysts expect that BYD will surpass Tesla as the top producer of BEVs by year-end 2024.31 Figure 3:Global market shares of top 10 BEV manufactur

64、ers,year-end 202332 Considering PHEVs only,BYD dominates the global industry,with a 33.8 percent market share,followed at the top by Chinese firm Li Auto with 9.6 percent,BMW with 4.3 percent,and Mercedes-Benz and Volvo with 3.9 percent each.(See figure 4.)Li Autos share of the global PHEV market gr

65、ew 182 percent from 2022 to 2023.Tesla,19.9%BYD,17.1%GAC Aion,5.2%SAIC-GM-Wuling,4.9%Volkswagen,4.6%BMW,3.6%Hyundai,2.9%Mercedes-Benz,2.6%MG,2.3%Kia,2.0%INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 9 Figure 4:Global market shares of top 10 PHEV manufacturers,year-end 202333 In terms o

66、f the Chinese NEV retail sales market specifically,BYD sold 2.76 million vehicles in 2023,followed by Tesla China with 603,664 vehicles sold and GAC Aion with 483,632.(See figure 5.)Overall,BYD accounted for 35 percent of Chinese NEV sales in 2023 and was the only manufacturer with a market share of

67、 more than 10 percent.34 Figure 5:Top 10 manufacturers NEV retail sales in China,202335 BYD,33.8%Li Auto,9.6%BMW,4.3%Mercedes-Benz,3.9%Volvo Cars,3.9%Jeep,3.1%Changan,2.9%Denza,2.8%Deepal,2.6%Toyota,2.6%00.5M1.0M1.5M2.0M2.5M3.0MBYDTesla ChinaGAC AionGeelySAIC-GM-WulingChanganLi AutoGreat WallNioLeap

68、motorINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 10 Likewise,Chinese enterprises dominate in the global share of EV battery manufacturing.CATL accounts for 37 percent of the global EV battery market followed by FDB with 16 percent,giving Chinas top two competitors alone over half the

69、 global market.(See figure 6.)The twain are followed by LG Energy and Panasonic,with 14 percent and 6 percent of the market,respectively.36 In total,Chinese EV battery manufacturers hold about 75 percent of the global market.37 Morgan Stanley analysts predict that,by 2030,CATL alone will account for

70、 35 percent of batteries sold in the European market.38 Figure 6:Leading EV battery manufacturers global market shares,202339 As of 2022,China accounted for 62 percent of all EVs sold in the world,a tremendous increase from the 0.1 percent of global EV sales Chinese enterprises accounted for in 2012

71、.The U.S.National Science Foundation(NSF)provides data on countries shares of total value added in the motor vehicle,trailer,and semi-trailer industries(unfortunately,it does not break out EVs separately)and it finds that Chinas share of value added in the automotive industry increased nearly fivefo

72、ld from 6 percent in 2002 to roughly 28 percent by 2019.By contrast,the United States global share fell significantly over the 2000s and has never meaningfully recovered since the end of the 2008 recession,while the European Unions share declined about one-third from its 2008 peak(31.2 percent)to 20

73、19(22.3 percent).(See figure 7.)CATL,37%FDB,16%LG Energy,14%Panasonic,6%SK On,5%CALB,5%Samsung SDI,5%Gotion,2%EVE,2%Sunwoda,1%INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 11 Figure 7:Global shares of value added in the motor vehicles,trailers,and semi-trailers industry40 China has bec

74、ome the leading global exporter of vehicles(including cars,sport utility vehicles(SUVs),pickups,and vans)with its nearly six million(5.6 million)vehicle exports in 2023 far surpassing those of Germany and Japan.41 Chinese BEV exports rose 70 percent in 2023,reaching$34.1 billion in value.42 Chinese

75、producers accounted for approximately 35 percent of global EV exports as of year-end 2022.43 From 2000 to 2023,Chinese EV exports increased over 850 percent.44 Forty percent of Chinese BEV exports are destined for European markets,explaining how Chinas share of the European EV market grew from just

76、0.5 percent in 2019 to 9.3 percent in 2023,with that share expected to reach 25 percent by year-end 2024.45 Analysts predict that Chinese carmakers will capture one-third of the global auto vehicle market by the end of this decade.Perhaps surprisingly,it is a lack of specialized ships that has been

77、the biggest obstacle holding China back from exporting even more vehicles.As Michael Dunne,a former president of GM Indonesia,explained,“They(China)are building cars a lot faster than they are building ships.”46 As The Economist wrote,the biggest“constraint on their(Chinese EV)export today is the sc

78、arcity of vessels for shipping them.”47 For this reason,the Jinling shipyard(near Nanjing)is“busy around the clock,there are night shifts every day.”48 Chinese carmaker BYD itself has commissioned construction of a fleet of eight car carriers to underpin its global EV expansion;its BYD Explorer 1 ca

79、n ship 7,000 vehicles at a time.49 BYD exported 242,765 NEVs in 2023,which translates to a year-on-year growth of 334 percent.50 In total,Chinese automakers(and shipping company agents)are responsible“for almost all of the orders now pending worldwide for 170 car-carrying vessels.”51 0%5%10%15%20%25

80、%30%200220042006200820102012201420162018ChinaUnited StatesJapanGermanyEU27(-Germany)South KoreaINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 12 It should be noted,however,that Western auto manufacturers operating in China still account for a significant share of EV exports from China.F

81、or instance,in 2022,Tesla alone accounted for 40 percent of Chinas total EV exports.52 By value of EV exports,according to United Nations(UN)Comtrade data,Germany retains a slight edge over China.(See figure 8.)As of 2022,Germany remained the leading exporter of EVs,by value,with a 28.5 percent shar

82、e,but China placed second at 18.6 percent.53 This of course is likely explained by Germanys greater levels of production of luxury vehicles(although Chinese EV makers such as Xiaomi and Li Auto are rapidly closing that gap).Figure 8:Exports,by value,of top five EV-exporting nations($billions)54 HOW

83、INNOVATIVE ARE CHINAS EV AND EV BATTERIES INDUSTRIES?Chinese enterprises have become highly competitive and innovative players in the global EV and battery industries.As one report observes,many contend that“China is the epicenter of EV innovation.”55 Indeed,as commentators at an ITIF roundtable of

84、experts on Chinas EV industry observed,“Chinese enterprises are very innovative,especially in EVs”and“China is doing really remarkable,innovative work in the vehicle electrification space.”56 Its a long cry from the year 2011,when Tesla CEO Elon Musk,being interviewed by Bloomberg and asked about ri

85、val BYDs prospects,commented,“Have you seen their car?I dont believe they offer a superior product.”57 As Musk continued in the interview,“I think their focus should be on making sure they dont die in China.”58 Asked the same question during a June 2024 analyst call,Musk sang a different tune,respon

86、ding,“Our observation is,generally,that the Chinese car companies are the most competitive car companies in the world.”59$0$5$10$15$20$25$30$35$40$452017201820192020202120222023United StatesChinaGermanyBelgiumJapanINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 13 Enterprises can pursue

87、a multitude of different types of innovation,including with regard to product innovation,process innovation,business model innovation,and even customer-experience-driven innovation.60 The following section analyzes how innovative Chinese EV and battery makers are along these different innovation tra

88、jectories.Product Innovation This section examines Chinese enterprises innovations with regard to both the batteries powering the EVs and product innovations across the rest of the vehicle.EV Battery Innovation Batteries account for approximately 40 percent of the value of an EVand thus essentially

89、constitute the essence of what an EV represents.61 While a wide variety of EV batteries exist,the two most prominent types have historically been LFP or nickel and cobalt-based batteries,which can come in nickel cobalt aluminum(NCA)or nickel manganese cobalt(NMC)varieties.Nickel/cobalt batteries hav

90、e tended to be more popular in American-and European-produced EVs.Tesla,for instance,uses NCA batteries,in part because they have high energy density,meaning the batteries are smaller and lighter than others that can store the same amount of energy.62 In contrast,LFP batteries represent an older bat

91、tery chemistry,which tends to cost less,have a longer life cycle,and be safer when it comes to the possibility of catching fire.LFP batteries historically were more popular in markets such as China,where city drivers drove shorter,more frequent trips(than long hauls across U.S.highways)and so driver

92、s favored the lower cost and longer life cycle of the battery(more recharging opportunities)while drivers in the U.S.and Europe tended to prefer larger vehicles with longer range.Batteries account for approximately 40 percent of the value of an EVand thus essentially constitute the essence of what a

93、n EV represents.However,as Zeyi Yang wrote in MIT Technology Review,“Just a few years ago,LFP batteries were considered an obsolete technology that would never rival NMC batteries in energy density.”63 Indeed,from 2016 to 2018,LFP batteries accounted for just 10 percent of the global EV battery mark

94、et.64 But today,LFP batteries account for about 40 percent of the global market for EVs,and as Yang wrote,“It was Chinese companies,particularly CATL,that changed this consensus through advanced research.”65 As Max Reid,a senior research analyst for EVs and batteries at research firm Wood Mackenzie,

95、explained,“Thats purely down to the innovation within Chinese cell makers.And that has brought Chinese EV battery companies to the front line,the tier one companies.”66 By February 2023,Ford announced it would invest$3.5 billion to build an LFP plant,licensing“battery cell knowledge and services pro

96、vided by CATL.”67 In March 2023,news broke that GM was in discussions with CATL“about establishing a North American battery production facility that would duplicate the licensing agreement Ford arranged with CATL.”68 That Americas largest auto manufacturers are seeking to license Chinese EV battery

97、technology would certainly seem to validate the innovativeness of that companys products.The same applies to German carmakers:BMW has produced and exported its iX3 battery EV through a China-based joint venture with Brilliance since 2020.69 INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE

98、 14 In April 2024,CATL announced that it had developed its fast-charging“Shenxing Plus”LFP battery,which is capable of a driving range of more than 1,000 km(621 miles)off a single charge.70 CATL asserts that the battery can achieve a range of 400 km off just a 10-minute charge.71 A notable innovatio

99、n in CATLs“Shenxing”battery is its elimination of dead space within the battery,allowing it to nearly double its energy density.In June 2023,another Chinese EV battery maker,Shenzhen-based Gotion High-Tech.Co.(whose largest publicly listed shareholder is Volkswagen),announced it had designed a lithi

100、um-iron-manganese phosphate(LFMP)battery also capable of a 1,000 km range off a single charge.The company asserts its LFMP costs 5 percent less than conventional LFP batteries in terms of dollars per kilowatt hour(kWh),and 20 to 25 percent less than nickel-cobalt units.72 The company,now Chinas four

101、th-largest EV battery maker,envisions large-scale delivery of the battery to EV assemblers in early 2025.73 EV battery technology continues to evolve,and the next generation of EV batteries is expected to be ASSBs.Unlike lithium-ion batteries,which use liquid electrolytes between their electrodes,so

102、lid-state batteries employ a solid electrolyte,which can provide a higher energy density,enabling lighter and more efficient EVs with longer driving ranges.74 As market research firm TrendForce wrote,“ASSB has emerged as the high ground in the competition for next-generation battery technology”and“i

103、n the future competition for ASSB,companies from Japan,South Korea,Europe and the US have the opportunity to surpass China and reshape the competitive landscape of the future EV battery industry.”75 BMW intends to launch its first prototype vehicle based on U.S.-based Solid Powers ASSB technology by

104、 2025,while,“Japanese companies like Toyota and Nissan have stated their intention to achieve mass production of ASSB around 2028.”76 But Chinas EV battery makers may already be beating competitors to the punchor will at the very least be well in the mix.In December 2023,Chinese EV maker Nio unveile

105、d its ET7 sedan with a semi-solid state,150 kWh battery made by Chinese battery company WeLion,which can travel 650 miles on a single charge and which the companys CEO,William Li,asserted currently represents the“battery pack with the highest energy density in mass production in the world.”77 In Apr

106、il 2024,Chinese automaker GAC group(also an LFP battery maker)asserted it had developed an ASSB capable of 620 miles per charge that would be production ready at scale for its Hyper vehicles by 2026.78 The Chinese government has provided 6 billion yuan(nearly$830 million)to Chinese companies includi

107、ng CATL and BYD to research and develop the next generation of solid-state batteries in China.79 Perhaps most intriguing is a new entrant,Tailan New Energy,a Chongqing-based start-up formed in 2018 that in April 2024 had developed the first automotive-grade,all solid-state lithium-metal prototype th

108、at has a single-cell capacity of 120 amperes(Ah)and a real-world energy density of 720 watt hours per kilogram(wh/kg).80 If the technology can be mass produced,the battery could in theory support a range of 2,000 km(over almost 1,300 miles)on a single charge.81 According to Tailan,the company“has ac

109、hieved several technological breakthroughs in all-solid-state lithium batteries.”82 Those breakthroughs pertain specifically“to ultra-thin and dense composite oxide solid electrolytes,high-capacity advanced positive and negative electrode materials,and an integrated molding process that culminates i

110、nto a 120 Ah solid-state lithium metal cell.”83 While the company asserts its batteries are vehicle grade,it has yet to announce specific plans for passenger vehicle integration.Regardless,companies such as CATL,GAC,INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 15 Tailan,WeLion,and oth

111、ers certainly seem likely to keep Chinese firms at the forefront of global EV battery innovation in the years ahead.It should be noted that,broadly,one reason Chinas EV battery makers(and thus EV car makers)have been able to innovate so rapidly and cost-effectively in this space pertains largely to

112、the countrys dominance over the middle and lower segments of the EV battery supply chain.For instance,regarding raw materials,China mines over two-thirds of the worlds graphite and 18 percent of its lithium.84 Overall,China extracts 60 percent of all rare earths mined annually in the world,and Chine

113、se companies own almost half the worlds cobalt mines and one-quarter of lithium ones.Chinese dominance is even stronger in raw materials processing and refining,where China in 2023 refined 95 percent of the worlds manganese,70 percent of cobalt and graphite,67 percent of lithium,and over 60 percent

114、of nickel.85 Translating these raw materials into EV components,China accounts for nearly 90 percent of cathode active material capacity globally and more than 97 percent for anodes,according to the International Energy Agency(IEA).86 China also accounts for 78 percent of separator and 82 percent of

115、 electrolyte processing.87 Moreover,IEA research expects Chinas dominance to only grow further in coming years,with a new report asserting that“over 90%of battery-grade graphite and 77%of refined rare earths will originate from China by 2030.”88 Chinese dominance of these supply chains gives its bat

116、tery makers access to key chemical inputs at lower price points and affords them a first-mover advantage in experimenting with new combinations of materials(not to mention the potential capacity to block competitors ability to access these inputs).As Alicia Garca-Herrero,chief economist for Asia Pac

117、ific at Natixis,explained,Chinas control of critical chemical materials represents“the ultimate control of the sector,which China has clearly pursued for years well before others even figured that this was something important.”89 EV Innovation As Andrew Bergbaum,global co-leader of the automotive an

118、d industrial practice at AlixPartners commented,“The revolution taking place in the global auto industry is driven by the incredible and once unthinkable maturation of Chinese automakers that do a number of things differently.”90 An important point here is that,as The New York Times Keith Bradsher n

119、oted,“Beyond the battery itself,China also dominates electric motor production,and in designing high-efficiency systems that tie together batteries and motors.”91 Moreover,as with Tesla,Chinese EV makers have intensely focused on innovating beyond the battery itself,particularly in incorporating dig

120、ital features into the vehicle,such as autonomous driving,driver-assistance features,navigational aids,virtual reality,and even“multiple high-res dashboard screens pimped with generative AI and streaming video.”92 As Paul Gong,UBS head of China auto research,explained,“New EVs are more like computer

121、s with batteries on wheels.Chinese carmakers are now ahead of almost everyone else along the entire EV supply chain.”93 As the hardware has become simpler,the focus for what makes an appealing product has shifted decisively to software and new features.94 Ade Thomas,who founded World EV Day,coined t

122、he phrase“digital bling”cars to describe the tech-laden EVs now being manufactured in China.95 Indeed,as The Wall Street Journals Ip wrote,“Chinese EVs feature at least two,often three,display screens,one suitable for watching movies from the back seat,multiple lidars(laser-based sensors)for driver

123、assistance,and even a microphone for karaoke.”96 Elsewhere,at Auto China INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 16 2024,Chinese automaker JiYue(a joint venture between Geely and Baidu)showcased a“stylish saloon that can be entirely controlled by voice commands and a touch screen

124、.”Nio offers$350 augmented reality glasses for each seat in its cars,and has introduced a smartphone that interacts with the cars self-driving system.97 Chinese EV makers are also working to develop interactive control systems that can perform functions such as analyzing drivers health data and stre

125、ss levels to provide driving suggestions and allowing drivers and passengers to control car systems by voice and gestures.98 However,its not just that modern vehicles represent“digital bling,”for in reality,the digital components of modern vehicleseverything from electric steering and power brakes t

126、o navigational systems and autonomous drivingare increasingly powered by digital technology.In fact,the contribution of electronics and digital technologies to a vehicles cost has increased from just 18 percent in 2000 to over 40 percent today and an estimated 45 percent by 2030.99 In May 2024,XPeng

127、 Motors said it intends to introduce its AI-powered in-car operating system(the XOS 5.1.0),with the aim of delivering full autonomous driving(Level 4)in China by 2025.100 The Society of Automotive Engineers(SAE)has defined six levels of driving automation ranging from 0(fully manual)to 5(fully auton

128、omous).)101 In 2023,Mercedes-Benz became the first automaker to offer an SAE Level 3 conditionally automated driving vehicle with its DrivePilot technology.102 JiYues Point-to-Point Autopilot(PPA)offers Level 2 autonomous driving,in which computers take over multiple functions from the driverand are

129、 intelligent enough to weave speed and steering systems together using multiple data sources.103 In April 2024,Xiaomi,historically a maker of smartphones and home appliances such as vacuums and rice cookers,which only entered the auto industry in 2021,became Chinas eighth-largest EV manufacturer aft

130、er selling more than 7,000 units of its first model,the Xiaomi SU7.104 As The Wall Street Journal wrote,Xiaomi“has pulled off what Apple,its longtime rival,couldnt:Make an electric car and bring it to market.And it did it in three years.”105 The company has invested over one billion dollars in becom

131、ing an EV manufacturer.106 Auto industry analysts view Xiaomis SU7 as a serious competitor to Teslas Model 3,priced about$4,000 cheaper,with an EV battery that has a distance about 200 miles greater and roughly comparable Level 2 autonomy features.For instance,Xiaomis Pilot autonomous driving system

132、 intelligently adjusts driving paths for seamless navigation and offers object perception with a grid that detects objects from 5 cm to 250 meters away.107 Xiaomis rapid pace of innovation owes both to fast-follower techniques and genuine and novel innovation efforts.As Sha Hua and Yoko Kubota elabo

133、rated in The Wall Street Journal:To save on time and costs,the company adopted practices from Tesla and other automakers,mined its own product-development know-how and plugged into Chinas fast-moving car supply chain.Years of honing laptops,blenders and petcams helped it develop features tailored to

134、 a fickle consumer base,including a detachable panel of physical buttons that magnetically clips on below the 16.1-inch center screen for those who dont like to control their volume or seat via touch screen.108 It was Tesla that pioneered the“gigacasting”process for manufacturing vehicle chassis,a m

135、etal die-casting process characterized by forcing molten metal under high pressure into a mold cavity.INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 17 By combining hundreds of manufacturing steps into one,thus saving on components,weight,cost,and time,the technique helped Tesla reduce

136、production costs for the underbody of its Model Y by some 40 percent.109 As Hua and Kubota wrote,Xiaomi adopted Teslas gigacasting process,but“Xiaomi also had to innovate.”110 Specifically:The liquid aluminum that gets injected into the die-casting machine has to be a certain variety that can withst

137、and an extraordinary amount of pressure.Xiaomi had to come up with its own material,building an artificial-intelligence program that used a method known as deep learning to simulate how different materials would behave when placed inside the die-cast machine.111 Other Chinese EV makers are aggressiv

138、ely adopting die-casting practices.Nio and XPeng supplier Guangdong Hongtu Technology(GHT)have already produced a 6,800-ton die-casting machine.Now GHT has announced it will start developing a 12,000-ton casting machine in partnership with Tesla supplier LK Technology.112 Its worth noting that one o

139、f the world-leading pioneers of the die-casting process was Brescia,Italy-based Idra srl.A leading manufacturing of aluminum and magnesium die-casting machines,over the last 68 years it has designed,produced,customized,and serviced more than 13,000 machines around the world.113 However,in 2008,Hong

140、Kong-based LK Technology purchased Idra,another example of Europe allowing the crown jewels of its manufacturing sector,such as the German industrial robot manufacturer,Kuka,to fall into Chinese hands.Overall,research firm Bernstein estimates that Chinese EVs can cost half as much to make as Europea

141、n ones,even while they can boast of better tech.114 And while certainly the Chinese governments efforts to drive the industry have been a key factor in its growth,considerable innovation is now being driven among the automotive firms themselves.As one analyst noted,“The competition is so fierce that

142、 it pushes every automaker to develop new technologies.”115 Chinese carmakers are innovating many other vehicle features aside from electrification and digital features.For instance,in 2023,Yangwang(BYDs luxury electric sub-brand)introduced its DiSus-X suspension technology,which enables its quad-mo

143、tor EV,the U9,to drive on only three wheels and hop up and rotate in the air on all four wheels.116 Another affirmation that Chinese EV makers are indeed innovative comes from Western companies investments in the firms.For instance,in July 2023,Volkswagen paid$700 million for a 4.99 percent stake in

144、 XPeng.117 In April 2024,the companies agreed to“expand their platform and software partnership”including“joint development of the China Electrical Architecture,and a zonal Electrical/Electronic architecture,to make China-specific electric vehicle models fit for the next leap in innovation.”118 Else

145、where,in May 2024,South Koreas Hyundai Motor and Kia unveiled plans to work with Chinese Internet giant Baidu on mapping and AI technologies for auto-driving and vehicle software systems in China,while Nissan announced a partnership with Baidu on AI,and Toyota entered an agreement with Tencent to co

146、llaborate on AI models,cloud services,and big data.119 And in October 2023,Stellantis cut a deal with Chinas Leapmotor with the latter sharing EV technology and Stellantis launching a European venture to sell and make Leapmotors products outside China.120 To be sure,there are numerous market-based r

147、easons driving these tie-ups:Tech talent tends to be more available and less expensive in China(certainly than it is in Europe)and foreign players INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 18 get an opportunity to be closer to local markets,local tastes,and technologies being local

148、ly developed.However,another key factor is that the Chinese government is effectively requiring such tie-ups if a foreign company is to be permitted access to information such as mapping data to support vehicle autonomy and navigational aids.For instance,for years,Beijing withheld approvals for data

149、 transfers Tesla needed for development of autonomous vehicles for the Chinese market,a factor multiple analysts have noted gave Chinese players crucial time to catch up to Tesla in vehicle autonomy.121 In fact,only in April 2024 did Tesla receive approval to sell autonomous driving services in Chin

150、a,though Beijing stipulates that they must be based on mapping and navigation functions provided by Chinese technology giant Baidu.122 Other Vehicle Innovations Chinas carmakers arent innovating only EVs.For instance,in June 2022,a team of researchers from 42 companies and three universities unveile

151、d the Tianjin solar car,which its developers touted as“the countrys first smart vehicle to be powered solely by the sun.”123 Developed in just five months,the car uses 87 square feet of solar panels,which deliver 7.6 kWh of power per day.Elsewhere,Chinese start-up AutoFlight has developed a proof-of

152、-concept electrical-vertical-takeoff-and-landing air taxi.124 The vehicle has 10 lift rotors on wing booms for vertical flight and three pusher propellors for cruise flight.The company plans to initially develop an uncrewed cargo version and later an interior cabin accommodating one pilot and four p

153、assengers.Process Innovation Process innovation refers to the process of development and implementation of new or improved processes,methods,or systems within an organization to enhance efficiency,effectiveness,and value creation.125 Product and process innovation are often inherently interlinkedbio

154、logic drugs,which are derived from and manufactured within living cells,represent a good example of fundamentally intertwined process and product innovationbut they do represent separate steps in the innovation process.Chinese EV makers do seem distinctively strong at process innovation,and particul

155、arly at accelerating speed to market with their products.As Selina Cheng and Yoko Kubota of The Wall Street Journal wrote,“Many Chinese EV makers operate more like startups than legacy automakers.”126 As they noted,“Chinese automakers are around 30%quicker in development than legacy manufacturers,la

156、rgely because they have upended global practices built around decades of making complex combustion-engine cars.”127 In fact,Chinese EV makers offer models for sale for an average of 1.3 years before they are updated or refreshed,compared with 4.2 years for foreign brands.128 For instance,Nio takes l

157、ess than 36 months from the start of a project to delivery to customers,compared with roughly four years for many traditional carmakers.For this reason,Chinese EV manufacturers were able to introduce substantially more new and updated EV releases from 2017 to 2023 than did their foreign counterparts

158、.Over that time frame,BYD introduced 19 new vehicles,Nio 9,and XPeng 6,compared with Teslas 5,Volkswagens 4,and Toyotas 2.(See figure 9.)Chinese EV makers rapid pace of innovation recalls then-Nokia CEO Stephen Elops“Burning Platform”memo,in which he famously observed that“Chinese mobile phone maker

159、s are bringing out new versions faster than it takes Nokia to polish off a power point presentation.”129 Chinese EV companies will put at least 71 new models on the market in 2024.130 INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 19 Figure 9:New and updated EV releases in China,2017202

160、3131 Several factors explain Chinese EV makers rapid pace of process innovation,with digital automation of design practices being a key factor.And,in fact,the use of digital tools and other process innovations has facilitated the pathway for new entrants into the industry.As one article explains,“Ch

161、inese EV companies heavily use simulation software to create virtual prototypes and run tests in more iterations and in faster time.Virtual parts and mock-ups can be worked on between teams and 3D printed prototypes allow engineers to go through loops of trial and error much quicker.”132 As an indus

162、try analyst commented at ITIFs roundtable,“For Chinas EV manufacturers,its more digital modeling and simulation in the design phase and fewer crash-test dummies.”133 JiYue asserts it can complete its vehicle product designs in six months.In 2023,Chinese enterprises deployed more industrial robots th

163、an did firms across the rest of the world combined.Another example of innovative use of digital production systems comes from XPeng,which in 2023 introduced“a new platform architecture for making vehicles”with its Smart Electric Platform Architecture(SEPA)2.0.It provides a modular,interchangeable ve

164、hicle platform that can support a range of vehicle types,such as XPengs upcoming G6 coupe SUV.XPeng asserts that SEPA 2.0 will help it shorten the R&D cycle for its future models by 20 percent and cut costs on adaptations for advanced driver assistance systems and smart infotainment systems by 70 pe

165、rcent and 85 percent,respectively.134 Chinese EV manufacturers are also devout adopters of a process pioneered by Tesla:leveraging software to update vehicle features.For instance,Nio releases cars with latent technology such as a spare chip that allows it to frequently add new features through soft

166、ware updates.135 Managing the vehicles features more dynamically through software enables another process innovation.As Cheng and Kubota explained,“Chinas carmakers are increasingly standardizing 05101520BYDNIOXPENGTeslaVolkswagenToyotaINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 20 t

167、heir models to cut time.Beyond traditional mechanical platforms,they standardize everything from important software to the digital vehicle operating systems that executives liken to the nerve center of smartcars.”136 The technique recalls how John Deere can manufacture a single tractor but control t

168、he horsepower of its engines through the use of software.Another factor contributing to Chinese EV makers rapid time to market is the depth of the supplier ecosystem within China.As one observer commented,“If customer feedback suggests a display screen in a Chinese EV should be a couple inches bigge

169、r,for instance,they can just go down the road to their supplier and have that change made in a couple months.The same process would have to go into a design cycle and might take three or even four years at a Western vehicle manufacturer.”137 But its not just that,as Chinese EV manufacturers“are will

170、ing to substitute traditional suppliers for smaller,faster ones.”138 Certainly the depth of the auto parts supplier ecosystem in China creates agglomeration effects and a time-to-market advantage for Chinas EV makers.Lastly,its important to note that Chinese EV makers are using automation processes

171、to the maximum extent possible.As one expert told ITIF,“Chinas firms are strong on the hardware side of robots,especially for automotive.”139 As ITIF has noted,in 2023,Chinese enterprises deployed more industrial robots than did firms across the rest of the world combined.Indeed,Chinese firms are no

172、w using industrial robots at 12 times the U.S.rate when controlling for wages.140 As The New York Times Bradsher explained,“Nio has invested so extensively in robots that one of its factories employs just 30 technicians to make 300,000 electric car motors a year.”141 Market-and Customer-Experience-D

173、riven Innovation Chinese EV industry analysts have also spotlighted the industrys use of several additional innovation strategies worth mentioning.Writing in Harvard Business Review,Chengyi Lin noted that Chinese EV makers initially cut their teeth on EV battery technology as early as 15 years ago b

174、y experimenting with EV battery technologies in adjacent industries,before transitioning to the consumer vehicle market.As she explained,BYD and Geely“kickstarted their EV development by focusing on adjacent industriesnamely,electric buses and motor cycles.What they learned by tackling these challen

175、ges ultimately contributed to their EV manufacturing strategy.”142 As she continued:For instance,buses are heavier and carry more passengers than commercial sedans.Additionally,most buses are operational about 18 hours each day.They therefore have greater battery and power storage requirements.And m

176、ore powerful batteries take longer to charge.By targeting an adjacent industry,BYD began pushing the boundaries of battery technology as early as 2009.BYD featured electric buses as its entry product into North American markets and they are now also prevalent in South American markets.143 A later se

177、ction of this report,which examines Chinas government policies supporting the EV sector,explores the critical role the Chinese government played in driving the rollout of the EV charging infrastructure that built Chinese consumer confidence in the EV market.But Lin notes that Chinese EV makers have

178、also worked closely with different customer bases to drive adoption.They recognized that taxi operators would essentially need to deploy two fleets of cars daily,a morning and evening rush shift,so they“designed jointly”a schedule that enables the morning INFORMATION TECHNOLOGY&INNOVATION FOUNDATION

179、|JULY 2024 PAGE 21 fleet to be charged after 8:00 p.m.and the evening shift to be charged overnight.Co-designing the schedule helped overcome initial resistance to EVs from taxi drivers because it“not only addresses the battery constraints of EVs but also helps to flatten the consumption curve of a

180、citys power grid.”144 Its a nice example of the systemic coordination needed to manage the transition to vehicle electrification.The vignette also amplifies the point that Chinese EV makers tend to be much more attuned to customer desires in the Chinese marketplace.As one observer of Germanys auto i

181、ndustry commented,“From the German carmakers perspective the approach to the Chinese market was lets bring them either a second-tier vehicle that isnt top of class,or lets sell them a high-end vehicle thats been designed with the European market in mind,like a vehicle with a lot of horsepower.Chines

182、e NEV companies have been much better at tapping into local markets and desires.”145 For instance,Xiaomi was“intimately familiar with Chinese customers lifestyle preferences”and“could rely on its in-house expertise of household products and gadgets”as it started to develop EVs.146 Elsewhere,Nio intr

183、oduced an innovative subscription service for replaceable batteries.147 Another observer commented that Chinese EV brands have benefited greatly from the“China chic”or“guochao”phenomenon,a consumer preference for domestic products and services.148 Lastly,from a“brand innovation”perspective,its worth

184、 noting that Chinas companies have been shrewdly acquiring European vehicle brands as a back door to sell China-produced EVs under European brand names(in Europe and in third-party markets).For instance,the Chinese state-owned enterprise(SOE)Shanghai Automotive Industry Corporation(SAIC)acquired Bri

185、tains fabled MG brand in 2007 and is now exporting inexpensive cars from China under the MG name not just to Britain but also to Australia.149 INNOVATION INPUTS TO CHINAS EV SECTOR This section examines indicators assessing Chinas EV competitiveness at the industry level,considering such factors as

186、R&D intensity,scientific publications,and patenting levels.R&D Intensity In terms of automotive companies levels of R&D investments(as reported in the“2023 EU Industrial R&D Investment Scoreboard”),China places 8 of the top 15 in the study.U.S.-headquartered Fisker and Lordstown ranked first and sec

187、ond,although these are largely pre-revenue start-ups,which significantly skews their R&D intensity.Nio and XPeng were the leading Chinese companies,with an R&D intensity of about 21.3 percent of its revenue.That is ahead of well-known automotive manufacturers including Ferrari and Aston Martin.(BYD

188、was not listed in the 2023 EU report,though ITIF research finds its R&D intensity to be roughly 6.7 percent.)Table 1:Leading automotive R&D investors in the 2023 EU Industrial R&D Investment Scoreboard150 Company Headquarters R&D Investment(Millions)R&D Intensity Fisker United States 397.4 123949.0%

189、Lordstown United States 101.1 55575.0%Nikola United States 256.7 538.7%INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 22 Company Headquarters R&D Investment(Millions)R&D Intensity Lucid United States 770.2 135.0%Rivian Automotive United States 1,733.6 111.5%Nio China 1,409.6 21.3%XPeng

190、China 699.9 19.4%Ferrari Italy 934.2 18.3%Aston Martin UK 278.5 17.8%Zhejiang Century Huatong China 233.7 15.6%Li Auto China 897.3 14.8%Zhejiang Leapmotor China 180.0 10.8%Seres China 413.2 9.6%Great Wall Motor China 1,634.7 9.4%Dongfeng Motor China 978.0 7.9%Scientific Publications In 2021,Chinese

191、institutions surpassed European ones in producing the most top-10 percent-cited publications in automotive engineering.In 2012,Chinese institutions only published about 26 such papers in automotive engineering;by 2022,that number had increased sevenfold,as Chinese institutions published about 184 to

192、p-cited papers.(See figure 10.)Figure 10:Number of automotive engineering publications in top 10 percent of most-cited publications151 02040608010012014016018020020082010201220142016201820202022ChinaEU27(-Germany)United StatesGermanySouth KoreaJapanINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2

193、024 PAGE 23 The number of Chinese scientific publications regarding EV research(relative to trillions of GDP)began to significantly accelerate around 2011,increasing from 25 papers then to 86 by 2020.(See figure 11.)Figure 11:Number of EV scientific publications in China(per trillion$GDP)152 The Aus

194、tralian Strategic Policy Institute does not track publications on automobiles or EVs in its Technology Tracker,per se.However,it does track publications for electric batteries,which serve as the critical input for EVs.In 2023,Chinese institutions held a 20 percent share of all scientific publication

195、s in the EV battery field.And as ASPI noted,“The Chinese Academy of Sciences is a stand-out performer in the Critical Technology Tracker datasets.It leads in six of the eight energy and environment technologies and is no.1 globally for electric batteries.”153 ASPI finds that Chinese institutions acc

196、ount for 65.4 percent of the high-impact publications for electric batteries,substantially outpacing the United States 11.9 percent,South Koreas 3.8 percent,Germanys 2.8 percent,and Australias 2.4 percent.(See figure 12.)And as ASPI wrote,“For electric batteries,China has a 5.5 times lead over the U

197、S in its share of high-impact research,and eight of the top 10 institutions are based in China.”154 01020304050607080901001990199520002005201020152020INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 24 Figure 12:Top five countries for high-impact publications about electric batteries in t

198、he ASPI Critical Technology Tracker dataset155 Similarly,the H-index represents a quantitative metric that estimates the impact of a scientists or scholars research contributions;effectively,it signals the extent to which other scholars are referencing the original scholars work.Chinas score on the

199、H-index for scientific publications in electric barriers is the highest in the world,one-quarter greater than the United States.(See figure 13.)In sum,China is a leader not only in the quantity of publications,but also in“high-quality”publications.China,65.4%USA,11.9%S.Korea,3.8%Germany,2.8%Australi

200、a,2.4%INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 25 Figure 13:H-Index for scientific publications in electric batteries,2023156 Patents Chinas number of Patent Cooperation Treaty(PCT)patent publications in motor vehicle technologies increased from 25 in 2013 to 201 in 2023.(See figu

201、re 14.)That represents about a 700 percent increase over that period(albeit from a low base).By contrast,the United States and EU only increased these patents by about 32 percent and 19 percent,respectively.Figure 14:Number of PCT patent publications in motor vehicles(B62D)157 050100150200250ChinaUn

202、ited StatesSouth KoreaGermanyAustraliaUnited KingdomJapanIndia0100200300400500600201320152017201920212023JapanGermanyEU27(-Germany)ChinaUnited StatesSouth KoreaINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 26 When considering global shares of PCT patent publications,Chinas global share

203、 increased 11.9 percentage points between 2013 and 2023.(See figure 15).By contrast,the global shares of patent publications for the EU and Japan declined by about 4.8 percentage points and 9.2 percentage points,respectively.Figure 15:Global shares of PCT patent publications in motor vehicles(B62D)1

204、58 A related technology area is electric propulsion technology,which goes into the design of parts for EVs.In this area,China went from only 31 patent publications in 2013 to 660 patent publications in 2023.Thats an astonishing increase of over 2,000 percent.(See figure 16.)By comparison,the United

205、States increased its number of patent publications in this field by about 242 percent over that timeframe.Japan produced about 46 percent fewer patent publications in this area in 2023 than in 2013.0%5%10%15%20%25%30%35%40%201320152017201920212023United StatesEU27(-Germany)GermanyChinaJapanSouth Kor

206、eaINFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 27 Figure 16:Number of PCT patent publications in electric propulsion technology(B60L)159 When considering global shares of PCT patent publications in this field,Chinas share increased from 2.4 percent in 2010 to 26.9 percent in 2020.(See

207、 figure 17.)That represents a 24.5 percentage point increase over that period.The United States also experienced an increase in its global share by about 6.5 percentage points.By contrast,the global share in this field for Japan declined by about 34.9 percentage points.Figure 17:Global shares of PCT

208、 patent publications in electric propulsion technology(B60L)160 0100200300400500600700201320152017201920212023ChinaGermanyUnited StatesJapanEU27(-Germany)South Korea0%10%20%30%40%50%60%201320152017201920212023ChinaGermanyUnited StatesJapanEU27(-Germany)South KoreaINFORMATION TECHNOLOGY&INNOVATION FO

209、UNDATION|JULY 2024 PAGE 28 COMPANY CASE STUDIES This section provides case study analyses of two Chinese EV companies:BYD and Li Auto.They were intentionally selected as representative from Chinese EV companies included on the“2023 EU Industrial R&D Investment Scoreboard”report.BYD BYD,the pinyin in

210、itials of the companys Chinese name,Biyadi,was founded in 1995 in Shenzhen,China.The companys name has now been“back-formed”into the Western-friendly slogan Build Your Dream.”161 BYD entered the automotive sector through the acquisition of Qinchuan Automobile in 2003.BYDs initial focus was manufactu

211、ring batteries for ICE vehicles,although the company manufactured its first PHEV in 2008.In 2023,BYD became the worlds largest manufacturer of EVs.It is also a significant manufacturer of EV batteries.Overall,BYDs product range covers the entire industrial chain of NEVs,including passenger vehicles,

212、commercial vehicles,batteries,and automotive electronics.In FY 2023,BYDs revenues reached 602 billion yuan($82 billion),with EVs accounting for approximately 70 percent as the company accounted for 37 percent of EVs produced in China(a share analysts expect to reach 50 percent by 2026).162 In 2022,B

213、YD manufactured 4 of the top 10 EVs sold worldwide.163 Overall,BYD is the worlds largest producer of rechargeable batteries,including NiMH batteries,lithium-ion batteries,and NCM batteries.164 In 2023,BYD manufactured 117 gigawatt hours(GWh)worth of EV battery production,compared with CATLs 243.3.16

214、5 In 2020,BYD launched its then-revolutionary long-range Blade LFP battery,which is far less prone to spontaneous combustion than other EV batteries.166 In April 2024,BYD introduced its second-generation blade battery pack,which the company asserted“will be lighter,smaller and more efficient than BY

215、Ds first-generation LFP batteries”with“as much as 190 kWh density enabling up to 1000 km range.”167 Beyond the Blade Battery,BYDs other core technologies include the(cell-to-body)CTB-integrated battery technology and the e4 drive system.BYD has received much recognition for its innovation and leader

216、ship in the industry.In fact,from 2020 to 2023,BYD received over 191 international awards in regions outside China,highlighting its global recognition and leadership within its sector.These accolades include the Zayed Future Energy Prize,the Japan EV of the Year,the UN Energy Special Award,nominatio

217、ns among the top three for the World Car of the Year and World Urban Car at the Geneva Motor Show,and Automotive Innovation Awards in Germany.As of year-end 2023,BYDs R&D team comprised 69,700 personnel(significantly outnumbering Teslas estimated 10,000 to 13,000 employees).The number of BYD R&D per

218、sonnel increased 66 percent from 2021 to 2022,with BYDs R&D team representing 12.2 percent of the companys workforce.At year-end 2023,the team included 36,018 individuals with bachelors degrees,7,827 with masters degrees,and 590 with doctorates.168 By July 2024,BYD reported employing 102,000 R&D per

219、sonnel.In 2023,BYD hired some 30,000 university graduates(under-and post-graduate)with research personnel accounting for 80 percent of the total intake.169 In 2023,BYD allocated 39.92 billion yuan($5.5 billion)to R&D,which gave the company an R&D intensity of approximately 6.7 percent.INFORMATION TE

220、CHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 29 By year-end 2023,BYD held 29,201 patents globally,with 18,968 active.Annually,since 2016,BYD has consistently filed between 2,000 and 3,000 new patents.Within this portfolio,23,346 patents were filed in mainland China,while 1,300 were registered in th

221、e European region,and 1,009 in the United States.Notably,of the U.S.filings,893 patents originated from BYDs automobile business,with close to 570 receiving formal approval.170 BYD is a“privately-owned”company,although,of course,under Article 19 of Chinas Company Law,all SOEs or private Chinese comp

222、anies have a Chinese Communist Party(CCP)cell that management must listen to,if not necessarily obey.171 Article 19 in essence codifies CCP influence over corporate governance and business decisions in China.172 From 2017 to 2022,BYD received government subsidies amounting to approximately$4.175 bil

223、lion for NEV purchases and$0.92 billion in direct subsidies,reflecting significant government support for the NEV industry.Li Auto Founded in 2015 and headquartered in Beijing,Li Auto is an NEV company specializing in the design,development,manufacturing,and sale of EVs,particularly PHEVs.The compan

224、ys current products include Li MEGA,a high-voltage BEV;Li L9,a six-seat flagship family SUV;Li L8,a six-seat family SUV;and Li L7,a five-seat flagship family SUV.In 2023,Li Auto sold 376,030 vehicles,an increase of over 180 percent from the year prior;this placed Li Auto as Chinas seventh-largest EV

225、 maker,with a 4.9 percent market share.173 For the 12 months ending March 31,2024,Li Auto earned$10.2 billion in revenues,a 182 percent increase year over year.Li Auto has been developing technologies such as EREV4 Powertrain(combining battery power with range extension),BEV technologies,and autonom

226、ous driving.The companys intelligent system technology for EVs in the context of digital transformation made it the winner of the 2023 IDC China Future Enterprise Awards Excellence Award.Li Auto was also the first Chinese automaker to receive the worlds highest MSCI ESG global“AAA”rating,which ackno

227、wledges its development and use of clean technology for environmental sustainability.Li Auto introduced its advanced integrated drive module(iDM220)to the companys EVs in 2023.Li Auto took different development and innovation strategies compared with its domestic and global peers.Li Auto is backed b

228、y some of Chinas largest tech giants,such as Meituan and ByteDance.Having been in the Internet sector for two decades before starting the company,Li,the founder,took a different route from other Chinese EV start-ups by focusing on plug-in hybrids rather than pure EVs.Unlike BYDs more mass-market mod

229、els,Li Autos offerings are more niche,such as SUVs or larger multi-purpose vehicles targeting wealthier Chinese consumers with bigger families.The company has only recently entered the full BEV space with its Li MEGA.In terms of its R&D and patent activity,Li Autos R&D investments reached 1.3 billio

230、n yuan($193 million),742 million yuan($103 million),and 61 million yuan($8.5 million)in 2022,2021,and 2020,respectively.174 In 2022,Li Autos R&D investment increased 87 percent over the prior year,although its R&D intensity for the year only reached about 3 percent(about half that of BYDs).Li Auto e

231、mployed 4,318 R&D personnel at year-end 2022,accounting for 22.3 percent of its employees.The company states that it had 2,028 granted patents and 5,887 pending patent applications in China as of the end of 2022.Most of Li Autos patents have been filed and granted in China.175 INFORMATION TECHNOLOGY

232、&INNOVATION FOUNDATION|JULY 2024 PAGE 30 CHINAS GOVERNMENT POLICIES SUPPORTING THE EV SECTOR While Chinese EV enterprises have become increasingly innovative in their own right,theres little doubt that Chinas current leadership in EVs and EV batteries stems from a conscientious strategy and set of i

233、ndustrial policies designed to make it so.Indeed,as Gregor Sebastain,an analyst with the Rhodium Group,explained,“Without government-led industrial policy,the EV sector wouldnt be nearly what it is today in China.”176 Or,as Erica Downs,an expert in Chinese energy markets at Columbia Universitys Cent

234、er on Global Energy Policy explained,“The government in China went all in on EVs.”177 The Chinese government began investing in EV-related technologies as early as 2001,when EV technology was introduced as a priority science research project in Chinas 10th Five-Year Plan.178 However,observers credit

235、 much of Chinas EV vision to Wan Gang(a Chinese citizen employed as a Germany-based fuel-cell engineer at Volkswagen-Audi early in his career)who became Chinas minister of science and technology in 2007.Gang convinced Chinese leaders that China was unlikely to catch up to global leaders in ICE techn

236、ologies but could potentially develop NEVs as a leapfrog technology.179 One of Chinas earliest EV policy promulgations,from 2009,pledged 10 billion yuan($1.375 billion)to support the industry over the ensuing three years and extended one-off purchase subsidies for NEVs to public sector companies in

237、13 cities.180 The support of Chinas government(at both the federal and provincial levels)has been instrumental at every stage in advancing Chinas EV industry.While initially China wished to expand domestic vehicle production as a source of economic and employment growth,as former Chrysler executive(

238、and current China auto industry analyst)Bill Russo explained,“The primary motivation for China to push for EVs was energy security,”notably to reduce Chinas need for imports of oil(and autos).“Second was industrial competitiveness,and a far distant third was sustainability.”181 That said,Chinese lea

239、ders today bill sustainabilitynotably meeting the countrys 2060 carbon-neutral climate goalas a key rationale for EV deployment,and one study finds that EVs could help reduce Chinas GHG emissions from the transportation sector by up to 6.2 percent by 2030 with a 20 percent EV penetration rate(of the

240、 total Chinese vehicle fleet).182 Indeed,the support of Chinas government(at both the federal and provincial levels)has been instrumental at every stage in advancing Chinas EV industry,from setting strategic direction to financing R&D to providing the industry with tens of billions of dollars of sub

241、sidies to deploying charging infrastructure to incentivizing EV adoption through a range of policies from government procurement to consumer tax credits to readily providing licenses for electric(but not gas-powered)vehicles.Subsidies While all these factors have moved Chinas EV market forward,subsi

242、dies have far and away been the most substantial.Scott Kennedy and colleagues at the Center for Strategic and International Studies(CSIS)estimated that,from 2009 to 2023 alone,China channeled$230.9 billion in subsidies and other support to its domestic EV sector.183(Note:$25 billion of this amount w

243、as INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 31 R&D investment,which ITIF would generally not characterize as a market-distorting subsidy,so long as a country makes enterprises from all nations eligible for R&D tax credits or the ability to win R&D grants.)CSIS found that Chinese E

244、V subsidies have only increased in recent years,with an estimated$120.9 billion in subsidies over just the previous three years($30.1 billion in 2021,$45.8 billion in 2022,and$45.3 billion in 2023),compared with a total of$49 billion in subsidies the three years prior,and$60.7 billion in subsidies f

245、rom 2009 to 2017(then at a$6.74 billion annual rate).184 In 2023,the Chinese government extended$809 million in subsidies to EV battery maker CATL(more than double the$401 million it provided in 2022)and$208.9 million to EVE Energy(Chinas fourth-largest EV battery producer).185 From 2018 to 2023,the

246、 Chinese government extended a total of$1.8 billion in subsidies to CATL alone.CSISs estimates calculate five forms of subsidy support for Chinas EV sector:nationally approved buyer rebates,exemption from the 10 percent sales tax,government funding for infrastructure(primarily charging infrastructur

247、e),R&D programs for EV makers,and government procurement of EVs.186 CSIS found that from 2009 to 2017,buyers rebates accounted for 62 percent of the Chinese governments support for the sector,but with the Chinese government reducing the buyers rebate in 2022 and eliminating it as of 2023,the largest

248、 form of support(87.4 percent of the total,or$39.6 billion)in 2023 came from sales tax exemptions.187 From 2009 to 2023 alone,China channeled$230.9 billion in subsidies and other support to its domestic EV sector.A key reason why Chinese subsidies to the EV sector(just like any other advanced-techno

249、logy sector)are so pernicious is that they enable Chinese companies to both sustain themselves in industries where they wouldnt be able to subsist if they had to earn market-based rates of return and,similarly,sell products below cost and sustain losses while still being able to build economies of s

250、cale.As The New York Times Bradsher explained,China automaker Nio lost$835 million from April through June 2023,equivalent to a loss of$35,000 for each car it sold.188(A separate study finds that China BYDs profitability per vehicle in Q3 2023 was just$1,460,compared with$5,330 for Tesla,noting that

251、 BYD was underpricing its vehicles to build market scale.)189 Moreover,if this aggressive strategy of selling vehicles below costs fails,China steps in to rescue the automaker.As Bradsher observed,“When Nio nearly ran out of cash in 2020,a local government immediately injected$1 billion for a 24 per

252、cent stake,and a state-controlled bank led a group of other lenders to pump in another$1.6 billion.”190 Thus,an important point is that its both the Chinese government and provincial governments that are providing financing and subsidies for Chinese EV players.As the U.S.-China Economic and Security

253、 Review Commission explained,“Local governments,rather than central ministries,have played the leading role in deploying consumer subsidies for EV purchases.”191 This matters because it means Chinese provincial governments have played a key role in propping up uncompetitive firms and contributing to

254、 overcapacity(and also inefficiency)in the sector.Local governments in China have given auto manufacturers nearly free land,loans at near-zero interest,and other subsidies.192(A World Bank report found that,in 2022,Chinas automotive sector as a whole received loans with interest rates of roughly 2 p

255、ercent,half the weighted average for all commercial and industrial loans.)193 As CSISs Ilaria Mazzocco elaborated,“Local governments denied subsidies for EVs made in other provinces,and public officials supported local firms by INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 32 procuring

256、 solely from manufacturers located in the same city.This created a highly fragmented market with hundreds of EV manufacturers,many of which failed to bring a car into production.”194 The essential point is that subsidies at all levels of Chinese government have contributed considerably to industrial

257、 overcapacity in EVs and explain why there are over 200 EV car manufacturers currently operating in China.195 JVs and Technology Transfer Requirements As The Economist wrote,Chinese EV subsidies“come on top of the ransacking of technology from joint ventures with Western carmakers and South Korean b

258、attery-makers.”196 Indeed,China has long employed a practice called“trading technology for market,”conditioning foreign companies access to Chinese markets on the transfer of technology and IP(and/or opening research or production facilities in China).In fact,China introduced its inaugural“Law on Jo

259、int Venture Using Chinese and Foreign Investment”in July 1979,and it yielded some important deals,including Volkswagen in 1994 signing a 25-year contract to build vehicles and engines in Shanghai.197 However,over time,Chinas approach to attracting foreign direct investment,and thus technology transf

260、er,evolved from attraction to compulsion,especially as its growing market gave it an increasing ability to dictate detailed terms.For instance,as ITIF wrote in its 2011 book Innovation Economics:The Race for Global Advantage,“Ford Motor Company has opened several automobile plants in China,but as a

261、condition of access had to do so as part of a joint venture with a Chinese auto firm.Moreover,the Chinese government required Ford to open an R&D laboratory employing at least 150 Chinese engineers.”198 However,as several analysts noted,“While certainly boosting production,the intention to also tran

262、sfer critical internal combustion engine(ICE)capability to Chinese partners largely failed.”199 Indeed,it was this recognition that,despite tech transfer requirements and industrial upgrading efforts,Chinese firms simply werent going to catch up in ICE vehicles that precipitated Chinas embrace of EV

263、s as a potential alternative leapfrog technology.Nevertheless,Chinese tech transfer requirements forced Western automakers to divulge key clean energy technologies,especially in the early years.For instance,as The New York Times wrote in 2011,“The Chinese government is refusing to let the Volt quali

264、fy for subsidies totaling up to$19,300 a car unless G.M.agrees to transfer the engineering secrets for one of the Volts three main technologies to a joint venture in China with a Chinese automaker.”200 That said,as one observer noted,if anything,the reality in the EV industry today is the concept of

265、“reverse joint ventures,”where Chinese firms are sharing EV technology with Western companies(in exchange for market access or financing).201 IP Theft Nevertheless,whatever EV IP or technologies Chinese entities cant acquire by enticing foreign enterprises to barter away,China seeks to acquire throu

266、gh state-sanctioned IP theft.As Nicholas Eftimiades,author of the book Chinese Intelligence Operations and who has extensively documented Chinese industrial espionage activities over his four-decade career,wrote,“Out of 724 cases of Chinese espionage,we find about 500 are directed toward main techno

267、logies,including aerospace technologies,IT technologies,clean energy technologies,and automotive,electric vehicle technology.”202 INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 33 In fact,in 2020,Federal Bureau of Investigation director Christopher Wray warned explicitly that“China is p

268、lacing a priority on stealing electric car technology,”as the Chinese government is“fighting a generational fight to surpass our country in economic and technological leadership.”203 As Wray elaborated,“We see Chinese companies stealing American intellectual property to avoid the hard slog of innova

269、tion,and then using it to compete against the very American companies they victimizedin effect,cheating twice over.”204 In February 2020,William Evania,director of the National Counterintelligence and Security Center,singled out two fields where China is putting a priority on technology theft:EVs an

270、d aircraft.205 Whatever IP or technologies cant acquire by enticing foreign enterprises to trade away,China seeks to acquire through state-sanctioned IP theft.Indeed,U.S.EV companies are feeling the brunt of coordinated Chinese efforts to pilfer their technology.In September 2023,Tesla sued Chinese

271、chip designer and auto parts maker Bingling for infringing its IP and stealing its trade secrets,both related to the integrated circuits(i.e.,semiconductors)Tesla uses in its vehicles.206 In June 2024,Klaus Pflugbell(a Canadian and German national living in China)pleaded guilty to conspiring to sell

272、 trade secrets(about EV batteries)that belonged to a leading U.S.-based EV company to Chinese entities.207 Favoring Domestic Enterprises The Chinese government has long worked to favor domestic over foreign suppliers in automotive supply chains.For instance,Chinas“Made in China 2025”strategy(release

273、d in 2015)stipulates that more than 70 percent of the one million-plus EVs and plug-in hybrids(then sold annually)in China should be from homegrown brands by 2020.The target set for 2025 was 80 percent of the market(or a then-estimated three million vehicles).208 More recently,in March 2024,the Chin

274、ese government reportedly asked EV makers from BYD to Geely Automobile Holdings Ltd.to sharply increase their purchases from local auto chipmakers,part of a campaign to reduce reliance on Western imports and boost Chinas domestic semiconductor industry.209 Chinas Ministry of Industry and Information

275、 Technology(MITI)has directly instructed Chinese automakers to avoid foreign semiconductors if at all possible.210 The Ministry had previously“set an informal target for automakers to source a fifth of their chips locally by 2025.”211 Other Policies While most of the aforementioned Chinese policies

276、to support the EV and EV batteries sectors have been innovation mercantilist in nature,certainly some policies have been legitimately or smartly designed to promote innovation in EVs and batteries or adoption of these technologies.For instance,China directed an estimated$25 billion toward R&D activi

277、ties in its EV industry from 2009 to 2023.212 As ITIF has written,countries electing to compete in advanced-technology industries through constructive policies such as investments in R&D or education can produce genuine innovations that benefit humankind.213 Certainly,Chinese policymakers have put t

278、heir thumb on the scale for electric as opposed to ICE vehicle adoption among consumers.For instance,Shanghai authorities have long offered EV owners license plates at no cost.214 In many Chinese cities,EVs are not restricted by traffic INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 34

279、control measures(policies to limit the number of cars on the road during a prescribed period),are allowed to use bus lanes,and are offered free parking.215 China has also established the worlds largest public charging infrastructure network,with its public charger stock reaching 1 million51 percent

280、of the global totaland a total rated power exceeding 56 gigawatts as of 2022.216 Several Chinese cities have established widely distributed public charging networks in their urban cores,in which virtually 100 percent of EV drivers can find a public charger within 20 minutes of driving time.217 Howev

281、er,observers note that China has a considerable way to go with EV charging coverage in rural(and even suburban)areas and that“highways are a particular weak spot of Chinas public charging infrastructure network”with a highway public charger density one-sixth that of Norway.218 Active government proc

282、urement of EVs has also played an important role in creating a market for(and driving adoption of)EVs in China.In 2014,China required that the central government,as well as some cities and public organizations,have at least 30 percent of their vehicle fleet consist of EVs by 2016,a goal which increa

283、sed to 50 percent in 2016.219 One study finds that public sector entities across Chinas provinces had already procured over 550,000 EVs by the end of 2020.220 CSIS estimates that China directed$18 billion in government procurement to EVs from 2009 to 2023.221 Chinese regulators also appear more pred

284、isposed to permit innovative automotive technologies to reach roadways more quickly.For instance,as Bradsher wrote,“In the United States,Teslas so-called Autopilot feature has been the subject of a series of government safety investigations.But in China,regulators and the general public have tended

285、to see the technology as safer than relying on human drivers.”222 Analysis of Chinese Policies Supporting the EV Sector Should Chinas success with EVs be viewed as beneficial to the global economic system and to global concerns such as mitigating global warming?The Economist wrote,“Now Chinas carmak

286、ers are enjoying an astonishing rise.That stokes fears of another ruinous shock.In fact,the successes of Chinese cars should be celebrated,not feared.”223 That would be true if competitive Chinese EVs were genuinely and solely the result of compelling innovations and efficient production processes,b

287、ut as this report has shown,thats not truly the case.While Chinese EV makers have shown some degree of domestic innovation,the sector has benefitted tremendously from state-sponsored IP theft,massive industrial subsidization,and innovation mercantilist practices that distort the economics of the ind

288、ustry and severely disadvantage foreign automakersand the employees who work at them.For instance,the auto industry supports 4.3 million U.S.jobs;these are as much at risk as the hundreds of thousands of jobs making solar panels or telecommunications networking equipment Americans have lost due to C

289、hinese economic predation.The Economist is dead wrong to suggest that this is a cause of celebration;rather,its one more salvo against the rules-based global trade order that The Economist otherwise professes to hold so dear.Its also worth noting that the United States would likely be doing just fin

290、e in batteries(and EVs)had not a government artificially inflated supply,and demand,far ahead of vehicles technological capabilities well beyond what consumers were ready to accept.But an authoritarian state such as China can massively distort markets and reap the benefits.INFORMATION TECHNOLOGY&INN

291、OVATION FOUNDATION|JULY 2024 PAGE 35 WHAT SHOULD AMERICA DO?U.S.sales of EVs surpassed the one-million-unit mark in 2023(an increase of 52 percent over the prior year),as the EV market share in the United States reached 7.5 percent.224 There are now over 4.5 million EVs on Americas roads.In contrast

292、,more than half of EVs currently on the worlds roads are found in China.U.S.policy has already done much to stimulate EV production and adoption.As noted,between the 2021 Infrastructure Investment and Jobs Act and the subsequent Inflation Reduction Act,the U.S.Congress has allocated over$245 billion

293、 in public expenditures toward EVs.225 As of July 2024,Americans who purchase new EVs may be eligible for a tax credit of up to$7,500,and buyers of used electric cars may qualify for up to a$4,000 credit.226 In June 2024,the U.S.Department of the Treasury and Internal Revenue Service announced that

294、American consumers had saved more than$1 billion in upfront costs on their purchase of more than 150,000 clean vehicles since January 1,2024.227 Since January 2023,the prices of EV vehicles sold in the United States have decreased by 20 percent,and the number of publicly available charging points ha

295、s grown by 70 percent.228 There are continued efforts to push out more charging points through both public and private investment,and U.S.-based production of fast chargers has increased.229 On January 18,2024,the Department of Energy(DOE)announced over$130 million in funding for research,developmen

296、t,and technology integration projects for zero-emission vehicles and mobility,with the funds also to be used to launch an advanced battery R&D consortium.That funding built on an additional$32 million DOE for the same program earlier in the month.230 On July 11,2024,the Biden administration announce

297、d$1.7 billion in grants to GM,Stellantis,and other carmakers to help restart or expand EV manufacturing and assembly in eight U.S.states.The grants will cover many parts of the automotive supply chain,including parts for electric motorcycles and schools buses,hybrid powertrains,commercial truck batt

298、eries,and electric SUVs.231 In May 2024,the Biden administration quadrupled U.S.tariffs on Chinese EVs entering the country,from 25 percent to 100 percent(that aside from an additional 2.5 percent duty that applies to all automobiles imported into the United States).232 For its part,on June 12,2024,

299、the EU announced it would introduce,starting on July 1,2024,tariffs that ranged from 17.4 percent to 38.1 percent on Chinese vehicle imports,on top of the EUs standard 10 percent car duty.233 The Inflation Reduction Act contains provisions whose intent is to impede imports of batteries and critical

300、materials from companies from“foreign entities of concern”over the ensuing two years.234 In particular,starting in 2025,buyers of vehicles using Chinese suppliers will become ineligible for the$7,500 clean energy vehicle tax credit.For all this,as ITIF has written,clean energy technologies wont gene

301、rally become competitive with existing ones until they reach P3 with them.So,for example,P3 for EVs will be achieved when the life cycle costs of EVs are the same as equivalent ICE vehicles,and have approximately the same performance in terms of reliability,refueling,range,acceleration,cargo capacit

302、y,etc.235 Policymakers must also recognize that price signals,regulations,and subsidies alone will be insufficient to drive clean energy transformation.Instead,innovation-and technology-INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 36 advancing policies,such as investments in research

303、and the development and commercialization of next-generation alternatives,are the best solution.236 In 2012,ITIF called for policymakers to organize a“BatteryShot Initiative”that would coordinate government battery research,development,and demonstration(RD&D)with the goal of producing a battery with

304、 a total system cost of less than$250/kWh and a range of at least 300 miles per charge.237 While the targets will have changed in the 12 years since,the U.S.lag in the EV batteries space vis-vis China suggests the next administration should launch such a“BatteryShot Initiative”with the goal of produ

305、cing a battery with a total system cost of less than$200/kWh and a range of at least 1,000 miles per charge.Such a BatteryShot effort could be part of the previously mentioned battery R&D consortium DOE said in January 2024 it would establish.Created in 2014,the Manufacturing USA network aims to sec

306、ure the United States leadership in advanced manufacturing product and process technologies,and therefore an additional institute should be stood up for EVs and EV batteries.Manufacturing USA currently houses innovation institutes across five key sectorselectronics,materials,energy and the environme

307、nt,digital and automation technologies,and biomanufacturingand its commitment to clean energy manufacturing and manufacturing supply chains could be furthered by the addition of an EV institute,which could fall under the purview of the DOE-sponsored institutes.238 American drivers wont adopt EVs if

308、they lack confidence in the existence of a comprehensive,reliable,and dependable national EV charging infrastructure.While some progress has been made in this area,much more needs to be done.For this reason,U.S.government entities at all levels(federal,state,and local)should increase their coordinat

309、ion to create an easier-to-navigate environment for planning,funding,permitting,and infrastructure investments for EV charging stations.239239 In particular,governments should implement interoperability and open access requirements for technical equipment while ensuring that they dont constrain the

310、deployment of charging stations and pick“winners and losers.”240 It was difficult to watch the 2024 European Championship and Copa America soccer tournaments without noticing that Chinese brands have become the events dominant marketing partners.The Euros alone featured the Chinese brands Alibaba(Al

311、iExpress and Alipay+),BYD,Hisense,and Vivo.It should be gallingif not an exigent warning of a looming European industrial crisisthat Volkswagen refrained from becoming the leading 2024 Euro corporate partner(the tournament was played on German soil)due to“cost discipline”reasons,thus opening the doo

312、r for BYD to become the lead automotive partner.This point aside,American(and European and Asian)policymakers should pass legislation that precludes companies from countries of concern,such as China,from marketing their products in cases where 1)that country does not allow similar products from U.S.

313、firms to be sold(and or marketed)in Chinese markets(i.e.,lack of reciprocity),or 2)if products from such companies are benefitting from stolen technology or IP.For example,as a requirement of joining the World Trade Organization(WTO)in 2001,China committed to opening its financial markets to Western

314、 competitors.China slow-walked this commitment for years,and in 2012,the WTO ruled that China illegally protected UnionPay by not allowing foreign competition.Despite China losing the case,phase one of the resolution did not go into effect until 2020,inhibiting almost a decades worth of competition

315、and profit for INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 37 American companies such as Visa and Mastercard.241 China still blocks various U.S.cloud and digital services products from its markets today.242 Where this is the case,the United States and Europe should preclude equivalen

316、t Chinese firms from marketing their products in our markets.This report has documented the extensive set of innovation mercantilist policiesincluding rampant IP theft and massive industrial subsidizationthat has abetted Chinas rise in the EV and EV battery space.Section 337 of the 1930 Tariff Act a

317、llows the U.S.International Trade Commission(USITC)to bar imports when domestic industries suffer harm due to unfair competition.243 The next administration should designate a special task force to identify and document any Chinese or third-party countries EV or EV battery companies that have benefi

318、ted from innovation mercantilist practices and work with the United States Trade Representative and USITC to prevent such products from entering the U.S.market.Historically,U.S.trade law,through trade tools such as Section 337,has conducted investigations to ascertain if specific products(such as al

319、uminum foil of less than 8 microns of thickness)from specific companies have violated U.S.trade rules(such as dumping or IP theft).244 This represents a very narrowly tailored instrument that makes it easy for foreign infringers to hop between infringing products and often evade effective prosecutio

320、n.U.S.policymakers should reform U.S.trade law such that,only for companies from nations identified as specific countries of concern,if a company is found guilty of selling more than three products in U.S.markets benefitting from pilfered IP(in any 10-year period),they are added to the U.S.entity li

321、st and wholesale blocked from selling its products in the U.S.market.To circumvent U.S.tariffs,many Chinese companies are eyeing Mexico as an attractive back door to start manufacturing their products and export them to the United States,taking advantage of the United States-Mexico-Canadas(USMCA)rul

322、es-of-origin provisions.245 Indeed,there is strong evidence that Trump administration tariffs on China did decrease U.S.imports from China but increased imports from countries such as Mexico,and thats in part because more Chinese companies are establishing operations in Mexico.246 Addressing this ch

323、allenge will certainly be a key element in the upcoming 2026 review of the USMCA,but for the purposes of this report,U.S.policy should make clear that EVs and EVs batteries manufactured by Chinese enterprises that have benefitted from IP theft or massive industrial subsidization will be subject to t

324、he aforementioned 100 percent tariff level no matter from which nation the Chinese company attempts to export.As noted,China dominates supply chains for the mining and refining of minerals and rare earths,giving its EV battery makers a cost and first-mover advantage.The United States must lead an al

325、liance of like-minded nations to build alternative EV battery input supply chains outside of Chinese control.On June 22,2023,India agreed to join the Minerals Security Partnership(MSP),a collaboration of 13 countries and the European Union designed to catalyze public and private investment in respon

326、sible critical minerals supply chains globally.247 The MSP coordinates member nations to address four major critical minerals challenges:1)diversifying and stabilizing global supply chains;2)investment in those supply chains;3)promoting high environmental,social,and governance standards in the minin

327、g,processing,and recycling sectors;and 4)increasing recycling of critical minerals.248 Efforts here should be redoubled and more allies brought into the partnership.Sourcing of clean energy and raw materials,as well as recycling of batteries,helps to lower production costs and should be encouraged.T

328、he next administration should invest resources into INFORMATION TECHNOLOGY&INNOVATION FOUNDATION|JULY 2024 PAGE 38 clean recycling of batteries,which could meet as much as 18 percent of the cobalt demand and 17 percent of nickel demand by 2035.249 CONCLUSION From manufacturing just 5,200 passenger v

329、ehicles in 1985 to manufacturing 26.8 billion this year,China has become a major player in the global automotive industry.Collectively,Chinese EV and EV battery enterprises have at least equaledand in some cases surpassedtheir Western peers in innovation capacity and product quality.While certainly

330、the highest-end Western firms such as BMW and Tesla remain at the forefront,Chinese firms such as BYD,Xiaomi,and Li Auto are competing effectively at the luxury EV level,while in the mid-market,BYD,JiYue,Nio,and others are excelling at delivering attractive,cost-competitive EVs.Chinas leadership in

331、EVs certainly began as a result of intentional industrial policy and guidance,especially through market-making activities such as intensive industrial subsidization.However,from that base,Chinese EV players have become increasingly capable,innovative,and competitive in their own right.Much is to be

332、done if the United States is to recapture leadership in this critically important technological field.Acknowledgments ITIF wishes to thank the Smith Richardson Foundation for supporting research on the question,“Can China Innovate?”Other reports in this series will cover artificial intelligence,biop

333、harmaceuticals,chemicals,consumer electronics,nuclear power,semiconductors,robotics,and quantum computing.The author would also like to thank Robert Atkisnon,Ian Tufts,Leah Kann,and Meghan Ostertag for their assistance with this report.(Search#ChinaInnovationSeries on itif.org.)Any errors or omissions are the authors responsibility alone.About the Author Stephen Ezell is vice president for global