The Coming NEV War? Implications of China’s Advances in Electric Vehicles

THE ISSUE

China’s economy appears to have sprung back to normal. While the overall growth numbers have recovered and China has put forth an ambitious economic agenda for the next five years, optimism has also returned to the new-energy vehicles (NEV) sector, a good metric for the new economy. At the Beijing Auto Show, held in late September, automakers unveiled a dizzying 785 new models, 160 of which were electrified. There is growing speculation that China’s NEV sector is ready to burst onto the global stage and become an export powerhouse. But despite the glitzy new models, incremental progress on several fronts, and initial signs of expanding business abroad, China’s NEV sector still faces substantial roadblocks. Some are the result of continuing economic troubles, while others paradoxically are a result of gradual success. Consequently, the new wave of enthusiasm is a bit premature.

IMPLICATIONS FOR THE UNITED STATES

The one upside of the ongoing domestic challenges for China’s NEV sector is a likely delay in the outbreak of a possible “NEV war” between an upstart China and the world’s dominant producers. For the immediate future, the contest will still be primarily in the Chinese market, but eventually the field of play could move to showrooms around Europe and North America and, by implication, present a new challenge to domestic automakers and their workers. To the extent these cars come equipped with automous vehicle or driver-assistance capabilities or are otherwise connected to the internet, vehicles from China could also raise national security concerns related to vehicles’ performance and passenger data.

One appropriate reaction would be defensive. Trade lawyers and officials within the U.S. Commerce Department’s International Trade Administration could sharpen their pencils in preparation for a bevy of antidumping and countervailing duty cases. And officials elsewhere in Washington will need to develop regulatory protections because of the potential national security risks related to network security, data storage, and data privacy.

But an equally if not more important response will be offensive—for U.S. industry, educational and training institutions, consumer groups, and government to collaborate in strengthening the United States’ own NEV industry from top to bottom. This means: (1) fostering design and engineering talent (which includes attracting international students and workers to the United States); (2) conducting R&D for batteries, hydrogen fuel cells, other alternative energy sources, car components, and chasis materials; (3) encouraging transportation manufacturing clusters in multiple regions; (4) investing in private and public charging infrastructure; (5) expanding incentives for producers; (6) offering larger buyer rebates to make NEVs more affordable for everyone; and (7) integrating developments in NEVs with autonomous vehicle technology, other transportation systems, and urban and regional planning.

Beyond being proactive at home, the United States’ international strategy likewise should not be purely defensive. The United States needs to be more supportive without violating its international trade commitments and copying any of China’s discriminatory practices. Washington certainly should oppose China’s unfair trade practices and any threats to our national security, but successfully developing NEVs and transportation systems requires greater coordination with other economies and in international institutions on setting technical standards, engaging in R&D, developing trusted supply chains, and protecting data.

There is no doubt China is accelerating its efforts in NEVs. If the United States is going to win this competition, it must develop and execute on its own effective playbook. And the sooner it does so, the better.

Scott Kennedy is senior adviser and Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies.

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