In a drab industrial zone of western Shanghai, amid factories that each year crank out hundreds of thousands of gasoline-powered cars, transmissions, and engines, the world’s largest automaker is racing to finish a new sort of plant, one that will produce a car unlike any it has made before. The 74-acre facility will have a newfangled assembly-line conveyor belt made of plastic instead of the typical steel or wood—a system that should be cheaper to reconfigure on the fly in order to manufacture cars whose shapes and layouts are likely to change more frequently and radically than any model the company has previously built. And the plant will be decked out with infrared cameras to monitor the safety of stockpiles of a component the company hasn’t before had to deal with in large volume: enormous batteries—each nearly as big as two coffins side by side—that have a nagging propensity to ignite.
What’s happening here in Shanghai is no incremental industrial tweak. It’s Volkswagen AG’s bet-the-corporation bid for supremacy in the electric-car age. “Volkswagen” translates as “the people’s car,” and for much of the eight decades of VW’s existence, the people were understood to be European or American and the cars to run on petroleum. But now VW’s biggest market is China, and the company, squeezed by new environmental mandates, has resolved to remake itself largely as a producer of electric vehicles, or EVs. Which makes this new Shanghai plant the forward base in the fight of VW’s life. When it starts producing electric vehicles next year, it will be VW’s “most modern factory worldwide,” says Fred Schulze, who heads production in Shanghai for VW’s joint venture in China with SAIC Motor, the Shanghai-based firm that is China’s biggest state-owned automaker. Schulze, a VW veteran, previously oversaw production of sport-utility and crossover vehicles from VW’s Audi unit—mostly gas-guzzlers such as the Q7 and Q8 but also the electric E-tron. From now on, Schulze says of VW, “our growth should be from EV cars.”
All across the global economy, titans of the fossil-fuel era are scrambling to adapt to an existential shift: the soaring economic viability of clean alternatives to dirty energy. Electricity and oil producers are struggling to ride—rather than be crushed by—a renewable-energy wave. Banks are trying to shore up their portfolios against losses induced by climate change. Automakers, though, are at a particularly scary fork in the road. The rise of electric vehicles—machines with multiple small motors instead of one big engine; with batteries instead of a fuel tank; with unprecedentedly extensive software systems instead of a transmission—is poised to redefine car making. If established automakers don’t adapt, and fast, the corporate infrastructure they have long seen as a signature asset may prove instead an insupportable stranded cost.
It’s far too soon to declare the end of the internal-combustion era. In the six months ended June 30, according to Wood Mackenzie, an energy-data firm, 97% of all new passenger cars sold globally had only an oil-burning engine under the hood. But it’s not too early to see that electric cars are coming on fast. Indeed, sales are shooting up beyond many supposed experts’ wildest projections. Globally, according to Wood Mackenzie, combined sales of passenger EVs—including full-electric vehicles, which have no combustion engine, and “plug-in hybrid-electric” vehicles, which augment their battery system with a combustion engine—jumped 47% from the first half of 2018 to the first half of 2019, to 1.1 million. The surge is being driven by a combination of factors: declining cost and improving technology, notably for batteries; increasingly convenient electric-charging infrastructure, particularly in large cities; and hefty government support.
Who wins and loses globally in the auto industry’s pivot to an electric-car future will depend largely on who triumphs in China. The country, home to notoriously polluted urban skies and a population gaga for SUVs, has become, in just the past few years, by far the biggest electric-car market in the world. Owing to a potent mix of government subsidies and mandates—policies driven both by local environmental concerns and by an intent to dominate a burgeoning global technology—China accounted for 54% of the world’s sales of plug-in-hybrid and full-electric cars in the year ended June 30, Wood Mackenzie says. The U.S. share: 16%.
But that’s just the start. China’s Society of Automotive Engineers has said 40% of passenger-vehicle sales in the country should be full electrics or plug-in hybrids by 2030. That’s not far off in an industry that plans in decade-long increments. To support the push, electric-car charging stations, some big enough to charge several hundred cars at a time, are popping up across major Chinese cities like so many Starbucks. Hundreds of firms in China are today manufacturing electric cars. A shakeout is probably in the offing, as China’s overall auto market softens and Beijing dials back the subsidies that have spurred the proliferation of EV startups. But the trend is clear: The country that trailed the world during the 20th century at developing cars that burn oil seems all but certain to lead it in the 21st in developing cars that hum on wired juice.
The result is an electric-car race in China that’s fast-paced, financially risky, and anyone’s to win. “It’s a little bit like the Gold Rush in California,” says Stephan Wöllenstein, the head of VW’s China business, who, as he offers this analysis, is sitting in an air-conditioned conference room, a box of VW-branded facial tissue on the table, on the top floor of the automaker’s tastefully appointed China headquarters tower in Beijing.
This summer, I spent some time in China with a few of the leading contenders in the electric-car race. They range from long-established Chinese auto brands to brash upstarts to well-capitalized Western companies like VW. There’s BYD, which according to Bloomberg New Energy Finance was the world’s largest maker of EVs for several years until Tesla recently overtook it—and in which Warren Buffett’s Berkshire Hathaway owns about an 8% stake. There’s Nio, a money-losing but technologically showy company that is producing gadget-laden electric SUVs. And then, of course, there’s Tesla, the California-based icon founded by the mercurial Elon Musk, whose pretty and pricey cars essentially created the global electric-vehicle market. Tesla, which declined to comment for this story, broke ground earlier this year on a colossal electric-car factory on the other side of Shanghai from the spot where VW is building its new plant.
To those in the U.S. and Europe inclined to fret about Chinese industrial hegemony, EVs represent the latest tech-centric industry that China has targeted to dominate. But this time China’s influence is likely to play out more subtly. Because cars are big and thus expensive to ship—unlike, say, mobile phones or solar panels—manufacturing them is likely to remain a largely local activity, with factories in major markets around the globe. But while China is unlikely to centralize the world’s electric-car manufacturing, it is defining how the global EV market develops—that is, setting the rules of the road. In many industries, Beijing has trailed Washington and Brussels. In the electric-car sector, Beijing, aided by some of the biggest Western multinationals, is leaving Washington and Brussels in the dust.
Industrial strategy in China is never the result of a single person. But, as much as anyone else, Ouyang Minggao is the technological father of China’s electric-car push. From his carpeted office on the top floor of an automotive institute at Tsinghua University, essentially China’s Harvard, Ouyang has spent more than a quarter century helping steer the largely government-funded research-and-development campaign that has resulted in today’s EV boom.
I meet Ouyang there on a sweltering Saturday morning. He’s running late, rushing from a session at which he helped strategize about further boosting the number of electric cars on the road in Beijing. His institute’s stairwells are lined with black-and-white photos of auto industry pioneers: Karl Benz, Rudolf Diesel, Henry Ford, Nikolaus Otto, and Meng Shaonong, who—a plaque below his photo notes—was “the founder of the Chinese automobile industry.”
When Ouyang came to Tsinghua in 1993, China had just launched an electric-vehicle R&D program. Over the years, spending rose. Then, in 2008, things got a lot more serious. That year, China showed off 500 domestically made electric cars and buses at the Beijing Olympics. More significantly: The global financial crisis hit. One direct result of the meltdown was the Obama administration’s 2009 economic-stimulus plan, which included billions of dollars in support for U.S. clean-energy industries.
That spending plan caught the attention of Beijing. And it led, in 2009, to what Ouyang describes as a “strategic discussion at high levels” in the Chinese government about how the country should proceed with its own clean-technology push. China’s State Council, the country’s top policymaking body, ultimately announced nine “strategic” industries, one of which was electric cars. Government subsidies began to flow in earnest and included hefty subsidies for battery makers, automakers, and electric-car buyers—with bigger awards to the companies that advanced technology most rapidly.
But China’s electric-car effort hasn’t just been about pushing tech boundaries. It also has involved manipulating consumer behavior. In big Chinese cities such as Beijing, Shanghai, and Shenzhen, municipal policies have severely constrained people’s ability to obtain license plates for combustion cars—but have made it easy for them to get plates for electric vehicles. China has also capitalized on several characteristics that Ouyang contends make it more suitable than the U.S. for large-scale electric-car use. China has relatively cheap electricity. It has a history of widespread electric-vehicle use, in the form of scooters. And, thanks largely to extensive state-sponsored high-speed rail for distant journeys, it has a consumer driving pattern that skews heavily toward short city trips, which are easier than long rides to build an infrastructure of car-charging stations around. For all these reasons, Ouyang says, “I think the United States is not the best application” for electric cars. “China is.”
www.ferroalloynet.com
