Comment by resters
8 hours ago
China’s approach to funding BYD is meant to replace much of the capital it might raise in freer markets, providing subsidies, tax breaks, and preferential policies to offset limited access to liquid equity and debt markets.
This support, totaling $10-12 billion from 2018-2022 plus in-kind benefits, mirrors the role of U.S. automakers’ $160-220 billion in public market raises and $50-100 billion in private capital, but with less financial risk for BYD due to state backing.
I think what people are missing is that EVs can be dramatically simpler to manufacture than internal combustion vehicles. This leverages manufacturing advantages and so with or without subsidies, China has big advantages due to its advancements in manufacturing tech.
Recall when China started making hoverboards for a fraction of the price of a Segway? Making EVs at scale required largely the same manufacturing pipeline.
It is the foresight of China’s industrial policy, not the amount of subsidy that has created the manufacturing powerhouse China has become.
US attempts are crude (sledgehammer) methods that leave the market far less free with mostly downside for everyone and no industrial policy goals, only domestic incumbents being protected from reality.
The lack of freer markets is itself a response to the biggest subsidy the Chinese government provides its manufacturers, the currency controls.
RMB is undervalued by ~10-30%, with latter being extreme estimates, pegged to usd with small floating band. It's minor advantage vs executing competent industrial policy that durably drives production costs down fraction vs competitors. Add 10-30% to PRC EV production costs and western (especially US) producers still nowhere near.
That’s _just_ the peg. The other currency controls include the prevention of currency outflows by Chinese capital and the restriction on foreign holders of Chinese debt. All of that drives the costs down.
My personal opinion is that the Chinese EV would dominate in a completely free market, but we will never know.
My broader point is that it’s weird to say that the cash subsidies make up for the lack of freer markets capital, that’s double dipping.
1 reply →