VWB #3: China-US Climate Cooperation + The EV Titan You've Never Heard Of

Happy Tuesday! 🌟

In this week’s edition of VWB, we unpack the aftermath of the much-anticipated meeting between Presidents Xi and Biden in San Francisco. Our spotlight is on the new China-US climate agreement announced during the meeting, setting the stage for COP28. Amidst the optimism, we examine the persisting hurdles posed by trade wars and domestic tensions, which particularly impact the adoption of electric vehicles (EVs) in Western markets.

Our startup spotlight focuses on BYD, a Shenzhen-based EV manufacturer that has quietly become a global powerhouse. We take a closer look at BYD's advanced skills in making lithium iron phosphate (LFP) batteries, its important role in changing how electric vehicles (EVs) are made, and its future plans to use sodium-ion batteries, a new kind of battery technology.

Thanks for reading, and hope you have a great Thanksgiving! 🦃

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News Spotlight 🗞️

With the conclusion of the Xi-Biden meeting near San Francisco last week, we are pleased to note an improvement in the diplomatic relations between the two countries, which had reached their lowest point since the 1970s earlier this year. Among other issues, the two leaders agreed to resume direct military dialogue between the two countries and renew efforts to curb fentanyl ingredient production. Notably, the leaders also announced a new climate agreement, which we'll take a closer look at in this edition of VWB.

Climate action: International opportunities, domestic challenges

The agreement, forged between long-time allies and climate envoys John Kerry and Xie Zhenhua, outlines the two nations’ new sets of climate pledges for the coming years. Since China and the US together account for 38% of total greenhouse gasses in the world, their leadership is crucial to combat climate change. Remarkably, with these new goals China has committed to become carbon neutral by 2060. 

This agreement is set to serve as the foundation for the upcoming UN Climate Change Conference (COP28), which will take place in Dubai in just a couple of weeks, and during which the new global carbon emission reduction goals for 2025 will be officially unveiled.

However, while the commitment to reduce greenhouse gasses is a crucial step forward, the persistent trade tensions between China and the West pose potential hurdles to achieving these environmental goals. An example raised by one of our insightful subscribers (hi Sho!), sheds light on the intricate challenges faced in this pursuit.

In the past year, US congressmen have pushed for tighter measures to restrict Chinese electric vehicles (EVs) and Chinese-produced batteries from accessing the Inflation Reduction Act (IRA) incentives. These restrictions have eliminated more than 70% of the EV models that qualified for tax credits for American consumers. In other words, only 37 of the 91 EV models in the market today qualify for IRA tax credits. 

Simultaneously, the European Union is also considering tariffs on EVs with batteries produced in China, potentially affecting major brands like Tesla, Renault, and BMW, despite the fact that many of these cars are manufactured and assembled in the EU itself. 

Our translation 🕵️

There are valid points behind the US Congress and EU motivations, including reducing its reliance on Chinese supply chains and creating more domestic jobs. However, these restrictions are also impacting the pace of EV adoption in the West, compared to what it could be without them. According to surveys conducted by Autolist, 42% of American respondents cited cost as the main barrier to buying EVs over gas cars. 

By comparison, Bloomberg details that Chinese BYD’s Atto 3 EV costs just $20,000 in China and starts at $38,000 in the UK and Europe. Meanwhile, not a single Atto 3 is available in the US market, where the average EV costs $53,000. When one compares these costs, it's clear that the price difference could play a significant role in driving up the 8% share of EVs currently sold in the U.S. car market. 

These trade dynamics show how it's tricky to balance economic interests with environmental and social imperatives. Dealing with these challenges needs clever solutions and countries working together to make sure we can tackle climate change without being stopped by geopolitical tensions and trade issues. So, although we welcome the first steps taken during the Xi-Biden summit to ease tensions between China and the U.S., we recognize that there's a long journey ahead. 

Startup Spotlight: BYD 🚗

Keeping in line with the China and climate change focus of this edition of VWB, let's dive into the remarkable story of Build your Dreams (BYD), a Shenzhen-based EV manufacturer that stands as perhaps the most prolific and profitable car manufacturer you've likely never heard of.

Founded in 1995, BYD began by making both affordable gas vehicles and mobile phone batteries. This dual focus strategically positioned the company at the intersection of burgeoning markets within the world’s fastest growing economy. By 2015, nearly every Chinese citizen owned a mobile device (that’s over 1.3 BILLION devices). At the same time, BYD followed a successful growth plan in the car industry, taking cues from well-known companies like Hyundai and Mazda. They focused on providing cars that were affordable and dependable to build up their brand value and get more people to adopt their vehicles.

Today, BYD has become the world's leading EV producer, recently celebrating the delivery of its 500 millionth EV in October. Not only has BYD demonstrated prolific production, but it has also showcased the profitability of EV manufacturing, boasting $2.4 billion in profits in 2022.

BYD’s Technological Edge: Battery Breakthrough⚡️

So how did BYD become so successful? Let’s geek out about the core differentiator in today’s EV market: battery technology. Reporter Zeyi Yang describes BYD’s competitive advantage in the space:

With their signature Blade Battery, BYD solved two major concerns for new EV adopters: reliability and affordability. Furthermore, BYD understands that their success thus far has been predicated on superior battery technology and is doubling down on that strategy moving forward. The next frontier for batteries is sodium-ion technology, which is even cheaper to produce, works better in extreme weather conditions, and, perhaps most importantly to consumers, charges faster and more efficiently. BYD plans to deliver their first sodium-ion powered vehicles by the end of this year.

In addition to dominating the EV battery development race, BYD has been incredibly successful thanks to perfecting the affordability of its vehicles. Since batteries are responsible for 30-50% of the total cost of an EV, BYD’s battery technology wins once again. 

BYD’s cheapest model costs just over $10,000 (73,000 yuan) and many of their vehicles are priced in line with comparable gas-powered vehicles. Contrast that with Tesla, whose cheapest model is three times as expensive as BYD’s Seagull model. 

Our Translation 🕵️

At VWB, we've stressed the need to improve Sino-American relations. Yet, when it comes to dealing with the global climate crisis, there’s an added urgency to boost collaboration and cooperation in order to protect the planet.

China and the US bring different strengths to the table in the car industry, and it makes sense for them to team up to boost the use of electric vehicles (EVs). On the one hand, China has effectively cornered 90% of the battery-production supply chain, as this Morgan Stanley report details. Chinese companies acted with immense foresight, having spent decades developing the technology, infrastructure, and mining process required to build EVs. 

However, the world leader in autonomous mobility is decidedly still the United States. The US has over 50 autonomous vehicle (AV) companies that each have received more than $50 million in investment. Furthermore, the US has registered 400% more autonomous vehicle technology patents than the country with the second-highest number (South Korea). Just like the shift from traditional cars to EVs, the trend is moving toward AVs.

Both countries excel in different areas, and their strengths can supplement and accelerate each other’s capabilities.  The United States and China are both well-positioned to create positive change in curbing climate change while producing significant returns. However, we believe that groundbreaking success will only be possible if they team up as genuine partners. 

That’s it for today 👋

Thanks for reading and have a wonderful Thanksgiving! 🦃

-Paula and James