As much as I wish that the US auto companies could lead the transition to alternative fuel vehicles, I don’t think it will happen. I think China will emerge as the dominant exporter of electric vehicles, just as Japan came to own the small car category. Here’s why:
1. China will reach sufficiently high volume before other countries. According to earth2tech, China plans to convert to (mostly) electric within the next 10 years. If they are able to do that, they will lead the charge down the experience curve, meaning that as China’s cumulative production grows, they will get better and better at producing. This drives down cost, and makes it very difficult for competitors to catch up without pricing under cost. Another factor pulling China down the experience curve? A billion people to sell cars to.
2. The Chinese government has made a credible commitment to becoming a leader in this new field. They have appointed a former Audi engineer as Minister of Science and Technology, and created significant rebates (which, wisely, go to consumers rather than manufacturers). Unencumbered by a legacy auto industry, China is free to focus on building an auto industry from the ground up that is optimized for hybrid and electric vehicles.
3. Finally, China can beat Detroit in one key area that has plagued the Big 3 for years: labor. China’s huge labor pool can staff as many factories as China can build, and do it very inexpensively. Surely that had to be at least one reason that Charlie Munger has been so outspoken about BYD.
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