What people get wrong about China's Electric Vehicle (EV) boom

What people get wrong about China's Electric Vehicle (EV) boom is also what they get wrong about China in general. China today dominates the auto industry globally, overtaking Japan as the world's largest car exporter in 2023. The popular narrative is that Beijing and its government planned this down to the tee.

That's as wrong as it gets.

Starting in the 90s, Beijing backed the wrong horse. Its bet was that state-owned giants in a few chosen cities would drive the auto revolution. Hungry for growth, global carmakers followed suit, rushing to form joint ventures with these giants. Volkswagen, GM, Toyota, Hyundai- all of them. The state giants got cheap credit, nearly all the early R&D grants, and a protected market where import tariffs ran as high as 220 per cent. In 2014, nine of China's ten biggest carmakers were these state-foreign JVs.
Today those JVs are in the backseat. Among 2024's ten best-selling makers of EVs and plug-in hybrids, exactly one is a state-foreign JV. BYD, a private company, sold more than the next several rivals combined.

A new paper from the Australian National University, built on more than sixty interviews and years of fieldwork, explains how this happened. The cities and provinces (equivalent of states in India) sidelined by Beijing's policies got together with private players and bet big on them.

Why were they sidelined in the first place? For decades, Beijing allowed only a handful of appointed state firms to make passenger cars. Everyone else was locked out, with the entry ticket set at 1.5 billion yuan of investment, around $200m today. Well beyond what an average city or entrepreneur could easily raise. 

Chinese provinces and officials have their performance measured in GDP growth, so everyone wanted a piece of the auto industry. Cities across China begged the state giants to set up plants. The giants refused to move anything valuable away from their home bases. So the cities built their own carmakers, with private partners.

Wuhu, a small city in Anhui, is where it started. In the 1990s, it convinced FAW, a central state automaker, to invest locally. FAW gave it a low-value chassis plant and little else. So Wuhu sold its cement works for 200 million yuan, imported a used engine line from Ford of Britain, poached FAW's own engineers, and started a carmaker without a licence. The deputy mayor served as chairman. That company is Chery, today China's second-largest automaker.

The state banks played their part too, by refusing to play any. When Geely wanted to buy Volvo from Ford in 2010 for over US$1 billion, ten times its annual profit, the big policy banks declined to fund it. Goldman Sachs and Chinese local governments came in instead. Chengdu, Zhangjiakou and Daqing lent or invested billions, and each got a Volvo plant in return. The deal handed Geely decades of engineering know-how and catapulted it into the big leagues, where it remains today.

Then came the startups. In 2015 Beijing lowered entry barriers, and hundreds of internet entrepreneurs decided to build cars. Licences remained the choke point. Of roughly 100 hopefuls, only 12 had secured both central approvals by 2019. The workaround came from the same city-private alliance. NIO borrowed the manufacturing licence of JAC, a struggling state firm in Hefei, and became the first Chinese EV startup to mass-produce cars, ahead of American peers like Rivian and Lucid.

Hefei's faith was tested soon enough. In 2020, NIO was nearly out of cash. A planned funding round from Beijing collapsed. Hefei bought in with 7 billion yuan, near the bottom of the share price, and the stake more than doubled within months. Other cities rushed to copy what they called the Hefei Model. Guangdong and Guangzhou together put 2 billion yuan into XPeng. Ningbo put 10 billion into Zeekr.
Many bets went bad. One county sank 6.6 billion yuan into an EV venture that produced almost no cars. Hundreds of local wagers have left China with far more factories than the market needs, and a price war that is bleeding everyone. That is the cost of this model, and it is not small.

But the payoff shows on the map. Car making, once confined to a handful of designated motor cities, has spread deep into central and western China. Anhui, the province that was locked out of the industry for decades, produced more cars in the first half of 2025 than any other province in the country.

None of this is limited to EVs. The same dynamic built China's pharma champions, and it is visible in AI today. DeepSeek grew out of a hedge fund in Hangzhou, sheltered by its city government even as central leaders were dismissing hedge funds as speculators.

Here is the irony. Decades of decentralisation, starting under Mao, left China with 130 small carmakers scattered across the country, most producing a few thousand vehicles a year. Central planners spent two decades trying to stamp out this fragmentation and consolidate everything into a few giants. That fragmentation, the licences, factories and engineers lying around in second-tier cities, is exactly what let those cities bet on private firms. 

The lesson is not that industrial policy works. It is that competition works. China's EV miracle came from dozens of governments competing against each other, and private firms competing for their backing. If this isn't capitalism at its best, I don't know what is. 

Eshaan Lazarus is the Founder & Chief Executive Officer at 021 Trade. Views expressed are the author's personal.