NIO and Xpeng may be two of the biggest current players in the diverse Chinese electric vehicle market, but they’re only part of a much bigger story. In today’s article, we’ll first be looking to the background and development of the EV industry and market in China, followed by a closer look at both of these companies and how they have been contributing to that story. As the world steadily moves to greater electrification, an understanding of the currently largest EV industry (and aspiring market) is a useful step in understanding the bigger picture.

This article comes in two parts. This part focuses on the history of China’s giant EV market while the second part will focus on the players driving the Chinese EV market.

China is no stranger to electric vehicles. Since the 1990s, partly electric bicycles and all-electric scooters have been a fact of life. It was among the most common sites in the world when you visited a Chinese city to see a far greater number of people on bikes than you would in cars. Nowadays, however, the bike lanes are far less crowded, and the road lanes much more so.

As for electric cars and other vehicles, the most relevant starting point is back in 2001, when China launched the 863 EV Project, which was part of a much larger technology development project dating back to March 1983, hence the name 86 (1096) 3 (March). In 2004, China’s National Development and Reform Commission helped to establish an EV association of sixteen state-owned companies. The association’s goal was to bring together technology and information to help China develop a world-beating EV design.

In the subsequent 14 years, China continued to invest tens of billions of RMB into EV development. By 2018, all this work had resulted in China producing some 1.2 million plug-in electric vehicles in that year, which represented three times as many that were even sold in the US. Entire cities in China, such as Shenzhen, have replaced old diesel buses with electric ones, and are fast replacing their taxi fleets as well.

In absolute terms, China is the largest EV market in the world today. The country has some 2.3 million vehicles in active use, representing some 45 percent of global EV stock. That figure is also the same as the US market (1.1 million units) and the European market (1.2 million units) combined. In terms of a percentage of vehicles, however, China’s EV market still falls short of countries like Norway, which achieved 56 percent of all vehicles running on electricity in 2019. How did it get this way? Below are some of the biggest catalysts for the growth of China’s EV sector:

Above we touched on electric vehicles being included in the ‘863’ project, as well as the formation of the CEVA organization of state-owned vehicle companies. These are two among many examples of direct government intervention to help stimulate the growth of the EV industry and market in China. After China claimed the title of biggest automobile market from the US back in 2009, the government promised $15 billion in support to the EV industry. Continued support and investment over the years has helped the industry to flourish.

China’s biggest tech companies like Tencent and Alibaba are getting behind the EV revolution and investing heavily in the technology. Part of this story is that these companies want to dominate the integration of their own operating systems, navigation and other technology into new electric cars. Another part of the story is these companies gaining purchase in one of China’s fastest growing sectors. Each of the two giants has taken a significant stake in emerging EV startups, including the two we are focusing on in today’s piece:

Internet search giant, Baidu, has also shown great interest in another emerging competitor, WM Motor, but this company is yet to go public.

News media around the world has been quick to report choking smog and generally poor environmental conditions in China. People living in China have had to endure it first-hand, and are now acutely aware of the environmental degradation going on around them. Increasing numbers of Chinese are resolved to do everything they can to improve the situation, including getting behind electric cars when looking to buy a new car.

It is a matter of national pride for China that they are taking the lead in multiple areas of the automotive sector. In particular, becoming a leader in a sector that is almost certainly destined to be the dominant automotive sector within two decades is a big step forward in China’s rise. This contributes another important factor to explain the rapid expansion of the EV sector in China.

NIO and Xpeng became big players in China’s EV market because of the reasons stated above and they have performed well in recent years. When the government and tech companies support the EV industry and invest in the technology, the country’s EV market will grow and become competitive in the global scale. The second part of this article will focus on the players themselves and their performance in recent years.