During our ethnographic study in China in November 2023, we asked Chinese respondents to identify areas where they believed China excelled globally. Electric Vehicles (EVs) consistently appeared at the top of the list, reflecting China's leading position in EV adoption.
However, what intrigued us more was the rationale behind this perception.
Exploring Liang's Dilemma: Status Symbols vs. Technological Appeal
Take Liang[1], for instance, a 30-year-old video game developer. Despite feeling pressured by his girlfriend to purchase an Audi Q5, which she sees as a status symbol, he couldn't help but lament the outdated look of its infotainment system and dashboard compared to those of Chinese EVs. This sentiment was echoed among many consumers, with the infotainment system being a recurring point of contention.
A significant contributing factor to EV adoption in China is the comparatively lower prices. Our comparisons revealed that EV models were retailing in China at half the cost of the UK. For example, the BYD Seal retails in China for CNY 190k (approx. USD 26k) while in the UK it retails at USD 57k. The SUV in the picture below for example was priced at CNY 220k (USD 30k).
Additionally, the provision of a free license plate, unlike Liang's experience of waiting three years and paying CNY 96k (USD 13k) for his Audi's license plate, further incentivizes EV ownership.
Addressing Concerns: Second-hand Value and Battery Technology
Despite the optimism surrounding the eventual dominance of EVs over combustion engines, particularly as they become more affordable, our conversations with consumers uncovered three main reservations hindering widespread adoption.
concerns linger about the potential lack of second-hand value once warranties expire
Firstly, concerns linger about the potential lack of second-hand value once warranties expire, especially if battery replacement becomes economically unfeasible.
Secondly, perceived shortcomings in battery technology, such as rapid range depletion in extreme weather conditions or at high speeds, as well as complete malfunction in freezing temperatures give pause to prospective buyers. The lack of charging or battery swapping stations causes further hesitation.
Lastly, amidst the influx of new EV brands, consumers fear the risk of brands disappearing, favouring larger, more established brands to mitigate potential service issues down the line.
Contrary to traditional economic theory's notion of diminishing returns, we observe a phenomenon of increasing returns within the EV industry.
We believe the best way to invest in the theme of vehicle electrification is not necessarily through the EV car manufacturers but through the major EV battery producers. Contrary to traditional economic theory's notion of diminishing returns, we observe a phenomenon of increasing returns within the EV industry. Market leaders, with early innovation in EV battery technology, can leverage learning-curve advantages to drive down production costs and maintain market dominance. Meanwhile, smaller competitors may struggle to keep pace with innovation trends due to resource constraints. We anticipate that the primary beneficiary this trend will be the battery manufacturer most adept at addressing these consumer these consumer concerns.
[1] Individual’s name has been changed to ensure anonymity.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of Trinetra Investment Management LLP and are subject to revision over time. Trinetra is authorised and regulated by the Financial Conduct Authority in the United Kingdom.