China dominates the global electric vehicle market. The country accounted for 57% of global electric vehicle sales last year and wields significant control over the electric vehicle battery supply chain.
This dominance, however, is not set in stone. Competition is intensifying as other countries increase investment in minerals, batteries and electric vehicle production to reduce reliance on China. And China’s electric vehicle industry also has its own strategic weaknesses.
Consider recent comments from Miao Wei, the former head of China’s Ministry of Industry and Information Technology. In a speech last month (link in Chinese), Miao said China’s electric vehicle industry faces two major challenges: lack of semiconductors and lack of an operating system.
The cracking of electric chips in China
The chips constraint is well known. China has long worked to develop a domestic semiconductor industry to reduce its dependence on foreign chips, but so far it has had mixed success. This effort is now complicated by sweeping restrictions imposed by Washington on chip technology exports to China. And electric vehicles need a lot of chips – easily twice as many as an internal combustion engine car.
China’s major electric vehicle makers are now reportedly scrambling to develop their own car chips in response to US export restrictions, but are unlikely to reach the necessary scale in the next few years. Wu Zhixin, vice president of the China Automotive Technology and Research Center, believes that China is at least five years behind (link in Chinese) the world’s major automotive chip players.
Android and iOS duopoly, EV edition?
The other constraint is less mentioned: the software.
According to Miao, who was also previously chairman of state-owned automaker Dongfeng Motor, China stands to lose the race to develop its own leading and globally competitive electric vehicle operating system.
Miao draws a parallel with PCs and smartphones: the first was defined by the Windows-Intel alliance, and the second by a duopoly of Google’s Android and Apple’s iOS. As with electric vehicles, the operating system market is still relatively fragmented. This raises the stakes for today’s competition, as the developer of a dominant EV operating system could exert significant leverage over different automakers.
“More [car] companies have yet to recognize that the lack of an operating system will be a fatal problem “which is ‘more urgent and more deadly’ than the chip shortage,” Miao said, adding that Chinese automakers had a window of three to five years to establish themselves and cement influence in EV operating systems.
The many layers of EV software
But is it plausible that China, which already controls many segments of the EV supply chain, could be a loser on the EV software front?
Andrew Grant, head of smart mobility at BloombergNEF, pointed out that Miao’s Android-iOS analogy doesn’t go that far because EV software has many more layers than smartphones.
The surface layer connects phones to cars. A level lower is the infotainment layer which deals with things like the car’s touchscreen, route planning and climate control. Then there’s the “critical layer” which coordinates the myriad of chips in the EV and ensures the car can function properly.
It’s those latter two layers that Miao likely refers to as areas where Chinese automakers need to gain market share, Grant said. And ultimately, an EV is unlikely to have software from just one company or one country.
“The automotive industry is a very global supply chain. By the time you have extracted the metals from your battery… it will be difficult to avoid certain pieces of software being built elsewhere or controlled elsewhere,” he said.