The Cost of Pulling Back from China in the EV Transition

China has rapidly become the center of global EV innovation, producing cars that are cheaper, faster to develop, and increasingly competitive in international markets. The United States, by contrast, is pulling back, eliminating incentives and pursuing policies that distance the country from China just as the global EV transition accelerates.

George Washington University’s John Helveston, whose work focuses on global EV markets and China’s manufacturing system, argues that this course risks sidelining the U.S. from the technologies and supply chains shaping the automotive future. On the podcast, he explains why a more pragmatic approach that protects national security and workers while engaging with China’s central role in the EV ecosystem may be essential for America’s long-term position in the global auto industry.

Full Transcript

 

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. The global auto industry is in the midst of a profound transformation. Global demand for electric vehicles is growing rapidly, and the center of gravity for innovation in EVs has shifted ever more toward China. Chinese automakers today are producing EVs that are not only more affordable, but in many respects, higher performing and faster to develop than those built anywhere else, and their reach is expanding beyond China’s borders into international markets, setting the pace for the global EV transition.

The United States, meanwhile, seems to be moving in the opposite direction. Federal policy has increasingly emphasized economic separation from China, and recent actions have pulled back many of the incentives that have helped to grow America’s EV market to date. The risk, critics warn, is that the US may be isolating itself from the technologies, supply chains, and competitive pressures that are defining the global automotive future. My guest today argues that this approach threatens not only America’s transition to electric vehicles, but the long term health of the US auto industry itself. He contends that maintaining America’s global position will require a shift from protectionism towards strategic collaboration with China, with policies that also recognize real national security concerns, protect workers, and create a stronger domestic manufacturing base.

John Helveston is an Associate Professor at George Washington University and a leading researcher on global EV supply chains and industrial policy. His recent article in the Journal Science makes the case for a more pragmatic, engagement focused strategy, one that recognizes China’s central role in the EV ecosystem, and that seeks to leverage Chinese expertise while expanding America’s own capacity for production and innovation. John will discuss what the US risks by isolating itself from the trend toward vehicle electrification, and what a realistic path towards strengthening America’s ability to compete in the global market might look like. John, welcome to the podcast. And from here on out, I’m going to call you JP because I understand that’s what you go by.

John Helveston: Yeah, I’m a John Paul, not named after the Pope, but there’s so many Johns, people call me JP these days.

Stone: And you’ve done quite a lot of research into China’s EV industry and its market, and I wonder if you could introduce us to that research. And I want to ask, when you started, did you expect to see the scale and speed of growth in China’s EV market that we’re seeing today?

Helveston: Yeah, so I go back a ways in this sector. I went to China, and I lived and worked there in different phases as an undergrad even, and around 2008, ’09, ’10, and then I started my PhD in 2011 and that’s when I focused on China’s EV sector. So my entire dissertation work was to study that and focus on it. And in the early days, when I first started, I was expecting kind of the opposite. I was expecting to see the foreign global companies like, you know, the GMs and Toyotas and Volkswagens, they were already dominating China’s gas car market. So I was going there to see, okay, what are they doing, and are they going to make electric cars for China now?

And I found quite the opposite. And that was what I think kind of surprised me early on, was it seemed to like very few of them were doing anything regarding EVs, and the only companies really pursuing it heavily were these domestic Chinese firms. A lot of companies that most people have never heard of, like, you know, BYD maybe, but Geely, Cherry, like, lots of companies that are maybe lesser well known in the west. So this goes back a long time, and by the end of my dissertation, when I graduated 2016, that’s when I was kind of going, “Oh, oh, yeah, this is, this is clearly where it’s going to go.”

I mean, it was very clear at that point that the Chinese firms were going to lead this sector, and if the west didn’t do anything to sort of start accelerating themselves towards EVs. So there was a lot of learning, you know, during that phase of being on the ground, you know, doing a lot of field work in China, interviewing companies and managers and going to production facilities and sort of seeing what was going on. And also doing some work on consumers, doing some survey work, and seeing that it looked like Chinese consumers were also more willing to buy an EV. So there was just a lot of things that seemed like they were lining up where China was going electric very soon. And what I see today happening over there is like no surprise to me now, but maybe a surprise from 10 years ago.

Stone: So by 2011 you already saw kind of an orchestrated EV industry emerging in China, if I get that right, because here we basically we had Tesla at that point.

Helveston: Well, 2011 was still a little early, but I was — you know, maybe 2015. You know, by the end of my dissertation, it was clear things were starting to line up. So around that time, maybe 10 years ago, it was pretty clear that this is where that industry was going to go. It was also clear to me that domestic, Chinese firms were likely to be the ones leading it, not the global foreign companies, with Tesla being an exception there.

Stone: So you’ve warned that the US, shifting here for a moment, is drifting towards what you’ve called, “Becoming a tailpipe island.” To what extent are we, in fact, moving toward that future? What exactly is that tailpipe island that you’re seeing?

Helveston: I’ve heard that by a few other people too, so I’m attributing that from others. But my fear there is really a perspective that the absolute spear, tip of the spear of automotive innovation is in the electric sector, the electrified vehicle technologies, and that if we’re not pursuing that, then we’re going to be falling behind the frontier of technology. So the fear here is that the US automakers that right now have a very strong global presence, you know, the GMs and the Fords of the world, are going to shrink in size down to just supplying not even North America, but just America and maybe Canada, because even Mexico is starting to go electric faster than we might. So that’s, I think, my biggest fear is that we we shrink down to a lesser role globally, and our companies become less relevant in the sort of global innovation ecosystem that is pushing forward electric vehicles and which is being led by China and Chinese firms.

Stone: Well, it’s interesting, you talk about Mexico. I have taken a couple trips overseas in the past year, one was to Mexico, one was to the UK, and while abroad, in both cases, I really noticed, kind of being a car interested person, that there were some Chinese cars running around that I had never seen before. And these weren’t necessarily EVs, but they were definitely Chinese models. So it looks like the Chinese auto industry really seems to be making a foothold internationally. Is that what’s going on?

Helveston: Yes, and I mean, they have for quite a while now in the gas sector already. We’ve had companies like Cherry, a little known company in Central China, is one of the biggest exporters from China, and they export around a million gas cars a year to developing markets mostly. So you see a lot of Chinese branded vehicles in countries in South America, Central America, parts of Africa. And so they have already had a global presence for quite a while. And the transition that’s happening now is a electrified presence.

So those cars that they’ve been exporting are becoming more and more electric, and those markets are very interested in electric vehicles, because especially in the most developing places, gasoline infrastructure isn’t so maybe developed, and electric infrastructure often is further along. And so there is a desire there to just go straight to electric vehicles and sort of leapfrog the gas sector. It’s also an affordability argument that some of these EVs coming out of China are just so affordable, the prices are so much lower, and then when you’re not having to pay for gas, it’s just sort of a no brainer that that’s going to start winning out in those markets.

Stone: So the fact that China is producing EVs that are pretty low cost, that’s obviously important, particularly in the developing markets as you just mentioned. Also they’re high performing. You know, they have some advanced battery technologies, I’m sure you can tell us about, that you know, really kind of leading the market. So I want to ask you, going back to the earlier conversation, you said about 2015 or so you really started to see the electric vehicle industry start to, I guess, really form in China. What were the key forces, I guess, from a market standpoint, at that point, that really allowed China to begin to build its strengths in the EV industry?

Helveston: Yeah, so this is a complex history, and if you want the full one, go read my whole dissertation maybe.

Stone: That’s a whole separate podcast, right?

Helveston: I could spend a whole hour on just this one, and I’ve talked about it in other places, but I’ll try to keep it relatively high level, which is the common narrative you hear often in thew west is that that China’s government just subsidized this into being. They just dumped so much subsidy money into the sector, and then they snap their fingers and they have an EV sector. And there was a lot of subsidization, but that’s, I think, a gross oversimplification of what’s really happened. It’s a lot of different factors that have aligned to create what we have today. So you know, first and foremost, just consistency. Just 20 years of very, very consistent policy, banging the drum that EVs are going to be the future here. Like, this is what we want, we want to have electric vehicles. China’s government has always wanted to have a strong auto sector, but electric vehicles were, like, seen as the opportunity here to leapfrog past this otherwise very difficult thing to create, which is an internal question engine. So if they didn’t have that know how, this was their opportunity.

So very consistent policy environment, and that has been very different in other places like the US. It’s been very inconsistent. A couple other important features here are the way that China’s market was structured, which was around this joint venture system, where foreign companies had to create a joint venture with a Chinese partner, and they had to share their intellectual property with that partner. So it created these incentives where companies like GM or Volkswagen, they were hesitant to bring their cutting edge technology to China. They didn’t want to bring, you know, their R&D electric vehicle project to China. They wanted to keep that back home and just sell their gas cars in China. And that left the biggest market in the world, China, to these independent Chinese firms.

So they had just total reign over the market there to go after all kinds of new ideas. And so in that phase that I was talking about, that sort of 2011 to 2015 phase, we saw all kinds of wild experimentation of different batteries, different chemistries, different business models even, and also this, you know, ramping up of infrastructure build out. All of those things were sort of happening at the same time in these companies like BYD and others, were the only ones really pursuing it. So they had this sort of protected market.

And maybe the last thing that’s, I think, really important is when you think about the upstream supply chains that go into these sectors, namely batteries and motors, and all of the materials further upstream that you have to process to make that stuff, a lot of that was already there for China’s electronics industry. You know, they were already making batteries for cell phones and laptops, and so it was just a matter of scaling those things up. And when you’re in this environment where there’s really consistent policy, it was less risky to scale that up, right? It was very clear that if you scale this up, you’re going to be able to sell this into cars. No risk there, really.

So those kinds of long term investments that take a decade to come to fruition, they weren’t happening in other markets like in the US, because we were in an environment where policy support was going back and forth every four years. And in China, it was just very clear, that’s where we’re going. So I think there’s a lot of different factors. You know, the subsidies played a role. But it was know how, it was existing supply chains, it was consistency, and a lot of different things, and also just scale and the size of China’s market.

Stone: So China wants to build this automotive market. It realized, I guess, the established global car manufacturers have too much of a head start on designing cars built around internal combustion engines. So it sees EVs as this opportunity to shift the focus to a new technology where it already has the batteries to power those, right? And it’s got this kind of already kind of this inherent early advantage, and then it builds upon that, it sounds like.

Helveston: Yeah, I think that’s roughly kind of what’s gone on over that time frame. And again, remember that there was limited competition from the west. You know, I think it would have been a different picture if we had companies like Tesla knocking at their door in like 2011, but they weren’t yet, or Nissan releasing the Leaf in China, which they did not. We didn’t have competition from foreign companies in the EV sector domestically there in China yet. So there really was this sort of opportunity to try new things. And the way China’s provincial government is set up, those provincial governments were able to allocate some of that subsidy money directly to local players, and just give them what they need to try and experiment and try new ideas.

So that period of time of discovery and figuring things out, it was really necessary as a precursor to where we’re at today. And if you pick out even some of the leaders today, like BYD, they were making batteries in the 1990s. I mean, this is an old company. They didn’t start making cars until 2003. So again, they already had capabilities. So it wasn’t like we were starting from nothing. There was a lot of core capabilities that align with the EV supply chain already there.

Stone: Again, going back a decade and a half, the big auto manufacturers that are now entering China aren’t really sharing their best technology with the Chinese, particularly the non state owned companies, really start developing the technology. And it’s interesting, because I think many Americans might assume that the US is a natural leader in EV technology, in automotive technology generally. And it’s understandable, the US was, in fact, the early leader in EV technology with Tesla, and over the past few years, the big Detroit three have also made big investments in EVs. So again, this perception of US EV leadership is understandable, but you’ve argued that it is now out of step with the reality of today’s global EV market on the technological standpoint. Tell us a little bit more about that.

Helveston: Yeah, and we did have the lead, and we sort of ceded that lead, I think, to some extent now. I think where the biggest gains have been made, where we’re sort of on our back foot here, is more on the production side of things than it is necessarily the cutting edge R&D, you know? And I think this is what China does better than really anywhere else in the world, is just scale things up and innovate in ways to lower costs. And so that’s where you’re seeing the biggest dramatic shifts in performance. It’s really affordability for, let’s say, a given range of a car. If you if you look at cars that are priced under $40,000 and that are electric, the US, as of last year, I counted only four. Four models under 40 grand, and the average range was 170 miles.

In China, there’s 130 models under under 40 grand, and the average range is 240 miles. So you’re getting a whole lot more car for a lot less money, and a lot of different options too. So consumers have a lot of choice over there. And some of the things that have led to that are a lot of production innovations, ways to further automate the process of manufacturing than we might do here. And this really aligns a lot with automotive history. Like, the biggest leaps forward in a lot of automotive history have been on the production side. Like, Ford became famous because they figured out a way to organize production, not so that they could make the best engine, but that they could make it cheap, right? They could mass produce this thing and lower the cost for everyone. And then Toyota came along and did the same thing. They further innovate and say, “No, we can innovate, and we can produce things in a different way. We organize production differently.” And again, we’ve now learned from them.

And I think there’s still quite a lot to learn from what is happening on the shop floors in China in terms of how to manufacture an EV. They have changed the game to some extent, and they’re speeding up the timelines from design to the cars coming off the line, sometimes as short as 18 months. And that’s just totally unheard of in a internal combustion engine vehicle. You’re talking three to five years development time for that technology.

Stone: So one of the key arguments that you have made, you make in that piece in Science, is that the US is now walling itself off from that know how in manufacturing, and also to a certain extent, the battery technology as well. And I want to point out here that under the Trump administration, we have seen a ratcheting up of tariffs on Chinese goods. But the fact of the matter is that in the EV space, the tariffs, the bans, and the rules that limit access to Chinese technology and know how predate the current administration. Can you give us a quick history of US trade policy toward China, particularly in the automotive space, and talk about how these policies have contributed to the competitive gap, if that’s, you know, not too strong of a term to use, that we’re seeing rather than closing of that gap?

Helveston: Well, so up until, really, as recent as last year, the Biden administration tariffs were the most aggressive, I would say, in terms of really trying to keep out Chinese companies and even Chinese suppliers to the EV supply chain. So I think there wasn’t a whole lot of concern for a long while, because the numbers were still relatively small. You didn’t need to keep out Chinese exports, because they weren’t exporting millions of electric cars.

I think COVID kind of caught people off guard, because during COVID, China kind of disappeared for two years. I mean, they kind of locked down, and there wasn’t a lot of back and forth exchange of people. And then as soon as we came out of that phase, all of a sudden they were selling a million electric cars, and people were going, “Whoa, where did that come from?” And we’re just seeing the fruit of, like, 10 years of development. So now that they’re, you know, ramping up exports, and they’re ramping up their own domestic sales, I mean, last year, they sold over 10 million electric cars domestically, there was an immediate reaction of, “Oh, we need to respond, and we need to keep those products out of the US market to protect our automotive supply chain.” Like, we need to do it on our own.

And so the Biden Harris approach, which is coupled with the IRA, you know, incentives, the Inflation Reduction Act incentives that they put in place, I think that was the first attempt to really excise China from our — at least our incentive structure and our incentive policies. So if you were to get a subsidy for an EV, but even the materials for the battery for that EV came from China, then that wouldn’t qualify, right? So there was a lot of these little exceptions to try and counter China, to try to erect a supply chain that that goes around China. But that was very short lived, right? That was ’22, and then just a couple years later, the Trump administration came in, and we have now, you know, removed much of those IRA incentives anyway.

But the big changes in May of ’24, I think, where this was sort of all under the Jake Sullivan high fence, small yard strategy of saying, “We’re going to erect these really big barriers now for the EV supply chain.” So big, big tariffs on imports, it was over 100 percent on a fully imported vehicle, and as high as 25 percent on batteries, even materials, I believe, for the batteries, even if they’re made here. So there was still a maintaining of these trade barriers, all in the name of trying to support the development of a parallel supply chain that, you know, excises China. The Trump administration has essentially upheld all of that. You know, that was already there when he inherited that, and has not really budged on any of those trade barriers. So that all still is the current policy.

Stone: Well, so what’s changed, and you’ve already hit on it, is that there is no longer a demand incentive, or that demand incentive in the United States has been taken away. So if you want to isolate yourself from the Chinese market or Chinese manufacturing capabilities and build a US EV market almost in isolation, maybe that’s too strong of a word, but in isolation, let’s say, for the sake of this argument, and you take away the demand side, then there isn’t really much for the domestic auto manufacturers to do in the EV space.

Helveston: Yeah, I think the Biden strategy was at least logical in saying, you know, “We’re going to view China as this geopolitical rival, and we’re going to double down on investing in manufacturing here and doing everything here.” Not necessarily on our own. We’re going to have our trading partners, our allies that we work with, but we’re still going to really push to have incentives for localized production and things like that. And so that all, I think, was very politically motivated as a strategy to say this is something that both sides should agree on, right?

And in fact, 80 percent of the IRA incentives around manufacturing were going to Republican held congressional districts, right? So that seems like it would have been a bipartisan, longer lasting strategy. And so I think that’s really the root. Part of this is anti China, keep China out, but it’s also trying to come up with a strategy that’s going to last beyond one administration that obviously didn’t pan out. The Republican held Congress this year essentially retracted a lot of those incentives. So yes, we’re going to see less demand for EVs in the US now than we would have otherwise, and that certainly doesn’t help our competitive edge in terms of, you know, going toe to toe with China over electric vehicles.

Stone: So the CEO, Chief Executive Officer of Ford, the car company, drives a Xiaomi, I hope I pronounced that correctly. SU7, which is a Chinese EV, and he has been effusive in his praise for the car. So I want to ask you, what’s going on here? Why would the CEO of a major US legacy car maker, traditional car maker, be singing the praises of a Chinese EV? And maybe more critically, what prevents us automakers from building a car like the Xiaomi today? What are the core structural barriers on the US side?

Helveston: Yeah, so it’s Xiaomi, is the the name. It’s a little bit tricky to say. The Xiaomi SU7. It is a phenomenal car. It is a high performance vehicle. It’s very fast. And it’s something around $30,000 to $40,000, and it has, you know, roughly maybe 250, 300 miles of range. So a very desirable vehicle. And what’s, I think, particularly interesting about them is Xiaomi is mostly known as a cell phone maker. You know, so imagine if Apple just produced a car with those kind of specs, you know, overnight. It would be totally shocking.

Stone: Didn’t Apple want to do that and that kind of fell to the wayside?

Helveston: They did. But I think the thing that Xiaomi has on its edge that’s different from Apple is Apple’s still primarily a software design company, and they actually don’t do most of their own manufacturing. It’s all done in China and elsewhere. So their core capabilities are not really in some of that manufacturing. And Xiaomi is more like a hybrid between a phone maker and something like a GE. Like, GE makes appliances and refrigerators and toasters and stuff, and Xiaomi makes everything. That’s kind of where they are. They make all these electronic devices. They also make cell phones. And so they have some of that core capability to do complex manufacturing.

But even so, cars are really hard to get right, so there was a lot of skepticism that they would, you know, succeed when they entered, but but they have. They have proven capable. I think what they really point to is not necessarily — they are an innovative company themselves, but it’s more the maturity of China’s industrial ecosystem around the EV sector. If you’re going to make a new electric car today in China, and you want to start experimenting and try to find a particular battery spec that is a certain size, has a certain power output, and you know, those features, you can find a dozen suppliers. You can find a dozen factories that have excess capacity that they’re not even utilizing yet that you could use and run your production line on.

So that is just sort of ubiquitous in the Chinese ecosystem today. And so that means everything is going to move faster. You’re going to be able to find a supplier quicker. You’re going to have more competition among suppliers. So you’re going to get a better bid, a lower price. They’re going to deliver faster than others. And you’re going to be able to get up and running and try and experiment and fail and learn much more quickly. And that’s just not present here.

I don’t think it’s impossible for any one company to make an amazing EV. I mean, Tesla makes great EVs. If you look at like Lucid, The Lucid Air is a amazing car. It’s like a super car. It’s also very expensive, you know? So we can make great EVs. They’re just really pricey. And the reason that companies are able to spin things up so quickly in China and at such low cost is just this very large, expansive, very big scale industrial ecosystem that exists. And again, it’s building on multiple decades of lead up to that today. This didn’t happen overnight. This started, you know, in 2010 or so, starting to scale things up. And here we are, 15 years later, we’re seeing that sort of mature ecosystem exists in China.

Stone: What’s amazing you have this, it sounds like a bunch of contract manufacturers with a lot of capability to build your car if you come to them with a design, it sounds like.

Helveston: Yeah, and I mean, this is emblematic of a lot of features of China’s sort of manufacturing ecosystem today. If you’re making electronics, you want to make, I don’t know, a new vacuum cleaner. You know, you could go down to Shenzhen and you could find every component and every part that you need for that vacuum cleaner on the same street, and you could, you know, trial it up and have 15 different designs by the end of the month, and pick the one that you think is going to do well. I mean, there’s this combination between sort of the battery and motor suppliers that are just abundant, the manufacturing facility’s capacity that’s abundant, and electronics and software engineers who are very, very good at packaging things together and making really nice, good software that’s also abundant.

I mean, let’s keep in mind that China graduates something like 400,000 CS graduates every year. I think we’re graduating about a quarter of that in the United States. So the auto sector in China is a very attractive place for programmers, for people getting into software engineering. That’s kind of the opposite. I think the software engineering side of the auto sector in the US has always been sort of second class citizens, where it’s always about the engines and the combustion technology is sort of the technological seat of leadership there. So it’s a totally different ecosystem. And it’s all of that combined with, you know, advanced robotics and automation, like all of that together creates a very impressive place to, you know, create something new very quickly.

Stone: Let’s shift to Europe for a moment. Europe is trying to leverage some of this Chinese capability and know how for its own EV market. Can you tell us about the path the Europeans are taking on their EV market? Because they’re facing a lot of the same pressures that the US is facing at this point. I wonder if you could describe those pressures, and again, this more open stance to working with the Chinese?

Helveston: Yeah, I think the EU is in a — they’re in a little bit different position from the US. I mean, first of all, it is not — it is a bunch of different countries, as opposed to the US being one federal government. You know, you have to come to agreement in different ways. And there are certain countries like Germany that are much more exposed in terms of their auto sector being very important for their economy compared to some other countries in the EU. But I view their approach as much more pragmatic. Their market also aligns more with an electrified market where consumer preferences, I think, are also different. People are willing to buy something that may not have as much driving range, or it’s a little bit smaller, because that’s appropriate for European streets.

In America, we have large, big cars that have very long ranges, because that’s how we built our road networks. And so things are a little more aligned to go electric. They’re also a place that’s, I think, a little bit more environmentally conscious. There’s at least more agreement politically over things like, you know, curbing CO2 emissions. And so a lot of their regulations are are more geared towards electrification, happening more quickly there than in the US.

And as a result of that, you know, they’re going electric very quickly. They’re recognizing that there are fundamental choke points that China dominates, and that’s mostly in the upstream material supply chain for batteries and also rare earth elements that go into your magnets, that go into the large motors in these electric vehicles. So it’s motors, batteries, and it’s going to be very difficult to try to replicate the scale of that supply chain anywhere else in a short amount of time.

So I think what they’re sort of embracing is saying, “Okay, let’s buy the materials from China, even if that creates a, on the short term, a dependency, increased dependency on China for those materials. But let’s make sure we do the manufacturing here. Let’s still keep the industrial base in Europe.” And so they’re aligning their policies to support the benefits you gain from that. Like, you know, jobs, and again, just having a strong manufacturing base at home, that’s important for all kinds of reasons, economic but also defense capabilities. But they’re also recognizing that if they need to scale quickly, and they’re going to stay relevant in the EV space globally, they’re going to have to have those batteries and those materials probably from some Chinese suppliers, and again, at least for the short term.

So I think they’re very concerned about long term dependence on China just like the US is, but they’re also facing this reality that if we want to reach, let’s say, 10 million EV sales in the next five years, that’s just not going to be physically possible without engaging the Chinese supply chain, right? So there are just fundamental limits. And I think that’s a much more pragmatic approach, where you’re trying to gain the benefits of still maintaining local manufacturing in Europe, but, you know, getting to a point where you get access to the best batteries, you get access to the lowest cost materials you can and you go with that, right? That’s the best thing you can do in the moment.

Stone: And there is also some Chinese manufacturing that’s being established, I think, in Hungary, a battery plant as well as an EV plant, BYD, is being built in Hungary. So you’re seeing this foreign direct investment in Europe. Again, you get the manufacturing locally. You get the jobs locally. But they also are trying to keep the Chinese EVs out to some extent, which doesn’t exactly jibe with what I saw when I was in Europe earlier this year, where I did see some Chinese EVs running around.

Helveston: They also have tariffs on the importing of full Chinese made electric vehicles. And those tariffs, I mean, that is a strategic decision, right? We’re trying to keep the full vehicle out so that we still get the benefits of local manufacturing, but there are still going to be some people who are willing to pay those tariffs, you know? And those tariffs are much lower than the US. So we have 100 percent tariffs on sort of categorically all Chinese EVs. They have different tariffs for each different company. And so at least the EU attempted to sort of do some math and say — or at least what they claim, and some of the decisions they made in the last couple years were to do the investigation to how much subsidy was given to each company, and then make a appropriate tariff aligned with it.

So I think BYD’s tariff was something like 17 percent. Much, much lower than the US. And other companies had higher tariffs because they viewed them as getting more state support. And so there’s still a embracing of sort of global trade, and, quote, fairness in trade, but not just an outright ban, because there is a lot to gain from having foreign direct investment. There is a lot to gain from having a company like BYD come to your country and train your employees, you know, train your people and bring their machines along with them.

And there’s a lot to learn from that. And local automakers can can benefit and get access to those those batteries, and make great EVs, and make them as affordable as they could. So I think that is the delicate balancing act that they’re taking, and that’s, I think, a more aligned with what I’m promoting here for the US. I think we could also embrace a similar strategy, a carefully thought out strategy here, but get us to an electric future where we still remain relevant here, we still participate in the frontier of vehicle and automotive innovation.

Stone: Well, you framed it as a kind of a strategic collaboration with China, not protectionism. Can you tell us a little bit more about what that collaboration might look like in the US sense? Is it fundamentally the same type of thing that we are seeing in Europe, a copying of that, or is it somehow, in some elements, different?

Helveston: Yeah, I think it would be, you know, similar. I think the biggest thing is still, the biggest choke point is still the material supply chain, that it’s just going to be so difficult to get access to the scale of minerals, and especially rare earth elements, that we need to make electric cars at the scale that we’re looking at. You know, many, many millions of vehicles every year being produced. So I’m advocating for opening up trade for the further upstream content. I’m also — I think you could go further. I think we could also, likewise, embrace some foreign direct investment by individual Chinese companies. And we’ve already seen some of that, you know, some experimentation with that.

Companies like Gotion, they’re a battery manufacturer, they’ve opened facilities in Illinois and Michigan to try to supply the automotive supply chain in those states. And I see that as a win win. Gotion is the third largest battery maker in China. They are all over the world. They supply batteries to almost every country you can think of in the world. They’re not a small player. And they are very eager to continue to expand and have a global presence. They are very entrepreneurial. We sat down and met with the CEO last year, and he was talking about how excited he was to open up a facility in Illinois, you know, and supply Ford or GM, you know, with batteries.

And so I think that kind of relationship could still be mutually beneficial in a lot of ways. I think it also could be politically possible. Like, as hard as that might be to think in this moment, I think people look at the Trump administration as being so anti China, but when you look at his base, you know, look at the communities that lost a lot of manufacturing, specifically to China over the past 20 years, and how are they going to feel when all of a sudden a new facility shows up in their town, and now everyone can get a job in this battery facility, right? Do you care so much that it’s a Chinese owned company, versus that this is a company supplying, let’s say, GM, right?

That, I feel like, actually aligns very well with a lot of his goals, or at least his stated goals, of re-industrializing the heartland and growing jobs and manufacturing. So a lot of that, I think, is a win win as long as you view it that way, and not just categorically say, “Oh, that’s a Chinese company. They have to be kept out, right?” So I think there’s a pragmatism here that might overcome if we can, you know, get everybody aligned on focusing on that and not focusing so much on, it’s Chinese, and therefore it must be banned, right?

Stone: Well, there’s a national security component to that, right? So one of the reasons for keeping Chinese companies out is the concerns. So for example, you’ve noticed that similar concerns surrounded, from the Chinese perspective, Tesla’s opening of its first manufacturing plant in China in 2019. Those concerns were actually managed. That project went forward and it worked. So I want to ask you, what of these security national security risks are, in fact, real, and what might be addressed through some targeted standards, such as those that were used in the case of Tesla in China, as opposed to the kind of blanket bans that we’ve been seeing?

Helveston: Right, so I think there’s kind of two really central risks when you think about a opening up to China, at least in this EV supply chain, as I’m proposing. So the first is sort of what you mentioned, I think of more of a technological risk, that the technologies that they would be bringing, maybe it’s batteries, but maybe it’s also whole cars. You know, maybe BYD sets up a whole facility and just starts making cars here. And that those cars are connected cars, right? Electric cars have a lot more connectivity on them. They could be spying on us. So there’s a lot of concern there.

And yeah, the Tesla example, I think, is a great counter example to that. I think those kinds of risks are, you know, at once real but also manageable. And when Tesla entered the Chinese government, they weren’t as concerned about it being electric as they were that these cars had cameras on them, right? And they could drive themselves. And so, what Tesla — they put a lot of demands on Tesla. They told them, “You have to use Baidu maps, right? You can’t use Google or anything, that you have to use the Baidu navigation system, right? You have to host all of your servers inside China, right? You cannot send any of the data that these cars are collecting outside of the borders. They all have to be local servers. They also have to blur out the faces of anybody that those cameras capture.”

So a lot of different technical components there. But Tesla said, “We can do all of that, right?” Those are all relatively minor things in terms of a high technology company to handle and access to the market was so much more important that they were willing to do it. And so they did it, and it worked. And I think that’s a great demonstration of you can manage these things if you’re willing to engage with these companies and recognize that they are high tech companies and they are capable of meeting some of these requirements. The other risk, though, is the long term one. You know, the supply chain risk. And this is the question I get all the time about, you know, are we moving away from oil dependency and we’re just going to become dependent on China for these these minerals and these materials?

And my sort of counter that is that we already are. Like, this is already the reality today. You know, we need these rare earth elements for all kinds of purposes, including things like defense capabilities, you know? Advanced weaponry and missiles and all kinds of things that need these elements. And so we’re already quite vulnerable to that. So how do you get around that vulnerability? Well, you’re going to need a market to sell those kinds of products into, like a giant electric vehicle market. And how do you make that happen? Well, you have to make them affordable, right?

So it’s sort of like this chicken or egg problem, where we only make really expensive EVs, then you’re not going to get the market growth that you need to support the investment to make a secondary supply chain, right? So you’re not going to get these processing facilities outside of China, because who would invest in that if they don’t see a place where those materials are going to be sold, right? So my sort of counter is, you know, we’re going to have to, just like what Europe is doing, have to rely on China for a period of time, and there’s going to be a period of time of growth where we figure out how to make good, attractive, affordable electric cars that can compete head to head with a gas car in America. That’s a tough sell. The American consumer is very much addicted to the gas car, so to speak.

I mean, I’ve done tons of work on consumers and their preferences, and they very much consistently say, “I want a gas car,” on average. So, you know, you get there by achieving affordability, by proving to the American public that this technology works. It’s great, it’s cleaner, it’s just a strictly better product. And once you win them over, and you start to reach that scale, you know, then we can be looking around the world for where else can we get these materials. And we can diversify away, but it’s not going to happen in any short amount of time. This is a multi administration level problem. There’s just no way that happens in four years. This is a 10 year project at least to diversify away from China.

So I think it’s certainly possible, but you have to get there — you have to create the market with the supply chain you have, not the one you want, and the supply chain we have right now runs through China. So that’s just the reality. And I think embracing some of that reality for the next, you know, maybe five to 10 years is what’s going to be needed to get over that hump. And then we’ll see, you know, where we go from there.

Stone: Well, you just said, embracing that reality, right? And I think that’s an important point here in the conversation. I mean, it sounds to me like the first opportunity has passed to the United States. We are in a situation now where, to produce affordable, attractive, mass market EVs in the United States, the best path forward would be to access this technology and manufacturing know how, create jobs in the United States, manufacturing basis here in the United States based upon that. Learn from that as we learned from the Japanese in the 1970s and the 1980s when they brought their very efficient manufacturing processes, you know, from Toyota to this country. The long term outcome of that was we became much more efficient and competitive globally in producing cars, which enabled us to go into China, for example, in the early 2000s and compete there with the European automakers

We’re looking now, it sounds to me, like a repeat of that process in the certain sense in which, okay, we need to build this critical mass. We need access to the low cost, high tech solutions that China could offer here, so that we can now again build a workforce in these areas, build supply chain expertise and capabilities, manufacturing expertise and capabilities, and then maybe a decade down the road, we have these capabilities, and we can go out on our own. Is that kind of summing up the path?

Helveston: I mean, that’s largely what I’m sort of proposing here, as I think, not just the path, but sort of the realistic, this is the reality we are in right now.

Stone: It’s like, look in the mirror, this is where we are right now.

Helveston: Yeah, we either face that reality and say, “This is kind of where it’s at, guys,” or we go down the path we’re currently moving, which is sort of trying to move away from electric vehicles entirely, and pretending like that’s not going to be a thing that happens, but it’s very clear that this is where the rest of the world is going. And Chinese automakers are very much capturing markets all over the world right now, and they’re literally on our doorstep in Mexico, you know, with attractive EVs down there. If Canada decides that they want to start importing Chinese EVs, we’re going to be in trouble, because they’re one of our biggest export markets, right? So I think the other path, which is what we’re going down right now, is much more bleak in terms of our long term future as having automakers that are relevant to the global automotive ecosystem.

Stone: Yeah, we can’t compete, right? We’re high cost. We’re long time to market. How do we compete, right?

Helveston: Well, there’s also other benefits here, though. It’s not just about getting us to a moment where we finally have affordable EVs and things like that. And notice that this entire conversation, I haven’t talked once about the environmental benefits of all of this, which there are plenty, but this is purely really about innovation and strategy and making sure we have industrial policy that suits and meets the needs of our country best, and that’s really kind of the arguments I’m making. But the other thing that we’re missing here is that this is the critical pipeline for the next generation technology. I’ve heard this argument that, “Well, we don’t need to go after the current paradigm of, let’s say, lithium ion based batteries, because we’re going to be the ones that come up with the next generation.”

But I question, you know, what cars are those batteries going to go into if we don’t already have that industrial ecosystem here to make electric cars, right? If we’re not making millions of electric cars a year, then we’re not going to have the capacity to run, you know, sort of pilot sized projects on next gen technologies that are coming out of a Department of Energy Lab or an MIT lab or something. And of course, if those things get funded again, we’re cutting funding for that too. That’s a whole other problem.

But let’s say we innovate at the very frontier of lab based scale projects. You need a commercially viable product. You need, at the end of the day, that product to get into a car and pilot it. And we’ve seen that happen over and over again, where a new idea comes out of a US lab and it ends up in China first, because they have the excess capacity, they have the places that are willing to take it and stick it in a car and try it out. And we simply don’t, right? So this is also about that future pipeline of new ideas, and we need to commercialize them here. So I’m very much focused on making the US really maintain a position of competitiveness, and I’m very worried that we’re losing that.

Stone: Well, you’ve said that the US still does have a significant technological advantage in certain areas. What are those areas? And again, obviously the challenge is, if we do have those technologies coming along, we need to get them to market, and the Chinese have been very, very good at that.

Helveston: Yeah, so the thing I just mentioned is still, I think, one of our greatest strengths, is our especially really high end advanced R&D capabilities. We have the best research universities in the world. We have the best national labs in the world. And again, so to the extent that we continue to fund those institutions and keep the best minds here, that’s the maybe the third component, is the minds of the people who come from all over the world to study here and to do that work here. They’re churning out things that I would still bet on, you know, a next gen battery coming out of one of those institutions before it does a Chinese research lab.

I still think that is our core capability as a nation in terms of innovation capabilities. It’s just a different category. Yeah, one of our biggest strengths is the ability to attract the best minds from all over the world. I went to Department of Energy Annual Merit Review last year, and there was a poster session on advanced batteries, and probably half of the people presenting were from China or India, and they were all here on different visas, and they were all working at different labs, and they were all working at, you know, different universities. And it was astonishing to see, you know, like they’re not back home. These are the brightest people in their home countries, and they’ve all come here to study because this is where the opportunity is to pursue those ideas.

So, you know, we have to maintain that. If we lose that, then we’ve really lost sort of the last thing that we have going for us. And so the big challenge is taking those ideas from the lab. right? Bringing them into the commercial space. And that is where we still have this big gap. I think there was some movement in that, I think, the right direction here under the Biden administration. Their version of the Department of Energy was, they started embracing more of these demonstration scale projects and things like that to bridge that gap. We’ll see if anything like that maintains over the next few years. But that is where we face the big challenge.

Stone: JP, a final question for you here. So if the US does choose to shift course, what would the first several years of practical, politically realistic policy roadmap look like, and what are the futures that we’re choosing between here?

Helveston: Yeah, so it’s a tough balancing act, you know? If we maintain this current sort of status quo of trying to excise China from the US supply chain for EVs, I think that’s — we’ve already talked about, I think that’s a very dark future of higher costs and increased inflation and delays and a lot of other downsides. On the other hand, I’m not advocating for just unfettered global supply chain integration with China either. I think there’s a middle ground, and probably something that looks a little bit more like what the EU is doing.

So I would like to see some opening up to some forms of Chinese investment. And I think we can structure this strategically that that really benefits the US and maintains our interests. One of those would would require that we sort of reevaluate the foreign entities of concern rules. That’s the FIAC rules. And there’s a few countries that are on that list. China’s one of them. Being on that list puts a lot of scrutiny over any investment coming from China. That’s mostly for national security reasons. I’m not necessarily saying we have to remove them, but I think we need clear guidance and consistency, right?

It needs to be extremely clear that if a company like Gotion that’s a privately owned battery company wants to build a facility in America, that they know exactly what rules and what sort of hoops they have to jump through to show that, you know, we can maintain security and that security concerns are met. And if that’s the case, you know, make it clear, be consistent, and be consistent across administrations. None of these investments can happen if, four years later, all the rules change, right?

This is not the kind of industry where you can pivot that quickly. Most of these companies are making decade long investments or more. And so we need consistency about the rules, even if we’re not, you know, taking China off that list, so to speak. I think there’s other things that can be done. We can, you know, get this concern about technological lock in with China. I think we can offer sort of targeted supports to diversify away from China over time. You know, a long term strategy. Having some sort of long term planning documents would really help to think through, how do we diversify away from those rare earth elements 10 years from now, right? It’s not going to happen tomorrow, but let’s come up with some of those those plans today.

And I think a major goal should still be towards making sure that the incentives are aligned so that we still have local manufacturing here, right? So that might mean keeping high tariffs on the vehicles that are being exported from China up, keeping those tariffs up. I’m not opposed to that entirely, as long as we can, let’s say, maybe allow the materials to come in so that we can make it here, right? So if we can make sure that the incentives are aligned to, you know, increase employment, increase the growth potential that we can have here in the US and do it securely, I feel like that should be a win win politically, and the fact that it might be a Chinese investment is something that we have to get over. But I also think that’s something that this is like the one thing that I think the Trump administration might actually make this easier than, let’s say, the Biden administration could have, which is that the Trump administration — Trump changes his mind all the time. He seems to be someone who’s willing to change his mind frequently.

And I also think that he holds a lot of clout in, you know, his thoughts, you know, hold a lot of clout amongst his base and amongst his supporters. And if he said, “Look, this is going to be good for you, trust me, I’ve negotiated this,” I think a lot of people might say, “Okay, you know? Okay, that’s great. Let’s hire my people in my town.” I do think it’s a place where someone like him actually could leverage his ability to, you know, just change his mind so frequently, and, you know, control his his messaging, that it could work out.

So we need to be thoughtful about it. I’m not, you know, advocating just to rip open the gates here, but I think if we’re thoughtful about it, if we plan things out and make sure that our rules are clear and consistent, I think it could be a very big win win. Potentially could also help on a lot of other fronts, where we’re seeing so much tension with China. It might be helpful to have a single point of, you know, coming together and saying, “Hey, this is beneficial for both sides. Let’s try to do some business here.”

Stone: JP, thanks for talking.

Helveston: I appreciate it. It was great to be on the show.

Stone: Today’s guest has been John Helveston, Associate Professor at George Washington University. Visit the Kleinman Center’s website for more podcasts as well as energy policy research and blog posts from experts in the field. To keep up with the latest from the Center, subscribe to our monthly newsletter on our website. Our web address is KleinmanEnergy.upenn.edu. Thanks for listening to Energy Policy Now, and have a great day.