Reference News Network, March 18 report: On March 5, the U.S. Consumer News and Business Channel website published an article titled "Western Automobile Manufacturers Have Outsourced Supply Chains for Decades, Now Chinese Competitors Have Cost Advantages," by Matthew Chen (translated name). The article excerpts are as follows:

Politicians and industry leaders in the United States and Europe have long believed that government subsidies received by Chinese electric vehicle manufacturers have affected global competition.

A new report from Root Capital challenges this view. The report states that structural advantages, rather than subsidies, are the key factors that give Chinese electric vehicle manufacturers an edge over Western automakers. Root Capital said that such structural efficiency stems from vertical integration, larger production scale, and lower operating costs, which have a greater impact on the profit margins of Chinese electric vehicle manufacturers than the effects of government subsidies.

Chen Bo, senior researcher at the Institute of East Asian Studies at the National University of Singapore, said that subsidies were crucial in the early development of Chinese electric vehicles, especially for startups that urgently needed funding.

China's current dominance in the electric vehicle industry shows that the measures taken by the Chinese government have been effective. Tu Le, executive director of China Automotive Insights, an automotive consulting firm, said that these subsidies, combined with a pursuit of innovation and a fast-paced development philosophy, have enabled Chinese electric vehicle manufacturers to outpace traditional Western automakers.

Although Root Capital does not deny the advantages brought by government subsidies, it says that the cost advantages gained from subsidies - which also benefit Western automakers operating in China - are "still small compared to structural cost advantages."

The report states that a higher degree of vertical integration, where a company controls multiple stages of production, is the "single most important factor" in allowing Chinese automakers to reduce the cost of electric vehicles without significantly sacrificing profit margins.

For example, according to Root Capital's estimate, nearly 80% of BYD's core components are self-produced, more than twice the proportion of Tesla. This allows the Chinese automaker to save a significant amount of money on supplier markups. The report says that each BYD Seagull car can save about $2,369 on supplier markups compared to the Tesla Model 3.

As a result, BYD achieved a 20% gross margin in 2025, while Tesla had 18%, despite the Model 3's price in China being approximately 235,000 RMB, almost three times the base price of the BYD Seagull model at 79,800 RMB.

However, Leon Zheng (translated name), head of mobile business at YCP Consulting, said that many traditional Chinese automobile companies do not have this level of vertical integration capability.

Root Capital's report identifies BYD and Zhiyun Auto (an electric vehicle startup partially owned by Stellantis Group) as typical examples of vertical integration. According to Root Capital, Zhiyun Auto produces about 60% of its components, saving about $816 per vehicle compared to the Tesla Model 3.

Leon Zheng said that batteries are one of the biggest costs in electric vehicle production, and both BYD and Zhiyun Auto produce their own batteries, significantly reducing the production and operational costs of both automakers.

Tu Le said that although not all Chinese manufacturers widely adopt vertical integration, this model is "more common among Chinese companies."

Root Capital's report says that over the past few decades, many Western automakers "reduced their vertical integration by outsourcing major components to specialized suppliers." The report found that although this outsourcing trend was driven by cost pressures and the idea that "suppliers could achieve higher efficiency and greater innovation through economies of scale," the concern that vertical integration would increase unit costs did not hold up in practice.

Root Capital said that the Western assumption that outsourcing can improve cost efficiency has been challenged by the clearly more competitive construction and manufacturing costs in China. However, Western automakers find it difficult to restore vertical integration without incurring significant costs. Leon Zheng said that outsourcing has created deep interdependence between traditional original equipment manufacturers and parts suppliers. (Translated by Qing Songzhu)

This photo was taken on November 3, 2025, at BYD's assembly factory in Zhengzhou Airport Zone, showing the new energy vehicle "Song Pro" production line. (Li Jianan, photo)

Original source: toutiao.com/article/7618489637862785574/

Statement: This article represents the views of the author.