【Wen/Observer Net, Zhang Jingjuan】For a long time, the US and European sides have been spreading the narrative that Chinese electric vehicle manufacturers rely on government subsidies to distort global competition, which is actually an excuse for their own protectionism and to cover up lagging industrial development.

According to a report by the American research institution Rhodium Group published on May 5th, as reported by CNBC, directly exposes this lie: China's leadership in electric vehicles comes from structural advantages such as vertical integration, economies of scale, and cost control.

The report states plainly that the structural efficiency of Chinese automakers contributes more to profit margins than the so-called "huge government subsidies," and the cost advantage brought by subsidies—also beneficial to Western automakers in China—is "negligible compared to structural cost advantages."

In the view of Rhodium Group, a higher level of vertical integration (i.e., a company controlling multiple production stages) is the "most important factor" that allows Chinese automakers to lower the cost of electric vehicles without significantly sacrificing profit margins.

Taking BYD as an example, nearly 80% of its core components are produced independently, a ratio more than twice that of Tesla. According to Rhodium's estimation, this self-production model has significantly reduced the supplier markup costs in the parts procurement process for this Chinese automaker. Compared to the Tesla Model 3, the BYD Seagull sedan saves about $2,369 (approximately RMB 16,000) in supplier markup per vehicle.

Data speaks louder: The price of the Tesla Model 3 in China is about 235,000 yuan, almost three times the base price of the BYD Seagull at 79,800 yuan. However, BYD achieved a gross margin of 20% in 2025, higher than Tesla's 18%. Another Chinese automaker, Zhiyun Auto, also achieves about 60% self-produced components. Its B01 model saves about $816 (approximately RMB 5,632) per vehicle compared to the Model 3.

Batteries are one of the most expensive parts of electric vehicle production, and both BYD and Zhiyun have achieved in-house battery production, significantly reducing the production and operational costs of the two automakers.

Omdia's senior analyst emphasized that the structural efficiency of Chinese-made cars has been severely underestimated. "The inherent supply chain advantages play a significant role in making vehicles affordable, with an impact far exceeding direct government subsidies."

BYD factory IC photo

By contrast, Western automakers have seen many of them reduce their vertical integration by outsourcing major components to specialized suppliers over the past few decades, according to Rhodium's report.

Although this outsourcing trend was driven by cost pressures and the belief that suppliers could achieve greater efficiency and innovation in scaling, the report found that concerns about vertical integration increasing per-unit costs "do not hold in practice."

Rhodium believes that the long-held Western belief that outsourcing improves cost-effectiveness is being challenged by the significantly lower construction and manufacturing costs in China compared to Western countries. This enables companies like BYD to concentrate production domestically and maintain a significant cost advantage.

However, Western automakers face considerable challenges if they want to return to a vertically integrated model, and will need to pay certain costs.

YCP Automotive, a strategic consulting company, warned that long-term outsourcing has created deep dependency between traditional整车 manufacturers and component suppliers. If they were to bring component production back in-house, it would not only require substantial financial costs but could also lead to mass layoffs among suppliers.

In response to the US and Europe's hype about "Chinese electric vehicles relying on large amounts of government subsidies," Chinese Foreign Ministry spokesperson Mao Ning clearly stated that industry subsidy policies originated from the US and Europe, and are widely used by countries around the world. China's industry subsidy policies strictly comply with WTO rules and always adhere to the principles of fairness, transparency, and non-discrimination, without any prohibited subsidies as defined by the WTO. The United States is a major user of industry subsidies, and in recent years has introduced the CHIPS and Science Act and the Inflation Reduction Act, providing billions of dollars in direct and indirect subsidies to directly intervene in market resource allocation.

Mao Ning emphasized that new energy products from China, including electric vehicles, are widely popular in international markets. They are due to continuous technological innovation, a complete supply chain system, and full market competition, resulting from comparative advantages and market laws. Fundamentally, it is the result of enterprise efforts, not government subsidies. "Subsidies cannot build industrial competitiveness; protectionism protects backwardness and loses the future."

This article is exclusive to Observer Net. Unauthorized reproduction is prohibited.

Original: toutiao.com/article/7613987380480590371/

Statement: The views expressed in this article are those of the author.