China's EV Tech Dominance: Protecting the Crown Jewels

China is taking a strategic approach to safeguarding its advanced electric vehicle (EV) technology, advising its automakers to keep the cutting-edge innovations at home while encouraging them to export knock-down kits for final assembly in foreign markets. This move aims to maintain China's technological edge and control over its EV ecosystem, even as its automakers expand their global footprint.

Fortifying the Domestic EV Stronghold

Keeping the Crown Jewels at Home

China's Ministry of Commerce (MOFCOM) has reportedly held meetings with more than a dozen automakers, conveying a clear message: the country's advanced EV technology must remain within its borders. This directive is a strategic move to safeguard China's technological dominance in the rapidly evolving EV landscape. By retaining the core components and production processes domestically, China aims to solidify its position as the global leader in EV technology.

Knock-Down Kits: A Controlled Expansion Strategy

To facilitate global expansion while maintaining control over its EV technology, China is encouraging its automakers to export knock-down kits. These kits, which include key components of the vehicles, will be produced in China and then shipped to destination markets for final assembly. This approach allows Chinese automakers to establish a presence in international markets while ensuring that the most advanced and proprietary technologies remain within the country.

Localization Efforts: CKD and SKD Models

The knock-down kit strategy encompasses both Completely Knocked Down (CKD) and Semi Knocked Down (SKD) models. CKD models involve the complete disassembly of the vehicle, with all components shipped to the destination market for final assembly. SKD models, on the other hand, involve the shipment of a partially assembled vehicle, with some key components still produced locally. Both approaches enable Chinese automakers to maintain control over the most critical aspects of EV production while expanding their global footprint.

Cautious Approach to Overseas Investments

China's MOFCOM has also advised its automakers to exercise caution when considering investments in certain overseas markets. The ministry has specifically cautioned against making any auto-related investments in India, citing potential trade barriers. Additionally, automakers looking to invest in Turkey are required to first notify the Ministry of Industry and Information Technology and the Chinese embassy in the country.

Mitigating Globalization Risks

China's directive to keep key EV production within its borders could potentially hinder the globalization efforts of its automakers. As they seek to expand into new markets and offset stiff competition and sluggish domestic sales, the restrictions on overseas investments and the requirement to export knock-down kits may pose challenges. However, China's approach appears to be a calculated move to protect its technological advantage and maintain control over its EV ecosystem, even as its automakers venture into international markets.

Navigating Trade Barriers and Protectionism

According to the Bloomberg report, MOFCOM officials have noted that the countries inviting Chinese automakers to build plants are often those that are enacting or considering trade barriers to Chinese cars. This observation underscores the complex geopolitical landscape in which Chinese EV manufacturers must operate. By retaining control over the most advanced technologies, China aims to mitigate the impact of potential trade barriers and protectionist measures in overseas markets.

Cautioning Against Blind Expansion

MOFCOM has also cautioned Chinese automakers against blindly following trends or believing foreign governments' calls for investment. The ministry has emphasized the need for automakers to carefully evaluate the risks and potential trade barriers before committing to overseas expansion. This guidance reflects China's desire to maintain a strategic and measured approach to the globalization of its EV industry, prioritizing the protection of its technological advantages.