Japan’s Teardown of Chinese EVs Reveals Secrets

Chinese EV manufacturers are achieving notable cost efficiencies by streamlining production processes and parts usage, as highlighted during the recent electric vehicle disassembly exhibition attended by Japanese auto parts manufacturers. By integrating multiple components into single, multifunctional parts, Chinese automakers reduce complexity and assembly time, which not only keeps production costs lower but also makes repair and maintenance more straightforward.

This strategy is further enhanced by maximizing in-house production capabilities and standardizing components across various models. Such standardization reduces the need for unique parts per model, driving down inventory and tooling costs, and facilitating economies of scale.

For Japanese manufacturers, renowned for their advanced automotive parts production, these insights underscore the competitive advantage Chinese automakers have established in EV manufacturing. In October, Japanese auto parts manufacturers from central Japan’s Chubu region attended a Chinese electric vehicle disassembly exhibition. Adopting similar methods or partnering on specific components could be key for Japanese firms to maintain a competitive edge as the global auto industry increasingly shifts to electric vehicles.

Sanyo Trading Organized a Teardown of More than Twelve Chinese EVs

The exhibition organized by Sanyo Trading provided Japanese auto parts manufacturers with an in-depth look at the cost-effective design strategies employed by Chinese EV makers, exemplified by models like the BYD Atto 3. Priced at approximately $20,000, the Atto 3 showcases how hyper-integration of components drives down manufacturing costs and reduces vehicle weight.

The e-axle electric drive, which consolidates eight key parts—including the motor, inverter, gearbox, charger, and AC converter—into a single unit, was particularly impressive to the 70 Japanese component manufacturers in attendance. This level of integration minimizes the number of individual parts needed, simplifying the assembly process, reducing weight, and cutting down both material and labor costs. Such design efficiencies are instrumental in achieving the affordability of Chinese EVs, which continues to attract attention and admiration from global automakers and suppliers alike.

For Japanese manufacturers, these insights emphasize the potential benefits of rethinking component integration and in-house production strategies to compete in the fast-evolving EV market.

“I was shocked how few parts there are in BYD electric cars. We want to use the experience gained by the Chinese to advance in the electric vehicle sector,” said a representative of Nissin Precision Machines.

“Chinese manufacturers prioritize cost reduction as much as possible. They have a different attitude to quality than Japanese manufacturers,” commented a representative of Sanyo Trading.

Chinese EV manufacturers have established a cost-effective production model through several key strategies:

Integrated Parts: Many Chinese EVs use hyper-integrated components, such as the e-axle electric drive unit, which combines up to eight essential parts—motor, inverter, gearbox, charger, and AC converter—into a single unit. This design reduces the vehicle’s overall weight, simplifies assembly, and cuts costs significantly.

Mass Production: By leveraging mass production and economies of scale, Chinese manufacturers lower per-unit costs. High-volume production also enables them to bring vehicles to market quickly and keep prices competitive.

Component Sharing: Parts are often shared across multiple models, a practice that not only standardizes production but also decreases the need for unique parts. Furthermore, manufacturing many of these components in-house strengthens quality control and further reduces costs.

Comprehensive Vertically Integrated Supply Chain: China has a vertically integrated supply chain, especially in critical areas like battery production. This structure allows Chinese EV makers to source essential materials domestically, maintaining cost advantages and reducing dependencies on foreign suppliers.

Together, these strategies enable Chinese EV manufacturers to produce affordable electric vehicles, creating strong competition in the global market. China has been able to produce lower-cost EVs due to a combination of intense domestic competition, subsidies, a low-paid labor force and a comprehensive, vertically integrated supply chain.

“The companies that go very, very far upstream, capture the materials years ahead of time, lock them up and build a clear strategy around the battery supply chain will win,” said Doug Field, a former Apple Inc executive who started his career 35 years ago at Ford.

Vertical Integration As a Driver of Competitive Advantage

Ford CEO Jim Farley said his company will attempt to produce as many parts as possible for its electric vehicles. As OEMs move toward vertical integration, suppliers will be under further strain to retain their business.

With a clear competitive strategy in place, EV companies can strengthen their position by rigorously assessing each value chain activity for its role in sustaining competitive advantage and generating long-term value by increasing vertical integration. This begins with a fundamental question: “Given our chosen strategy, does keeping this activity in-house enable us to maintain higher prices or lower costs over the long term compared to outsourcing?” This evaluation helps firms determine where vertical integration can provide enduring benefits, rather than opting for outsourcing purely to reduce short-term costs or ease operational demands.

By aligning decisions on vertical integration and outsourcing with a strategic, long-term view, rather than reactive cost-cutting, EV firms increase their chances of thriving in a highly competitive industry. Investors, too, can benefit from this approach by prioritizing investments in companies with clear strategies for creating sustained value, avoiding those lacking a robust roadmap for long-term growth and profitability. This disciplined focus on strategic alignment across the value chain ultimately positions EV firms—and their investors—better in a dynamic market.

Lower Cost of Labor, Intense Domestic Competition, Subsidies

The European Commission’s recent investigation highlighted that Chinese electric vehicle (EV) manufacturers receive significant state support, giving them a competitive edge that is difficult for European and American brands to match. Chinese EV brands benefit from a range of government subsidies, such as low-interest financing and direct grants aimed at driving down production costs and advancing technology. Additionally, these companies gain access to land and essential raw materials, like those needed for battery production, often at below-market rates, which further reduces their operating expenses. Tax breaks provided by the Chinese government also enhance the profitability and competitiveness of these EV brands in the global market.

Bloomberg reported that China’s EV makers got $231 Billion in aid over fifteen years. China’s electric vehicle industry received at least $231 billion in government subsidies and aid from 2009 through to the end of last year, even as the amount of support per vehicle has declined, according to a new research.

These practices have raised concerns within the EU about unfair competition, prompting discussions on tariffs or other measures to mitigate the market impact of these subsidies on European and American automakers.

Another factor enabling Chinese brands to produce affordable EVs is China’s large, industrious, and comparatively low-paid labor force. In places like Changsha, Hunan Province, workers are drawn to job opportunities at companies like BYD, where a steady flow of out-of-town applicants arrive at recruitment centers with suitcases, ready to work and live on-site if hired. The availability of a low-cost, hardworking labor force in China is a crucial factor in maintaining the cost efficiency that allows Chinese brands to produce increasingly affordable EVs, significantly impacting global competition.

US Tarriffs

In May, the US raised its Chinese EV tariffs to 100%. The increases in the tariffs would likely have little impact on Chinese EV companies, as only a few are currently sold in the U.S. One example is Volvo’s EVs. While Volvo is based in Gothenburg, Sweden, it is owned by Zhejiang Geely Holding of China, along with Polestar and Lotus. The long-term impacts would likely be a growing rift between the U.S. and China, creating ongoing, multiple problems for U.S.-based EV producers, including decreased competitiveness.

In May, upon the release of news about the new US tariffs, Bill Russo, automotive industry expert and Founder, Chairman and Board Director of Shanghai, China-based Automobility Ltd., said:

“If 100% tariffs were a missile aimed at Beijing, it landed on Detroit. Tariffs are best used as a tool to cause manufacturers to favor domestic production and sourcing — which is preferred for obvious reasons. The issue here is they are being levied for one particular product type (EV) from only one country (China) in order to protect a domestic industry (automotive) where domestic players are uncompetitive in that product type. Tariffs will not make them more competitive and will slow the transition to EV.”

Russo continued: “Washington has confused ‘national security’ with ‘security blanket.’ It is in the national security interest to pave a path to decarbonization of the transport sector leveraging a domestically secured clean energy supply chain. However, these tariffs instead create a security blanket for an automotive industry that would rather continue to extract short-term profits from products linked to the oil and gas supply chain.”