The Daily Planet #86: The AI Bubble, Part 11

Vertical integration works for high-tech production, part 2: what works for Google in AI (and Apple for Phones) has also worked for BYD when it comes to EVs.

The global automotive industry is undergoing a profound transformation, marked by what can be called the “Chinese electric vehicle (EV) shock.” This shift echoes the “Japan Shock” of the 1970s, when Japanese automakers disrupted Western markets with high-quality, fuel-efficient, and affordable cars, prompting Western industries to adopt Japanese management techniques like the Toyota method.

Today, China, led by companies such as BYD, has emerged as the dominant force in the EV sector, surpassing Tesla in production and exporting a majority of the world’s new energy vehicles. This rise is underpinned by a distinctive neo-Fordist approach characterized by extensive vertical integration, where firms control nearly every stage of production—from battery technology and microchips to lithium mining and vehicle assembly. BYD exemplifies this model, operating massive factories and employing a large, labor-intensive workforce, which contrasts with the highly automated, outsourced production typical of Western and Japanese firms.

China’s success is also the result of deliberate state-led industrial policy. The “Made in China 2025” plan aims to secure 80% of the EV value chain domestically, reducing vulnerability to global supply disruptions and fostering technological leadership. Generous subsidies, technology transfers, and support from local and central governments have nurtured a competitive domestic industry. China now produces 60% of all EVs globally and controls critical raw materials and battery production, giving it a formidable cost advantage.

This vertically integrated, state-supported model challenges Western countries, which have traditionally relied on post-Fordist, flexible manufacturing and global supply chains. The vulnerabilities exposed by recent supply chain disruptions have prompted a reconsideration of these strategies. Western governments face the urgent task of responding not just with tariffs or military spending but by seriously addressing China’s technological and industrial ascendancy. The EV revolution thus represents a pivotal moment in global economic competition, with China setting new standards in industrial organization and innovation.

The Electric Vehicle Developmental State | Paolo Gerbaudo

BYD exemplifies transformations in Chinese industrial policy