For years, political leaders and automotive executives in the U.S. and Europe have claimed that Chinese electric vehicle (EV) manufacturers rely heavily on subsidies to gain a competitive edge. However, a new report from the Rhodium Group challenges this narrative, arguing that the true driving force behind China’s EV success lies in structural advantages rather than government support.

The report highlights how Chinese automakers have constructed formidable competitive barriers through high vertical integration, significant economies of scale, and superior cost control—factors that are difficult for Western rivals to replicate. Take BYD as an example: the company internally manufactures nearly 80% of its core components, enabling it to save approximately $2,369 per Seal sedan in supplier markup costs compared to Tesla’s Model 3. By 2025, BYD is projected to achieve a gross margin of 20%, surpassing Tesla’s 18%.

In contrast, Western automakers struggle with fragmented supply chains and high costs due to their long-standing reliance on outsourcing. Rebuilding domestic supply chains poses additional challenges, including worker skill gaps and stringent environmental regulations.

Chinese EV makers are also shifting their global strategies from export-focused models to localized production. This is evident in BYD’s Hungarian factory and SAIC’s European expansion plans. Even amid EU tariff barriers, these companies can sustain price advantages by constructing overseas factories.

The Rhodium Group report underscores that China’s EV dominance is fundamentally a result of industrial system efficiency—not policy manipulation.