Seeing Green

The Great Race

It was the London 2012 Olympics. Men’s 400 meter freestyle. The US and China were both being represented in the final race. China was represented by Sun Yang and Hao Yun, and the US by Peter Vanderkaay and Connor Dwyer. 

US Olympic swimming fans had high expectations for Vanderkaay and Dwyer, hoping that they would bring home a gold and silver medal. Those hopes stayed alive until the 53-second mark of the race, after which Yang blew the Americans out of the water.

It wasn’t close. The American fans in attendance watched in anguish, with hands covering their faces, as the gap between China and the US grew larger and larger until Sun Yang secured the gold medal. 

Unbeknownst to the world at the time, this freestyle swimming race would foreshadow the future green tech race between the US and China.

During the early 2010s, the US was the clear-cut global leader in green tech development. But in the years since, this paradigm has shifted dramatically. China doubled down on their green tech efforts, while the US sat in complacency. 

As of 2023, China’s $880 billion of investment in green tech is nearly 4x the amount of US investment, and nearly half of the world’s total investment in green tech. 

On the international stage, China is winning. Over the past five years, China’s global share of solar panel exports rose from 44% to 62%, and their global share of EV exports soared from 1% to 24%. China’s presence in the global green tech market is being felt.

Beamer, Benz, or BYD

Why is China’s green tech industry thriving? The intuitive answer is that their government has pledged to achieve carbon neutrality by 2060, which is why their investment in green tech is projected to rise to $14 trillion by 2060.

But a more nuanced explanation lies in China’s macroeconomic trends. 

China is currently waist-deep in a historically-bad recession. This economic crisis was created by massive structural problems, including the collapse of their real estate market, a high youth unemployment rate, demographic crises, and geopolitical strains. 

While China’s economic situation is nightmarish right now, their future is still bright. 

On the supply-side of the market, a flood of public and private R&D investment is fueling the mass production of affordable, state-of-the-art green tech. On the demand-side of the market, a remarkable shift in consumer behavior is providing the green tech industry with the customers it needs to thrive.

This shift in consumer behavior is defined by two components.

• Rising disposable income

  • In the midst of China’s real-estate crisis, every 5% decline in housing prices is wiping out $2.6 trillion of wealth across the country. This is destroying the Chinese people’s confidence in property as a safe storage for wealth, so they are liquidating their assets into disposable income. Hence, China’s per capita disposable income grew by 6.3% in 2023. 

• Stronger taste for tech

  • Over 60% of Chinese consumers in urban areas now prefer high-value, high-tech products over cheap, low-value goods. 

The combination of rising disposable income and changing preferences is creating a strong consumer base for the green tech industry to tap into, keeping their economy afloat in this recession. 

• In 2023, green tech accounted for 40% of China’s GDP growth

• While most major Chinese companies suffered losses in 2023…

  • BYD (an EV company) posted profits of $2.4 billion

  • GEM (a lithium-ion battery manufacturer) posted profits of $1 billion

China’s EV ecosystem is ripe with innovation. 

• Hozon is developing AI-integrated EVs. ($3.44B raised to date)

• Leapmotor is developing affordable EVs for the global market. Stellantis, the maker of Dodge and Jeep, recently acquired a 20% stake for $1.6B. ($1.76B raised to date)

• Guangzhou QiHua Technology is designing carbon-neutral methods of producing lithium-ion batteries. ($1.65 million raised to date) 

The list goes on and on.

Chinese EV startups have experienced consolidation and reduced competition. The industry is maturing. In 2019 the Chinese EV market was made up of 500+ startups. Today, ~100 companies remain. Although competition thinned out, the prize pool has increased. About 33% of all cars sold in China are electric or hybrid, and this is expected to reach 50%+ by 2030. The winners of China’s EV market, led by BYD, have a bright future ahead of them.

Headlines:

• GGV Capital splits into two separate brands - one U.S. based and one China based. Read about it here

• Tiger Global closed on $2.2B for its most recent fund, less than half of its original target. Read about it here

• OpenAI is pitching Sora in Hollywood, and Tyler Perry thinks it will revolutionize movie-making. Read about it here

• Sam Altman gives up control of OpenAI’s Startup Fund. Read about it here