But the threat of a flood of cheap EVs is spooking foreign governments. The European Union launched an anti-subsidy probe against Chinese EV companies last year, which could result in higher tariffs for Chinese EVs. The U.S.—which deems Chinese cars a national security threat—is warning that “excess capacity” in China could overwhelm world markets.

But at the Fortune Innovation Forum in Hong Kong last week, Roger Atkins, founder of Electric Vehicles Outlook, an EV consultancy, noted that previous car exporters found a way to manage protectionist backlash.

“We’ve been here before,” Atkins said. “Japan had its export onslaught in the U.S. and Europe back in the 1970s and 1980s. The Europeans and Americans imposed tariffs, and then the way the Japanese got around that was to embed production plants in those locations.” 

Atkins then pointed to BYD’s new plant in Hungary as an example of how the Chinese carmaker is now expanding its global manufacturing footprint. (BYD is also building factories in Thailand and Brazil, and is considering new manufacturing facilities in Indonesia and Mexico.) 

Christopher Beddor, deputy China research director at Gavekal, saw parallels to earlier Beijing-led campaigns to encourage the solar and wind power industries. “China is essentially doubling down on industrial policy,” he noted.

“The central leadership will say: ‘We want to target a certain industry.’ Everyone focuses on that, it’s conducted in a campaign style,” he explained.

Beijing is now starting to worry about overcapacity in the system, with one official in early January promising to take “forceful measures” to address new EV projects that weren’t supported by demand. 

This push-and-pull is part of China’s industrial playbook, Beddor said. “[Officials] go forward, [then] at some point, there’s a recognition [they’ve] gone too far. They pull it back,” he said.

Beijing started offering tax and infrastructure incentives in the early 2010s, helping to foster as many as 500 EV companies at one point. That number has since come down to about 100 companies.

China is now rolling back its support for the sector, which could lead to further consolidation as EV companies, many of which have yet to make a profit, exit the market.

Yet Paul Gong, executive director of auto research at UBS, said at the forum last week that the “fierce competition” in the sector—among startups, legacy automakers, and even tech giants—has been good for the industry. 

Thanks to market competition, China’s “carmakers have really brought down the EV cost on par versus [internal combustion engines],” he said. “It is this market force that has brought the innovation [and] efficiency game.”

BYD and Tesla

Gong, at the forum last week, also discussed the differences between BYD and Tesla, both battling for the position of the world’s top EV seller.

After a teardown of the Tesla Model 3 five years ago, Gong said the UBS team was “shocked how much Tesla was ahead in terms of technology leadership.” Yet a similar teardown of a BYD car, just a few years later, revealed the company’s level of technological sophistication was approaching Tesla’s.

“There is little gap [in] technology, but just different priorities,” he said. Tesla prioritized top speed and autonomous driving, while BYD focused on space and 5G connectivity, he added. 

Yet Gong noted one critical difference: A BYD car, comparable to the Model 3, cost 15% less than production in Tesla’s Shanghai gigafactory.

Unlike Tesla, BYD makes its own proprietary battery, the Blade, and so does not have to rely on an external supplier like CATL or LG Energy Solution. (The battery can constitute as much as 40% of an EV’s cost.)

“We were shocked at how fast BYD has caught up,” Gong said.