Electric Dreams, Robot Reality: China's EV-to-AI Evolution

Convergence Point: Why China's EV Leaders Are Pivoting to AI

*Updated information about China’s “AI Plus” initiative, which was introduced during the most recent two sessions.

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For a while now,

JS Tan

and I have been working on an analysis of China’s prioritization of “实体经济” the so-called “real economy” [which we’ll aim to get it out there in the next few weeks] and how that has laid the foundation of its direction of AI building. We touched on it briefly as one of the factors explaining why China’s AI monetization strategy has been heavily skewed towards the consumer application end vs. the enterprise strategy the U.S. AI labs are adopting, as China’s knowledge worker base makes up such a small percentage of its workforce that is mostly in industrial roles driving the growth we’ve witnessed over the last few decades. This all relates to our story - EVs’ integration of AI & venture into robotics.

To understand how Chinese EVs are becoming AI pioneers, we must first examine the ecosystem that enabled their rise to global prominence.

Transformer car. Are you a car or are you a robot? Source 视觉中国

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China's EV Dominance: A Convergence of Strategic Industries

As the age of embodied AI dawns, China's bedrock of manufacturing prowess uniquely positions it at the forefront. But before we understand how Chinese electric vehicles (EVs) are pivoting to AI, let’s understand how Chinese EVs even became global industry leaders. A concept I really appreciated that Princeton post-doctoral researcher Kyle Chan wrote in his newsletter astutely observed that numerous crucial industries in China "grew up" in tandem. This wasn’t a matter of chance but a deliberate national planning effort, meticulously fostering a network of interconnected sectors. It was a conscious national planning effort to push forward a series of connecting sectors. These sectors include lithium batteries (i.e., CATL, CALB), Smartphones (i.e., Xiaomi, Huawei, Oppo), traditional OEMs (i.e., BYD, SAIC, BAIC), lidar and sensors (i.e., Hesai, Robosense), industrial robotics (i.e., Inovance, Siasun), and even renewable energy solutions (i.e., Longi, Jinko Solar, Sungrow).

In many ways, all of these were propelled forward through the country’s Five Year Plans, one five-year at a time, and now have converged at this point in time to be ideally suited to enable the next generation of embodied AI EVs.

This tech-industrial convergence, a theme I’ve previously explored in my Physical AI primer, reveals that the underlying technologies of EVs, robotics, and AI are not novel in isolation. The actual inflection point lies in their synergistic convergence, where Chinese EV market leaders find themselves remarkably well-positioned, possessing accessible technologies that are now converging and coming together along the supply chain.

In a December 2024 report, the Financial Times reported that EVs were to outsell traditional cars in China for the first time in 2025, putting China’s EV transition adoption miles ahead of major Western markets. The same report said that Beijing’s official target for domestic EV sales (including battery and plug-in hybrids) is growing by about 20% year over year to more than 12 million cars in 2025.

Robert Liew, director of APAC renewables research at Wood Mackenzie, said that China’s EV milestone signals its success in its domestic technological development and its ability to secure global supply chains for critical resources used in EV batteries. Adding that “they want to electrify everything…no other country comes close to China,” Liew told the FT.

Source: Financial Times

I spoke to Cameron Johnson, Partner at TidalWave Solutions, a Shanghai-based supply chain management consultancy. Cameron is a regular on Bloomberg TV, commenting on China’s economy, industrial growth, and supply chain-related issues. You might recognize him from there ;p. He’s provided some excellent insights into how to view China’s AI advantages through its manufacturing sector.

The Human Element: China's Technical Talent Advantage

While manufacturing capabilities and supply chains are crucial, China's competitive edge in AI and EVs is equally rooted in its human capital development.

And I think the talent aspect has often been overlooked, as I’ve written before that Zhejiang University educated three out of six of the AI dragons in Hangzhou.

Beyond that, “China graduates roughly 1.5-1.6 million engineers per year, vs. 100K+ in the US,” said Johnson; just sheer number-wise, it’s being underappreciated. Adding that, “People miss the ecosystem that is powering these industries in China. The integration of the supply chain ecosystem fueling these (and other) areas is not considered when people look at what is happening in China.”

“There are five components: advanced infrastructure, talent and an educational apparatus to train workers, technology, government support (in all its forms), and raw material access and/or the ability to process them. China has these components in most industries,” said Cameron Johnson, adding that “most countries only have a few” of the characteristics above.

He’s not the only one saying that. In

Hua Bin

’s writing, he also pointed out that industry leaders in the U.S. actually know about this.

Hua wrote: “Pavel Durov, the founder of Telegram, attributed China’s rapid AI advancements to its highly competitive education system, pointing out China’s consistent excellence in global math and programming competitions.”

MarcoPolo, a think tank part of the Chicago-based Paulson Institute, found that "researchers originally from China now make up 38 percent of the top A.I. researchers working in the United States.” I mean not to stereotype, but even visually, we’ve seen many East Asian/ Chinese-heritage engineers in launch demos from all the U.S. AI labs; of course, many are second—or third-generation immigrants like myself, but many actually only migrated to the U.S. in recent years.

And we’re not just talking about programming engineers. About ten years ago, the rise of DJI, SenseTime, Horizon Robotics, and similar firms trained a generation of hardware-software engineers. These engineers are now out in the world creating something new, leveraging what they learned at these leading drone and industrial robotics companies and making them more sexy—humanoid robots.

Even Jensen Huang, the OG himself, said that China has a strong STEM education and trained robotics and mechatronics capabilities during his HKUST fireside chat last November.

Global Headwinds: Navigating Market Access Challenges

Despite China's technological achievements in the EV sector, geopolitical tensions have created significant market access challenges that shape how these companies strategize their global expansion.

China's EV battery manufacturers, including CATL and BYD, produced more than half of the world’s EV batteries in the first half of 2024. But that doesn’t mean they’ve had it easy. Despite global dependence on China's EV battery sector, Chinese electric vehicles face increasing restrictions across Western markets due to competitive protection concerns and increasingly geopolitically charged narratives.

The United States, European Union, and Canada have each implemented significant restrictions on Chinese EVs, though their approaches and severity levels differ. As the China-US trade war continues to normalize as a backdrop to international trade and competition and concerns about advanced technology security intensify, countries like Canada have cited issues regarding labor conditions in EV manufacturing. China has responded by filing complaints with the World Trade Organization, viewing these tariffs and restrictions as protectionism while directing Chinese OEMs to reduce their investments in European counterparts.

Meg Rithmire, a Harvard Business School professor who researches China’s political economy, told Rest of World. Adding that many recent incidents have shown tightened party control over Chinese society, state investments in strategic industries, and Beijing’s more aggressive foreign policy have all fueled a deeper suspicion in the U.S. (and the West as a whole)

“There’s just this blurred boundary between firms and the state,” said Rithmire. (from Rest of World’s deep dive on Chinese EV battery firm Gotion’s failed efforts to build a factory in the U.S.)

Why are EV Firms Pivoting to AI?

With a strong manufacturing base and technical talent pool, Chinese EV makers are uniquely positioned to integrate AI capabilities, creating new value propositions beyond traditional mobility. And AI seems like the most natural next thing to tap into.

On Feb. 10, BYD's shares surged to a record high in Hong Kong after announcing that it would release extremely cheap models with autonomous driving capabilities. In addition, the company said that it will integrate DeepSeek into its system to enhance the AI assistant experience, marking a strategic shift toward smart driving systems.

BYD AI-empowered cockpit

“Advanced smart driving will become a standard safety feature similar to seatbelts and airbags, BYD’s founder and chairman Wang Chuanfu said at a China-focused launch event livestreamed late Monday,” according to CNBC’s report. All for the cost of under RMB 70,000, that is under USD 10,000.

But looking into the future, it’s not just autonomous cars. I mean, Waymo has partnerships with Geely’s Zeekr and all, and the future of mobility may soon be driverless, but that’s not the focus of this piece today…

Source: Morgan Stanley

Future of EVs = Electrification + Intelligence

“The unveiling of Deepseek was an earthquake on a global scale,” said Johnson. We’ve seen DeepSeek being integrated swiftly across industries in China. The integration of DeepSeek into China’s EV space has been swift.

Many key industry leaders, from BYD to Li Auto, share this vision - AI can be empowering the cockpit. Notably, Li Auto’s CEO, Li Xiang (yes, he named the Chinese brand after himself), believes that the "electrification" of electric vehicles is only the first half of the game. The true second half is "intelligence." However, in a recent interview, he said that the intelligence here is not traditional software intelligence but a complete evolution empowered by AI.

Adding that, Li Auto’s ambition is to establish a leading artificial intelligence enterprise, where automobiles serve as the means, and intelligence is the ultimate goal."The vehicle" serves as a vessel for Li Xiang's vision of achieving intelligence, or rather, it is a profitable product.

Government Fueling the Embodied AI Revolution

Government incentives again have played a huge role in bolstering this industry. Like many other sectors under “the real economy,” municipal and federal governments have helped elevate them. For example, in Shenzhen, the local government has just implemented policies to boost AI and robotics development. By 2027, it aims to host more than 10 companies valued at over 10 billion yuan ($1.3 billion) and over 20 companies with annual revenues exceeding 1 billion yuan. And according to Nikkei’s reporting, that’s only part of a string of incentives. Shanghai aims to cultivate a 1 trillion yuan industry by the end of this year. At the same time, Beijing has announced plans to establish a 10 billion yuan robotics fund and create a humanoid innovation center. Provinces such as Zhejiang, Shandong, Chongqing, and Anhui have all rolled out targeted robotics action plans.

According to the government's official press release, “AI Plus” was introduced in the most recent Two Sessions meetings. This initiative aims to propel China into an AI "super market” through clearer regulatory support and control of AI misuse, educational efforts to address talent shortage issues, and integration of AI across industries, such as EV, to help critical industries.

According to

SemiAnalysis

’s most recent analysis. China’s robotics is also going full-local, and we’ve discussed how that cost advantage is enormous in the Unitree piece. Semianlaysis wrote that the localization effort is well underway.

“Local firms are taking over the world’s largest market, approaching a 50% market share, compared to just 30% in 2020…The rise of Unitree exemplifies this shift: the only viable humanoid robot on the market, the Unitree G1, is now entirely decoupled from American components…Today, building an identical robot arm (modeled after the Universal Robots UR5e) in the US is ~2.2x more expensive than in China. Under the hood, the situation is even more alarming.”

It’s everything from policies to cost advantages to know-how, underappreciated talent, and government incentives that are really helping Chinese EVs pivot to AI so quickly and smoothly.

Capability Overlap: Autonomous Driving Technology and Robots

To be honest, the demand for humanoid robots isn’t new to China. There have been years of need for manufacturing automation as fewer blue-collar workers want to work manual labor jobs and an increasing issue with labor shortage due to an aging population. China has also had an active national push to dominate humanoid robotics by 2027, and we’ve seen existing supply chains and experience with advanced technology.

In a Nikkei article, Paul Gong, head of China autos research at UBS Investment Bank, described Musk as a sort of "spiritual leader" for the humanoid industry, a role he also played in EVs. Tesla's full self-driving technology, he said, "pushed Chinese automakers to continuously pursue smarter vehicles and autonomous driving, and the introduction of the humanoid robot concept has also led numerous Chinese companies to explore this direction."

We’re seeing that EV players' mainstream interest in humanoid robots took off after Tesla released its Optimus robot in 2022. Multiple Chinese companies already announced last year that they had started to deliver humanoid robots to EV makers. Chinese EV manufacturers are leveraging their technological expertise in sensors, batteries, and machinery to develop these humanoid robots - all making a lot of sense when you spell it out like this.

In 2024, China's humanoid robot market reached 2.76 billion yuan, with forecasts projecting growth to 75 billion yuan by 2029, representing 32.7% of the global market.

To note what a few major players have done: BYD has initiated a humanoid robot project, codenamed "Yao Shun Yu. " GAC Group unveiled "GoMate," its third-generation intelligent humanoid robot, in December 2024. XPeng unveiled its humanoid robot called "Iron" in November 2024. And NIO is recruiting heavily in the space and investing heavily in R&D.

But for any of these products to go to market safely, with proper regulation and consumer trust… well, that might take some more time… today, we end here. Do leave a comment or DM me if you have any feedback.