In early July, China’s 20 millionth electric vehicle rolled off the production line, marking another milestone for China's auto industry, and the second 10 million took less than 18 months. Regarded widely as the "Made in China" sector with the greatest potential, the EV industry however brings a complete different set of requirements for legal services, and lawyers need to prepare accordingly.
China's electric-vehicle (EV) industry is clearly operating at full throttle. In the first five months of 2023, approximately 3 million EVs were manufactured, and about 2.94 million were sold in the country, marking year-on-year increases of 45.1 percent and 46.8 percent, respectively.
And there is no doubt at this point that EVs are poised to dominate the automobile industry, emerging as one of China's most exciting sectors in the near future. Auto Shanghai 2023 in April showcased over 1,500 complete vehicles, with two-thirds of them being EVs. Furthermore, the most popular booths featured electric vehicles, and even the new releases from traditional auto manufacturing giants were predominantly mass-produced EVs, either already in circulation or soon to be delivered.
"At Auto Shanghai 2023, new energy vehicles took center stage in the product launches of nearly all brands, with electric vehicles and smart operations serving as the prevailing themes and trends," says Karl Gao, vice president and global general counsel of NIO, a prominent EV manufacturer.
Unsurprisingly, this growth has garnered strong support from state policies. "The Ministry of Finance, the State Taxation Administration, the Ministry of Industry and Information Technology, and other government departments have issued policies aimed at optimizing the reduction and exemption of purchase taxes on electric vehicles. Furthermore, vehicle purchase taxes will not be applied to EVs equipped with swappable batteries, such as NIO's vehicle models," explains Gao. He goes on to mention that the government has also actively promoted industry development by investing in charging infrastructure, introducing new energy vehicles to rural areas, and enhancing the management of new energy vehicle services in rural regions. Many local governments have implemented special local subsidy policies and measures to manage charging facilities effectively.
Lin Wei, managing partner at Beijing DOCVIT Law Firm, pursued his undergraduate studies in electrical engineering and actively engaged in experimental research related to EVs. Lin is also a passionate enthusiast of cars and electronic products, a combination of interests that has uniquely equipped him to provide counsel to five car manufacturers in recent years, leveraging his profound industry knowledge.
Lin firmly believes that the automotive industry is currently poised for significant iteration and development. Spearheaded by new energy vehicles, the industry is poised to generate an output value and scale even greater than the mobile internet wave that began in 2010.
"New energy vehicles represent more than just a revolution in power sources. They encompass the advancement and application of battery, motor, and electronic control technologies, alongside the innovation and implementation of smart gateways, smart cockpits, and smart driving systems," Lin asserts. "Historically, the automotive industry has boasted the longest industrial chain and the highest output value, making it an ideal showcase of a nation's industrial prowess. With the emergence of new electric vehicles, hardware, software, data, and other crucial elements are converging on an unprecedented scale."
NEW GROWTH TRAJECTORY
In terms of business models, new energy vehicles are charting a distinct growth trajectory compared to traditional vehicles. Lin explains, "The new energy smart vehicle industry is poised to disrupt the traditional 4S model and the profit-oriented after-sales market that relies heavily on a disproportionately high parts-to-whole price ratio. Instead, the after-sales market for EVs will emphasize innovation and compete more in terms of service charges, software subscriptions, digital consumption, and hardware upgrades."
The commercial value of the "new car-making forces" extends beyond vehicle manufacturing. At the 2023 ALB Shanghai In-house Legal Summit held in June, Wang Qi, legal director of NIO's international business, emphasized NIO's commitment to staying closely connected to the market and its customers. NIO places a strong focus on "products + services" to create added value for its customers.
Gao further underscores the transformative impact of smart EVs on public lifestyles and the pivotal role played by in-house departments in this ongoing evolution. NIO's in-house department not only offers comprehensive support to various business aspects but also conducts forward-looking research in areas such as data compliance and autonomous driving. Gao elaborates, saying, "Our team strives to gain deep insights into technology, products, services, and business models. Simultaneously, we actively engage in discussions and collaborations with industry peers, regulators, and research institutes, all aimed at better supporting the development of the smart EV industry."
"For instance, as an emerging technology, autonomous driving presents numerous unresolved legal challenges and calls for the further enhancement of laws and regulations in China and other countries worldwide. Our team diligently tracks the developments in laws and regulations within China, the European Union, the United Nations, and beyond. We actively collaborate with relevant institutions on various research and pre-research efforts, including applications for pilot market entry and the utilization of intelligent connected vehicles," Gao explains.
Lin draws a compelling analogy, likening new energy smart vehicles to super-smart terminals: "All the applications and scenarios that were previously confined to chips, computers, the Internet, mobile Internet, big data, and artificial intelligence will converge within this industry. Consequently, the new energy smart vehicle industry is poised to become a trillion-dollar sunrise sector annually in China alone for at least the next 20 years. Moreover, this industry aligns closely with policies related to the energy revolution, domestic demand stimulation, industrial upgrading, and scientific and technological breakthroughs."
Based on ALB's observations, the in-house teams of these EV manufacturers have become increasingly proactive in showcasing their work and team culture. Legal experts have also taken on dual roles as legal advisors and public relations professionals within EV companies.
In May of this year, the in-house teams of NIO, XPENG, and Leapmotor established official Weibo accounts, with NIO's in-house team also making an appearance on China's TikTok platform. Li Auto and Tesla introduced their in-house teams to Chinese social media in 2022 and 2021, respectively.
Gao shares that NIO welcomes media and public scrutiny. Their social media presence serves a dual purpose: to disseminate positive news that benefits the industry and societal development, and to provide timely feedback and clarification in response to misleading or maliciously slanderous information. Gao states, "Recently, we have encountered numerous false allegations, and our customers have been subjected to malicious attacks, some of which may even involve organized infringement activities. We will respond firmly to these attacks to protect the legitimate rights and interests of our users and ourselves, and to promote the healthy growth of the industry."
"On the other hand, China's smart EV industry stands at a critical juncture of development, with numerous challenges ahead. NIO advocates for a healthy, positive, and transparent public discourse environment, enabling all stakeholders to channel more energy and resources into technological advancements and delivering superior products and services," adds Gao.
It is evident that the roles performed by the in-house teams of these new car manufacturers go beyond traditional expectations. As Lin aptly describes it, "The depth and breadth of legal services required in this industry are unparalleled in history. This industry touches upon various legal aspects, with the most prominent ones being investment and financing, intellectual property, competition, data compliance, energy infrastructure, corporate and user relations, as well as public relations and communication."
Significantly, though named as "corporate and user relations" and "public relations and communication," these domains encompass aspects traditionally associated with after-sales, customer service, and public relations departments. Lin elaborates, "In fact, as new energy smart vehicles evolve into a type of technology and internet product, we soon realize that users have become the key determinant of a product's success or failure in a short period. This represents a critical distinction from the traditional auto industry. Simultaneously, media and self-media outlets also wield significant influence. Hence, the demand for legal services in these two areas becomes exceptionally important, setting the new energy smart vehicle industry apart from the traditional auto sector. Clients highly value such legal services."
For this reason, Lin believes that external lawyers serving EV companies should adopt an open-minded approach and actively assist clients in effectively managing six types of "external relations" that are of particular concern to them. These include their relationships with competitors, the capital market, regulators, upstream and downstream stakeholders, the media, and users.
According to Gao, NIO's in-house team, consisting of nearly 100 members, engages in a wide range of business activities, legal domains, and jurisdictions. They manage over one million legal matters and contracts annually, with expectations of an even higher workload in the future.
"The pivotal next-stage developments in the new energy vehicle industry encompass digital cockpits, smart driving, and other intelligent applications, necessitating synchronized progress in supporting laws and regulations. It's encouraging to witness substantial efforts from relevant government agencies, research institutions, and our industry peers on these fronts," states Gao.
He further adds, "The NIO Institute of Legal Innovation has partnered with Tsinghua University Law School to conduct comprehensive research on autonomous driving, covering areas like data compliance, tort liability, insurance, intellectual property, as well as moral and ethical considerations. We anticipate the emergence of more laws, regulations, standards, and best practices in the near future."
To match the pace of development in smart applications, NIO requires its in-house team to evolve into a highly forward-thinking unit with deep research capabilities. Gao emphasizes, "Each team member must be capable of supporting forward-looking research, iteration, and innovation, displaying a commitment to continuous learning to better support business development. Concurrently, NIO organizes staff training both domestically and internationally, encompassing subjects like data compliance, intellectual property, dispute resolution, corporate governance, and more."
In-house departments within EV companies, known for setting high standards, naturally seek external partners who are equally proficient. Wang from NIO shared with ALB that the ideal external lawyers serving EV companies should possess business knowledge, exhibit business acumen, and even proactively identify potential issues that the company might not have anticipated.
These expectations align closely with Lin's guidance to fellow legal professionals: "Lawyers aspiring to make their mark in this trillion-dollar industry can focus on enhancing themselves in four key areas: cultivating deep legal expertise, developing a profound understanding of clients' technologies, aligning closely with clients' commercial requirements, and fostering positive publicity for their clients."