ISSR Scholars Mentor Seminar | "Supply Chain Structure and the Rise of China’s Electric Vehicle Industry" with Shanjun Li (Stanford University)

This paper examines how supply chain structure contributed to the rise of China’s electric vehicle (EV) industry. Combining the universe of VAT buyer–seller matched transactions in upstream auto parts production with detailed downstream vehicle sales data, we document two defining features of China’s auto supply chain: market thickness and geographic co-location. China’s supplier base is exceptionally dense and spatially clustered around major automotive hubs, and supplier–assembler distances are substantially shorter than in North America across many component categories. These features matter economically: thicker upstream markets reduce input prices through stronger competition, better supplier selection, and improved matching, while proximity between suppliers and assemblers raises matching probability, increases transaction volume, and improves product quality, especially for more customized parts. To quantify these mechanisms, we develop and estimate a structural model that combines a bargaining model between upstream part suppliers and downstream automakers with differentiated-product Bertrand competition downstream. The model links supplier competition, input prices, and input quality to downstream vehicle pricing and demand. Counterfactual simulations imply that if China had the upstream supply chain structure of the United States, EV prices would increase by roughly 50 percent and sales would fall by about 60 percent. Overall, differences in supply chain structure can explain roughly half of the U.S.–China EV price gap. The results highlight how dense supplier networks and vertical agglomeration can generate major competitive advantages in emerging manufacturing industries.

Shanjun Li is the Steven and Roberta Denning Professor of Global Sustainability in the Stanford Doerr School of Sustainability, and a Senior Fellow at both the Freeman Spogli Institute for International Studies and the Stanford Insitute for Economic Policy Research. He directs the Sustainability and Energy Transition Program at Stanford Center on China's Economy and Institutions (SCCEI). His research focuses on environmental and energy economics, urban and transportation economics, empirical industrial organization, and the Chinese economy. His recent work examines pressing sustainability challenges and the rapid rise of clean energy industries in China, exploring their global implications to support evidence-based policymaking.

Prior to joining Stanford, he held the Kenneth L. Robinson Chair in the Dyson School of Applied Economics and Management at Cornell University and served as the Director of the Cornell Institute for China Economic Research. He is a co-editor for the Journal of Public Economics and the International Journal of Industrial Organization. He is a research associate at the National Bureau of Economic Research (NBER) and a university fellow at Resources for the Future (RFF).