Shifting the Locus of Value Creation: Capability Evolution and Downstream Value Chain Reconfiguration in China’s EV Industry

Résumé:

Purpose: As the global automotive industry transitions towards electromobility, it undergoes a shift in industry architecture (Jullien, 2023). In the Chinese electric vehicle (EV) market, upstream and midstream hardware technologies, including battery cells, electric motors, and basic electronic architectures, are increasingly maturing and becoming commoditized. Consequently, the traditional source of competitive advantage, which relied heavily on manufacturing efficiency and hardware differentiation, is diminishing. The locus of value creation is shifting toward the downstream value chain. This downstream segment now gradually encompasses complex energy infrastructure, customer relationship management (CRM), user community operations, and smart mobility solutions. Western OEMs and policymakers frequently attribute the rise of the Chinese EV industry to upstream supply chain dominance and national subsidies. However, this hardware-centric perspective overlooks the major structural changes occurring at the user interface. This study addresses this gap by examining how and why downstream value creation reconfigures over time in China’s EV industry, and why these trajectories diverge across entrant types, particularly in terms of capability development and resource reconfiguration.

Design: This study employs a longitudinal comparative case study approach to capture the evolutionary dynamics of value chain reconfiguration. The analysis is organized by a common temporal frame reflecting macro shifts in China’s EV selection environment: a policy-driven initiation phase (2014–2017), a market-driven selection phase (2018–2022), and a technology-driven reconfiguration phase (2023–2025). This shared periodization is used to enhance cross-case comparability and to examine how firms’ downstream strategies respond to common industry-level dynamics.

To maximise theoretical variation, three anonymised focal cases are selected to represent distinct organisational origins and competitive logics in China’s EV market: (i) an incumbent automaker (asset-heavy manufacturing heritage), (ii) an EV start-up (capability building “from scratch”), and (iii) a diversifying entrant from an adjacent tech sector (transfer of software/connectivity capabilities), reflecting the increasing influx of non-traditional capabilities into the EV value chain ecosystem (Bozzola et al., 2024). Primary data is collected through semi-structured interviews with mid-to-senior level practitioners across technical and operational roles, ensuring a grounding in frontline operational realities. This primary data is triangulated with secondary archival sources. Analytically, the study integrates an overarching theoretical framework comprising the selection environment (Jacobides & Winter, 2005), architecture and boundary alignment (Brusoni et al., 2001; Takeishi & Fujimoto, 2001), and governance modes driven by relation-specific skills (Asanuma, 1989; Gereffi et al., 2005).

Findings: The comparative analysis reveals a dual movement: upstream and midstream activities converge toward inward integration, while downstream strategies reconfigure in divergent ways across entrant types. Driven by the need for architectural alignment to survive intense price wars and hardware commoditization, firms across all three categories demonstrate a strong tendency toward inward integration (hierarchy/make). They increasingly internalize core components to regain structural control and drive down manufacturing costs.

Conversely, in the downstream value chain, strategies diverge significantly based on the firms' initial resources and organizational heritage. Preliminary analysis suggests that start-ups utilize relation-specific skills (RSS) to build open, community-based user ecosystems. In contrast, incumbents tend to rely on asset-based extensions of their traditional physical networks to adapt to new market demands. Meanwhile, diversifying tech entrants apply capability transfer, migrating their existing software and connectivity ecosystems directly into the automotive downstream. This divergence highlights how different firm types transition from transactional sales models to relational user engagement.

Practical and theoretical implications: Practically, this research demonstrates to Western policymakers and automotive executives that the long-term competitiveness of Chinese EV firms relies heavily on value co-creation through downstream ecosystem expansion, rather than solely on upstream cost leadership. To compete effectively, traditional OEMs must recognize that defending manufacturing margins is insufficient if they fail to capture the recurring value generated at the downstream user interface.

Theoretically, this study extends the literature on industry co-evolution by shifting the analytical focus to the downstream value chain. By integrating Asanuma’s (1989) concept of relation-specific skills into downstream user and partner networks, the study offers a micro-level mechanism explaining how firms adapt to architectural changes. It provides a typology of entrant strategies, illustrating how firms can simultaneously deploy tightening boundaries in hardware production and porous boundaries in downstream services to achieve architectural resilience.

References

Asanuma, B. (1989). Manufacturer-supplier relationships in Japan and the concept of relation-specific skill. Journal of the Japanese and International Economies, 3(1), 1–30. https://doi.org/10.1016/0889-1583(89)90029-4

Bozzola, C., Anzolin, G., & O’Sullivan, E. (2024). The changing landscape in EV “value chain ecosystem”: A framework to assess present and future capabilities. International Journal of Automotive Technology and Management, 24(2), 169–192. https://doi.org/10.1504/IJATM.2024.141517

Brusoni, S., Prencipe, A., & Pavitt, K. (2001). Knowledge Specialization, Organizational Coupling, and the Boundaries of the Firm: Why Do Firms Know More than They Make? Administrative Science Quarterly, 46(4), 597–621. https://doi.org/10.2307/3094825

Gereffi, G., Humphrey, J., & Sturgeon, T. (2005). The governance of global value chains. Review of International Political Economy, 12(1), 78–104. https://doi.org/10.1080/09692290500049805

Jacobides, M. G., & Winter, S. G. (2005). The co-evolution of capabilities and transaction costs: Explaining the institutional structure of production. Strategic Management Journal, 26(5), 395–413. https://doi.org/10.1002/smj.460

Jullien, B. (2023). From ICE to BEVs: What changes of downstream business ecosystems to wait? International Journal of Automotive Technology and Management, 23(4), 445–458. https://doi.org/10.1504/IJATM.2023.136580

Takeishi, A., & Fujimoto, T. (2001). Modularisation in the auto industry: Interlinked multiple hierarchies of product, production and supplier systems. International Journal of Automotive Technology and Management, 1(4), 379. https://doi.org/10.1504/IJATM.2001.000047