China’s rush towards EVs hits roadblocks
Back in May 2015, in an effort to reposition China away from being a low value added, export led economy, Chinese Premier Li Keqiang unveiled its Made in China 2025 (MIC2025) strategic industrial policy. Among the ten key high-tech sectors earmarked for substantial state support were green vehicles and green energy, which stood to benefit from a package of measures ranging from massive government investment in infrastructure to generous subsidies for buyers.
By 2021, China accounted for 53 percent of global new energy vehicles (NEV) sales, dwarfing both the US and EU markets at 33 percent and 11 percent respectively, clocking up sales of 3.31 million units in 2021 alone. The total number of NEVs on the road in China is expected to surpass 10 million in 2022, with Battery EVs (BEVs) representing some 80 percent of new sales. Historically high levels of air pollution in China have added pressure to fast-track NEVs more so than in most markets, as transport emissions from China’s ever growing commercial and private fleets have exacerbated the issue in urban areas.
Of the 6 million NEVs expected to be sold in China in 2022, domestic players are rapidly taking market share from the legacy manufacturers and from global EV phenomenon Tesla, whose Shanghai Gigafactory has recently ramped up capacity to produce 1 million vehicles per year. Established domestic manufacturers such as BYD -which has ceased production of purely fossil fuel powered vehicles from this year- commands a 73 percent share of NEV passenger vehicle sales while upstarts such as NIO, Xpeng and Li Auto enjoy a 16.5 percent share.
China’s bestselling NEV in 2021 was the Wuling Hong Guang Mini, which thanks largely to a price tag of RMB28,800 (€4,200) saw it overtake Tesla as the biggest supplier of EVs in the market. China’s domestic EV producers have benefitted greatly from the investment in EV supply chains, with local champion CATL producing some 30 percent of the world’s EV batteries. China has also taken steps to secure many of the key elements required in the production of green vehicles such as rare earth minerals, ensuring security of supply in an increasingly unstable global market.
In spite of its success, the Chinese NEV sector faces a host of challenges.
Not least the ongoing challenges to global supply chains arising from the Covid-19 pandemic, but China’s pursuit of a zero covid strategy and its wholesale lockdowns of major urban areas in early 2022 meant that not a single car was sold in Shanghai in April 2022. Severe weather events too have constrained manufacturing with floods in Henan province in 2021 and the curtailment of power due to extreme heat so far in 2022. Perhaps the biggest threat to the market is the end of consumer subsidies for buying NEVs, which have been extended to the end of 2022 to offset diminished sales resulting from the pandemic.
Nick McIlroy
- 1. The Made in China 2025 strategy falls under the 13th and 14th Five Year Plans for National Development and seeks to reduce dependence on imports and ultimately shift Chinese industry to higher value add manufacturing. https://isdp.eu/publication/made-china-2025/
- 2. China Passenger Car Association Report 2022: https://mp.weixin.qq.com/s/5kIYpjl0XWvJXz7sH14t4w
- 3. www.tesla.com
- 4. CPCA Report (Chinese) https://mp.weixin.qq.com/s/vbL0wkIfRx4b1zKuCZL-kQ
- 5. https://spectrum.ieee.org/chinas-most-popular-ev-no-longer-a-tesla
- 6. https://chinapower.csis.org/china-rare-earths/