As of 2018, China accounted about 50% of the global electric car sales and sold near about 1.1 million electric cars. The electric car craze in China is driven by government policy rather than market economics
- Definition / Scope
- Market Overview
- Market Risks
- Top Market Opportunities
- Market Drivers
- Industry Challenges
- Pricing Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Distribution Chain Analysis
- Competitive Landscape
- Competitive Factors
- Key Market Players
- Strategic Conclusion
Definition / Scope
EV (Electric Vehicle) or NEV (New Energy Vehicle) sector, includes vehicles that are partially or fully powered by electricity, such as battery electric vehicles (BEVs) and plug-in hybrids (PHEVs). These vehicles are alternative to the conventional fuel-powered vehicles that consume oil.
China is also set to increase its adoption of electric and hybrid vehicles mostly due to government support. With rapid urbanization, China is becoming responsible and aiming to reduce vehicle emissions. Further, the country also intends to reduce its oil imports and further driving sales of electric vehicles.
In 2017, China has set 2019 end as a deadline to achieve new target sales for electric plug-in and hybrid vehicles.It has passed a mandate on the sales of electric vehicles to represent atleast 10% of the auto manufacture sales of the country and further, projects the share to increase to 12% by 2020.
The China’s race for electric-cars has big geopolitical, economic, and environmental stakes. All eyes are on China as the biggest test of what happens to electric cars, the answers are with China. The electric cars could meaningfully displace conventional gasoline cars putting up huge repercussions for the oil industry and climate.
After Tesla’s launch, a number of auto-giants are flocking towards China to open up new line of product i.e. EV production whereas for China, its homegrown companies such as BJEV could dominate the overall global automobile market.
However, the EV market is still fledging and has the potential to thrive. Solely, China’s electric-vehicle market is forcing “the international automakers to accelerate their electric-vehicle strategies globally.
As of 2018, China accounted about 50% of the global electric car sales and sold near about 1.1 million electric cars. The electric car craze in China is driven by government policy rather than market economics. Thus, electric vehicles have become a huge part of the people’s daily lives in China which hasn’t yet happened in countries such as US. The better place in China to explain this is Shenzhen, one of the China’s tech hubs in the southern side of the country.
In 2018, pure electrics accounted for 3.3% of new passenger-car sales in China in up from 0.7% in 2015. Whereas another segment, together, pure electrics and plug-in hybrids accounted for 4.5% of China’s market in the same period.
In 2018, nearly 1.3 million new energy vehicles (plug-in electric vehicles and plug-in hybrids) weresold which was 62% increase since 2017. Overall 32.5% of the market is ruled by China as there were only 4 million EVs sold across the world.
While NEV’s accounted for just over 4% i.e. 1.1 million sales in China in 2018 which is higher than that in US (2%) and Europe (3%) respectively.The global market is growing exponentially; much of the growth is being fuelled by China. Since 2015, Chinese sales of electric vehicles overtook those in the US. In 2018, the sales were three times higher than that of US and the gap is likely to get wider only in 2019 and beyond.
As the environmental concerns were growing in China, led by the rise in exhaust emissions, the country has been focusing on working toward the development of sustainable transportation which has led to electrification of the transport system.
The growing demand of electric vehicles in China is supported by multiple factors such as national sales targets, favorable laws and subsidies, air-quality targets among others.
In 2018, the Chinese manufacturers sold about 1.25 million NEV’s mostly electric cars which is 62% more than 2017. In addition, the China has a targeted goal to sell 2 million NEV’s by 2020. As of currently, China accounts 50% of the global electric car sales in the world.
In 2019, news floated on internet that somewhere in Shanghai, a camera caught Model S manufactured by Tesla bursting into flames in a parking garage. After few week of the incident another electric vehicle producer NIO Inc. based on Shanghai announced that one of its ES8 models had burst into flames during a repair in Xi’an.
Thus, the safety and quality of these electric vehicles is being highly questioned especially in case of China as the country has also been previously blamed on many grounds regarding the quality of products and manufacturing. If China fails to address the quality issues too soon, then its manufacturing industry would ultimately lose its reputation among the consumers.
Top Market Opportunities
Collaboration and synergy: The primary opportunity involved in the EV sector of China is clearly the size of the market in the country. For foreign players, the Chinese market is an attractive location to scale-up. The players can leverage on developing their own capabilities and products and recover large investments in technology.
Recently, a lot of Chinese players in the market are collaborating with the foreign-companies. As there is a new norm is China- “Co-opetition” where the players both domestic and foreign are embracing the ecosystem concept and even the partners and competitors in the ecosystem. The blurring boundires between the sectors is creating winning solutions.
For example, with Tencent and JD.com both investing in Chinese electric car startup NextEV, even non-traditional players from the digital space are getting involved which is creating synergy in the market and working ways.
Battery market: By opening up the domestic battery market, China has the opportunity to grab the technology transfer which is a long time need of the industry. Entry of Canadian and American companies into the Chinese battery market will give domestic players strong business case to leverage on their understanding about these technologies.
Thus, opening up of the battery market is going to favor domestic suppliers. Also, the Chinese companies can collaborate with the foreign players to come up with innovative and solutions oriented batteries. With car battery development, the government expects China to account 50% of global battery production by 2020.
Infrastructure for EV: With flat batteries and consumer demand lagging for EV in China, the government is moving beyond subsidies and introducing infrastructure dedicated to support EV. For instance, Beijing recently announced a plan to build 10,000 public fast-charging stations and 120,000 charging pillars along the country’s expressways.
These installations will service over 200 cities and 22,000 miles of road. The mainland charging facilities in China is expected to exceed $14.4 billion by 2020 which will further boost the EV sales in China.
Friendly Government policies: One state that has unequivocally supported the industry for more than a decade is Beijing and its effort to do so has been further boosted by the momentum led by ‘Made in China’ industrial strategy introduced in 2015.
Since then, the government has come up with multiple policies to boost electric cars, bolstering R&D funding and also providing subsidies to carmakers and battery makers, imposing tariffs on imported cars, enabling technology transfer through foreign joint venture partners and issuing incentives and mandates to produce electric cars regardless there is demand or not.
To spur demand, the government has also provided subsidies in price, where price of NEV’s in China lower than global average. More importantly, the cities also have restricted the number of license plates issued for traditional cars with Beijing alone having less than 1%. Thus, this also forces drivers to move to electric vehicles instead.
Beijing scheme: One of the numerous reason among the growth of EV in china is Beijings major role in establishing leadership in NEV development. The city has placed EV production and omponent development at the center of its industrial policy.
Beijing has come up with a new policy, a two-fold approach to drive the effect of EV manufacturing and sales in the country. The new credit scheme draws credit value of the NEWs based on their mileage on one charge; this is designed to encourage NEV’s to raise their electric cars range standards. Similarly, according to the scheme, “credits” must account 8%, 10% and 12% of an automakers total car production by 2018, 2019 and 2020 respectively.
A second proposal by the city includes all conventional vehicle producers to also sell NEV’s as it is putting a cap on average fleet fuel consumption. Also, in effort to weed out the weakest competitors in the market such as startups in EV market, Beijing ministry of government has also announced restriction in granting license plates to car models produced by these startups.
Increase in demand and supply: Both demand and supply side of the EV has risen and there are number of factors contributing in growth of both that has led to upsurge in the EV concept in China. On the demand side, the whirlwind rise of China’s on-demand mobility sector is driving mix of EVs in service fleets due to low maintenance and high fuel costs.
Whereas, on supply side, the early adoption of EVs has been driven by government subsidies and also ongoing development of supply-chain capabilities in areas such as batteries, battery management systems and electric motors.
The vehicle accident that occurred in China recently in 2019 has spurred public relation challenges for the electric vehicle manufacturers in China. Following the incident, quality and safety of electric vehicles in addition to their batteries are increasingly being called into question.
The Chinese electric vehicles market has been facing longstanding issues where according to a recent survey across web that took place in China, 70% of the consumers of the new energy vehicle (NEV’s) cited they regretted buying it.
Whereas, for China that intends to dominate the global NEV market, this is an alarming signal. The government of China has also been more focused on quantity than quality which is leading the industry to become unsustainable. The manufacturing industry players have to instead refocus on the needs of their consumers.
Despite the government seems to be doing everything to increase the sales of electric vehicles, it should stop them from spontaneously combusting. The quantity of the car and volume of sales cannot obscure the industry’s “Quality gate” scandal. In 2018, Chinese manufacturers also recalled 135,700 NEV’s for a crushing 10.8% industry wide recall rate. Following in 2019, another 23,458 electric vehicles have been recalled.
The most common problems are batteries. Most of them donot perform as advertised, some of them run out too soon while others run hot and lead to combustion. More than 40 NEVs spontaneously combusted in China in 2018.
Other issues include faulty motors, faulty transmissions, faulty odometers and bad odors (a problem to which Chinese consumers are particularly sensitive). Although, the technology seems the major issue, governments effort to sponsor and protect the market has further exacerbated the problem.
There are as many as 500 NEV startups in China which have little to no experience in producing automobiles. The Chinese consumers have also started doubting the caliber of foreign manufactures such as Tesla. The government has recently initiated steps to eliminate subsidies on shorter range NEV’s that tend to be sold at the lower end and impose restrictions on additional manufacturing capacity.
However, to restore the confidence of the Chinese consumers upon the electric vehicles, new policies and standards must be introduced. For instance, new standards for certifying, testing and marketing batteries — and new resources devoted to enforcement — could be the first step. The government should also step back and let the competition take place naturally where players compete for quality not quantity.
The EV market in China is headed for some tough price competition followed by shakeout in the entire competitive landscape. After the government subsidy will phase out entirely in 2020, the China’s EV market will dramatically change.
However, lately since 2016, due to the subsidy cuts announced by government a lot of companies that were previously supported by it have been affected particularly due to squeezed margins which could now lead to rise in prices of the EVs in the country.
Top EV manufacturer in China, BYD’s top selling Yuan EV is priced at between $13,000 to $16,000. At the other end of the price spectrum is the two-seater Bajoun E100, produced by a joint venture between China’s state-owned SAIC Motor Corp., General Motors and Liuzhou Wuling Motors, priced at about $5,300.
Whereas, Tesla that is operating in the luxury EV segment has too pricey models. However, its latest Tesla model 3 is priced at $35,000, lower, compared to the starting prices of $88,000 for the Model X and $79,000 for the Model S.
The domestic car prices are cheaper is mostly due to two reasons: they are manufactured within the country and second they are provided with subsidies on price cuts. Somewhere, close to 500 manufacturers have registered to produce EVs in China in 2019 taking up the production capacity to 3.9 million vehicles annually. Thus, the competition is going to intensify and is likely to bring in more price wars into the sector.
In 2010, the government of China started rolling subsidies for electric vehicle manufacturers to promote EV sales and also cut down vehicle emissions & air pollution levels across cities.
By 2016, the government had been steadily reducing subsidies for EV manufacturers. But later in the year, the government progressively shifted the costs back to the manufacturers to encourage them to rely on innovation rather than government support.
In 2018, the Chinese government took a key step and removed subsidies for vehicles that can travel less than 150 km (90 miles) in one charge. In the latest round, which was announced in March 2019, subsidies, for pure battery electric cars with a driving range of 400 and above, were cut by half, to $3700 from $7400. Thus, to qualify for the government subsidy in future, the electric cars need to have at least 250 km in driving range.
One of the electric car manufacturers in China, Beijing Electric Vehicle, or BJEV, is China’s largest maker of pure-electric vehicles . More than 10 years into operation, BJEV owes its growth to state support.
However, as Chinese government is slashing customer subsidies for cheapest electric cars which are bulk of BJEV’s sales. In addition, the government is also opening up the country’s EV market to competitors fro west i.e. well-established automakers.
The Chinese government is mulling long-term targets for electric-car sales. China’s Society of Automotive Engineers has said 40% of passenger-vehicle sales should be electrics or plug-in hybrids by 2030. The government has set three strategic goals behind China’s ambition which are as follows: combating pollution, curbing oil imports, and building competitive electric-car firms. At all levels, governments have been pursuing the goals through carrots and sticks.
The carrots are the huge subsidies and in the case of some models, make buying an electric car half as expensive as it would otherwise be. Sticks are also important to consider, as megalopolises such as Beijing have greatly reduced the number of new license plates for cheap electric cars and restricted their entry in certain locations.
Other Key Market Trends
The National Reform and Development Commission has announced that it will not allow the establishment of new companies that make only combustion engine cars. It has also imposed other additional conditions for existing companies planning to set up a factory of cars that aren’t NEVs.
Under a new “cap and trade” system, any company that makes 30,000 cars or more needs to earn enough credits to match 10% of its output. So a car company manufacturing the minimum would need to earn 3,000 credits.
China has also been belligerently pursuing NEVs, both to reduce the impact of air pollution and to develop a strong industry. The Chinese government has had subsidies in place for nearly a decade, and these have been futher bolstered by subsidies from regional governments.
In some cities, public transport has also led the way. Shenzhen’s fleet of 16,000 buses is now 100% electric and its fleet of taxis is almost completely electric too.
In addition to a robust local industry, many global manufacturers are already in the Chinese NEV market, mostly through joint-venture deals, including Nissan, Toyota, VW, BMW and Volvo. GM further cites that it is on track to deliver 10 NEV models by 2020 and plans to double that number over the following three years.
Market Size and Forecast
- In 2018, China manufactured and sold a total of 1.28 million units of electric vehicles. Further, the Chinese electric vehicles market is expected to increase at a CAGR of 33.64%, during the period (2019-2024).
- In 2018, the electric vehicles sales increased by 80% in an otherwise flagging automotive market. In addition, in the first half of 2018, the sales doubled than that in same period of 2017 with 106% increase. While in the second half, the increase of 68% was encountered. The overall sales of electric vehicles reached 1.1 million passenger vehicles, 60,000 commercial light vehicles and 120,000 medium heavy commercial vehicles.
- The overall sales of EV in China in 2018 brought China’s NEV market share to 4.2% of a national fleet numbering around 240 million. This also led China to rank as number one or become largest electric vehicle market in the world.
- In comparison to other countries around the world, the next biggest EV markets are Europe with 410,000 EV sales in 2018 and US with 360,000 sales. In January 2019, the surge of EV sales in China continued its momentum with 300% increase from 2018.
However, in 2019 and beyond, the EV market in China may not be in bullish trend due to government’s subsidy cuts that is likely to make the NEV segment to particularly become less attractive among buyers. Although, the forecast sales of 2019 for NEV in China is predicted to reach 1.8 million units with overall market share of the segment to rise to 6.7% respectively.
In China, the electric vehicles market is expected to sell 1.7 million units of electric vehicles by 2019 end.
Shenzhen is the world’s only city to have 100% electric buses and is one of the first cities in China to replace all gasoline run cabs with new EVs which includes both battery vehicles and plug-in vehicles. In addition, Shenzhen is also home to BYD, world’s second largest EV manufacturer after Tesla.
Another major milestone that lies ahead is that batteries are getting better and cheaper. By 2025, it is anticipated that, cost of an electric car could be comparable to that of a car with an internal combustion engine (ICE). And when that happens, the era of ICE cars will be coming to an end.
Thus, major players in the EV market could dominate the overall global auto market and China seems to be one of the countries adding itself into the list as the country’s EV sales target for 2025 exceeds beyond 6 million which is more than that of US (4 million mark) and rest of the world (2 million mark) respectively.
In addition, NEVs in China are highly demanded by consumers, For instance, even the premium-end Nio ES8 had 17,000 reservation deposits ($750) before production began. In addition, in the pipeline are bigger models such as Tesla model 3 with several hundred thousands of reservation holders in China.
These NEVs are being demanded by a rising number of affluent class Chinese along with middle class people who are moving towards trend of environmentally friendly products. More generally, the car-buying portion of the population is closely tuned into technology trends and forward-looking in consumer behavior.
Despite of the Chinese EV’s being short ranged in comparison to that in US and Europe, Chinese car owners use it to commute within the city; in short distances.
Thus, the short ranged EVs are also being demanded because of that reason. However, considering into the macro-factors such as modern metro rail networks, the long term car viability and EV demand comes into question.
Sustainable transport and pollution policies of its cities, energy security policies, the drive to invest in public transportation infrastructure, new connected technologies, and the high-density living of its urban population all point to a rise in the desire to own vehicle which could eventually boost the country’s EV market in future.
Despite of the hurdles, China’s EV industry is expected to continue growing; sales grew 62% in 2018 to 1.2 million vehicles, while those of fossil fuel-driven cars fell nearly 3% in 2017 to about 28 million vehicles.Over time, China’s EV industry has more than enough room to grow. Even as it is the world’s biggest market for EVs, sales of those vehicles account for just about 4% of total vehicle sales.
China’s focus in the coming years is to achieve the strategic goals set out in Made in China 2025 and to further promote the rollout of ICVs. A decisive factor in this will be the adjustment of existing regulations and standards to continuously changing industry requirements.
One foreseeable difficulty lies in the fact that regulatory structures in China – unlike Germany– have not been subject to long-term testing, and are hence less stable and more prone to faults that may prove detrimental to both foreign industry and their own.
Distribution Chain Analysis
As of December 2018, Shenzhen, one of the megacities in the China, was operating 16,000 electric buses.
In 2018-2024 period, China could also encounter growth in the adoption of electric buses in more number as 30 Chinese cities have made plans to aechive 100% electrified public transit by 2020. These cities include Guangzhou, Zhuhai, Dongguan, Foshan, and Zhongshan in the Pearl River Delta, along with Nanjing, Hangzhou, Shaanxi, and Shandong.
In addition, some major cities and provinces in China are commanding more stringent restrictions. For instance, Beijing only issues 10,000 permits for the registration of combustion-engine vehicles per month, in order to encourage sales of electric vehicles in the province.
In 2018, chinese brands accounted for 96% of 711,000 EVs built and sold in China. Some of the major electric vehicle producers are BYD, Beijing Electric Vehicle Corp, ZhiDou, Shanghai Auto and Zotye. Whereas, only foreign EV brands to sell their cars in the China are Tesla, Nissan Leaf and Denza.
The Chinese EV manufacturers are able to earn generous subsidies at national level which has enabled them to earn higher margin on the sales of their car models. However, lately due to the subsidies cuts players such as BYD are feeling some pain in terms of margins.
Despite of that, a number of EV startups are entering the market on high end. Chinese EV challengers like NIO, Byton, Leap, XPENG, Iconiq and WM Motors have attracted billions of dollars in investment and are in a verge to capture China’s premium vehicle market. In addition, China’s luxury car sales are expected to reach 3 million units annually by 2025 which is twice as many as that of US.
A most anticipated entry in the market could be Chinese-owned Volvo All-Electric Polestar which is scheduled to go into production by 2018. With the entry of Volvo, other foreign owned brands are also likely to enter the Chinese market by 2020. These players include, VW, Ford, Mercedes, BMW(Mini), GM, Nissan and PSA (each with their respective Chinese partners) are in a quest to bring new electric models to the market.
In near future, the competitive landscape of the market may appear as: Chinese firms could continue to dominate the low end of the market whereas the premium end could be captured by global automakers. Thus, there are chances of intense competition to spur between Chinese EV startups like NIO, Byton, XPENG and others and global automakers.
The foreign onslaught is on. Despite the current market of China is ruled dominantly by domestic players. Foreign players such as VW, which sold only about 8,000 electric and plug-in hybrids in China in 2018, plans to sell 400,000 annually by 2019 and a whopping 1.5 million annually by 2025.
Tesla, which resisted manufacturing in China opened first factory in Shanghai in January 2019 which is expected to ultimately produce 500,000 cars annually.
Amid the competition, the Chinese EV players such as BJEV are scrambling. For most of the EV producers in China, they are focused on ancillary features of vehicle such as wifi but lag the basics that foreign manufacturers have which is high-speed and safety.
- A number of Chinese automotive companies are injecting huge sums of money into NEV sector. For instance SAIC Motor, China’s second largest automaker, is planning to invest $3 billion in new-energy cars in the period until 2020, and is targeting an annual sales volume of 600,000 cars.By 2020, the governments current push to the EV market will no longer be required as a number of foreign automakers have strong motives to enter the market by that period. Thus, this could lead to technology transfer and bringing in core component technology especially in battery production that is likely to increase adoption of EV in China eventually.
- Early movers are already taking steps to leverage Chinese demand. For example, Volkswagen has recently announced a joint venture with Chinese automaker JAC, which encountered the launch and mass production of a new, small NEV in 2018.
- North American companies are already looking to leverage opportunities presented by China’s EV battery market. Newyork headquatered Plug Power recently announced the signing a MoU with two Chinese companies to pursue the development of hydrogen fuel cell solutions for electric vehicles. The companies have already presented a prototype in 2018 and expect to deliver truck prototypes in near future.
- In September 2018, seeing the opportunity in battery market in China, Canadian hydrogen fuel cell designer and manufacturer Ballard Power Systems announced deployment of 12 fuel cell-powered buses in the Chinese city of Foshan.
- The Chinese company BYD which is backed by Warren Buffet, received about $590 million in subsidies from both the local and central government. That support played a big role in BYD’s growth from a battery maker into a major player in the global EV market in a time span of 20 years. Similarly, another Chinese company, Contemporary Amperex Technology (CATL), has recently signed a contract with BMW, replacing Samsung as its battery supplier. The deal is contemplated to be one of the biggest as battery makes up 40% of the cost of an electric car.
Key Market Players
There are few and major players in the China’s electric & hybrid car vehicle market which include the following:
- BYD is the leading player in the Chines electric vehicles market, owing to the increasing orders for its passenger cars and electric buses from the domestic and international markets. The company sold 227,152 passenger vehicles in 2018, which was the highest among all companies in China. BYD also received an order to build 4,473 electric buses for Guangzhou city, in the tender for a total 4,810 electric buses.
- SAIC is expected to be the second-largest company, followed by Geely and BAIC.
According to the 2018 sales, the top 5 models with highest sales in China were follows:
- Beijing Auto EC 180
- Geely ZhiDou D2
- BYD Song DM
- Chery eQ
- BYD E5
The best-seller i.e.Beijing Auto EC 180 toppe the EV sales charts with more than 80,000 orders. The maximum speed of the model is 62 mph and range is 110 miles. The price of the model starts at $7740 after subsidies.
Among the five best selling EV’s three were availiable under $10,000 after subsidies. These models range between 100-125 miles with top speeds ranging 60-75 mph.
The push for EVs is a major part of government policy in China. With China, as one of the several nations to announce desire to phase out traditional combustion engines entirely, it’s not just climate change that is prompting policymakers to act but also the growing evidence of air pollution on health and life expectancy.
Thus, this is pointing towards the bright future of EV’s in the automobile sector. With China’s high ambitions to promote EV, the sector is likely to grow. However, a trade war between China and the US, and a slowing Chinese economy, are combining to make it a tough market.