How China become a big boss in electric vehicles?
Countries ranging from the United States to New Zealand are offering incentives to encourage the sale of electric vehicles, a tactic China has used for years as it has grown into the world’s largest EV market.
Beijing’s success is astounding. Last year, EVs accounted for a quarter of all passenger cars sold in China, far exceeding one in seven in the United States and one in eight in Europe. And the pace is quickening.
According to HSBC, EV penetration in the world’s second-largest economy will reach 90% by 2030.
China’s clean-car sales, including plug-in hybrids, will reach 5.67 million in 2022, accounting for more than half of all global deliveries.
According to BloombergNEF, the country will account for roughly 60% of the world’s 14.1 million new passenger EV sales this year.
It is not only buyers. Manufacturing is also booming, with Chinese brands accounting for roughly half of all EVs sold globally, according to HSBC analysts in a recent note.
Adequate infrastructure obviously aids EV adoption. China, which has the world’s largest charging network, added 649,000 public chargers in 2022 alone, accounting for more than 70% of all installations completed that year globally.
Encouraged by the progress made, EV manufacturers have flooded China with new models, sparking a price war this year as companies try to stay ahead of competitors.
Analysts predict that some industry consolidation will occur in China.
How China become a big boss in electric vehicles?
Here’s a closer look at China’s carrot-and-stick approach to cultivating EVs:
The Carrots
- Consumer Subsidies: A program that ran for a decade reimbursed EV Buyers as much as 60,000 yuan ($8,375). Although the national subsidies ended in 2022, local governments in places like Shanghai continue to dole out rebates of up to 10,000 yuan.
- Tax Breaks: A standard 10% tax levy has been waived for clean-car purchases under 300,000 yuan until 2025 and will return at 5% for 2026 and 2027. The tax break, in place since 2014, is estimated to amount to 835 billion yuan by the end of 2027. In the US, the Inflation Reduction Act, which passed last year, includes $270 billion in tax incentives for EV purchases and clean manufacturing and nearly $12 billion in loans to clean-energy projects.
- Manufacturer Subsidies: Direct government support to EV makers helped many get up and running. While an overabundance of companies emerged, with more than 500 EV brands crowding the market in 2019, the effort nurtured successes like BYD Co. The Shenzhen-based company has become the best-selling brand in China, ending Volkswagen AG’s decades-long reign.
- Infrastructure: Widely accessible, government-subsidised charging stations reduce drivers’ costs and ease any range of anxiety. Charging standards are uniform, thanks to agreements with manufacturers, so everyone uses the same plugs. China had 6.36 million EV chargers at the end of May, more than anywhere else on the planet. A significant portion is part of the state grid, the fourth-largest provider behind private companies like Wanbang New Energy Investment Group Co. and TGood New Energy Co.
The Sticks
- Gas Hurdles: Buying and owning gasoline-powered cars is less and less appealing. Cities are fighting congestion by limiting the number of cars on the road with measures such as lotteries for new license plates in Beijing and an auction system in Shanghai. Plates went for an average of 92,780 yuan at auctions in Shanghai during the first five months of last year. EV drivers, meanwhile, can easily get a green license plate, showcasing their environmentally friendly credentials. Green plates are increasingly prominent on city streets.
- Production Penalties: In 2017, China implemented a dual-credit system for the auto industry, awarding points for producing clean vehicles while penalizing those with high fuel consumption. Cars from manufacturers with low ratings may be removed from the market. To avoid punishment, manufacturers can purchase credits from competitors with high ratings, such as Tesla Inc. or BYD. It can get pricey. Chongqing Changan Automobile Co., a state-owned company, lost 4,000 yuan in profit for each car sold in 2020 because it purchased credits to avoid the penalty.
The Sales
Government Purchases: Some municipalities converted their public transport and taxi fleets to 100% electric and encouraged local governments to purchase electric or plug-in hybrid vehicles. As a result, EV manufacturers such as BYD, which also manufactures buses, and Guangzhou Automobile Group Co.
