China’s NEV Industry – 2019 Overview
China's new energy vehicle market has experienced explosive growth since 2014. However, recent subsidy cuts and the global economic slowdown resulted in fewer units of EV sales during 2019.
Last year was a remarkable period in terms of rising environmental awareness among people worldwide. Transition to alternative energy sources and to a low carbon economy set the political and economic agenda in countless international events.
These are the key actions for combating against climate change in accordance with the 2030 Sustainable Development Goals (SDG), goals which Chinese authorities also take seriously.
However, despite new developments in the alternative energy sector, 80% of global energy consumption is still based on fossil fuels. In addition, the transportation sector, with oil products making up 93 % of final energy consumption, represents one of the least diversified sectors in terms of energy supply in the global economy, according to the International Energy Agency (IEA).
Consequently, the transport sector is responsible for 23% of global energy-related greenhouse gas (GHG) emissions and is expected to more than double by 2050 in the ‘business as usual’ (BAU) scenario, faster than other energy end use sectors.
Therefore, electric mobility has drawn substantial attention in recent years. The electrification of transportation offers an attractive approach to reducing GHG emissions and potentially decreasing total energy consumption as well as providing a new market for companies in transportation and mobility industry.
When it comes to the market, electric vehicles take a big piece from the electric mobility pie. However, owning an electric vehicle is more expensive than owning a traditional internal combustion engine vehicle. Government policies play a key role in mitigating the cost difference and promoting electric mobility.
Some leading countries provide a variety of incentives to encourage their residents to adopt electric vehicles. These include monetary motivator – such as tax credits and rebates, as well as commuting benefits such as access to high-occupancy vehicle lanes and support for the deployment of charging infrastructure.
China is one of those leading countries committed to promoting electric mobility and reducing pollution.
Since 2014, China has invested heavily in the New Energy Vehicle (NEV) industry from both the supply and demand sides.
On the supply side, China’s government has made it a priority to create favorable conditions for EV stakeholders, including investors. The country’s components suppliers offered a boost, as well; for example, China’s lithium-ion battery-cell players now account for about 25 percent of global supply.
As for demand, China’s high marks are evidenced not only by the number of vehicles sold but also by the variety of choices available. Approximately 25 new EV models were introduced to the Chinese market in 2016. All told, a Chinese consumer can now choose from around 75 EV models – more than in any other country we’ve measured.
Moreover, the Chinese authorities have provided ample government subsidies. For instance, the government provides monetary subsidies that, for a representative, midsize car, amount to approximately 23% of the total NEV price, according to a McKinsey report.
In addition, NEVs are exempt from license-plate lotteries and significant registration fees that apply for cars with internal-combustion engines. These exemptions are critical levers to make purchasing an EV more attractive, especially for younger, first-time car buyers.
Last, China’s environmentally conscious millennials are on the rise, creating a relatively big consumer base for the electric mobility vehicles. Therefore, the Chinese outperformed in both the supply and demand dimensions.
All these developments have turned China into a big market for electric mobility. The country leads the world in EV sales, with over a million new vehicles hitting the roads in 2018. Last year, more EVs were sold in Shenzhen and Shanghai than any country in the world, except for the United States. China also leads the world in another important metric – charging stations.
Compared to other countries, not only does China have the highest volume of chargers, many of them allow drivers to charge faster.
As a result, the market has experienced explosive growth since 2014. Approximately 375,000 EVs were manufactured by Chinese Original Equipment Manufacturers (OEMs) in 2016 – an impressive 43 percent of EV production worldwide. Not surprisingly, the country now has the largest number of EVs on the road, overtaking, the number of EVs in the United States.
However, starting from early 2019, China's NEV sales started decreasing. This situation is accelerating, in October 2019, NEV sales fell 45.6% from year-before levels. Furthermore, preliminary results for October 2019 indicate 48 % fewer deliveries than in October 2018; even October 2017 was higher.
Chinese domestic EV makers, including Geely, BYD (BYDDF), and JAC Motors, reported weaker sales figures on October 10 2019. China’s largest EV maker, BYD, reported a 51% year-over-year decline in NEV sales in September. Due to the continued decline in NEV sales, the China Association of Automobile Manufacturers (CAAM) reduced the annual sales projection, to 1.5 million units from 1.6 million units.
Reasons for the recent decline in EV sales
The market started losing its power in July 2019, after the announced subsidy reductions became effective. Since late June, Chinese authorities have been cutting subsidies for electric vehicles by half, on average.
Purchase incentives for NEVs have been cut before – but this time, the usual recovery after 2-3 months did not materialize.
Probably the prolonged crash was not a part of the plan. However, the Ministry of Industry and Information Technology (MIIT), setting the agenda for the NEV industry, is determined to deflate a sector that showed signs of overheating and is becoming overcrowded by newcomers with uncertain viability.
In addition to the subsidy cuts, new barriers for entry have been established, limiting the number of manufacturing subcontractors, demanding a minimum of R&D funds and production capacity.
Requirements for battery capacity and esp. safety also increased. Battery fires and recalls have brought high public awareness and cause suspicion in Chinese society.
The combined effect of measures and events is now broad. Even the market leaders post big losses in their NEV business and the volume erosion among smaller players with 2-3 years of market presence speaks trouble.
On the other side, not all the reasons are directly related to the Chinese government’s regulations. Demand for both combustion engine cars and EVs declined worldwide due to the global economic slowdown.
Global auto sales dropped 3.1 million, about 4%, in 2019, according to Fitch.
"The downturn in the global car market since the middle of 2018 has been a key force behind the slump in global manufacturing, and the car sales picture is turning out a lot worse than we expected," said Brian Coulton, chief economist at ratings agency Fitch.
Prospects for 2020
With the growing environmental concerns, due to the rise in exhaust emissions, China has been focusing on and working toward the development of sustainable transportation. This, in turn, has resulted in the electrification of its transport sector and created a huge market for EVs.
The country has become the largest manufacturer and consumer of electric vehicles in the world. The growing domestic demand is supported by national sales targets, favorable laws and subsidies, and municipal air-quality targets.
However, recent subsidy cuts and the global economic slowdown resulted in fewer units of EV sales during 2019.
Although there is still hope for increasing EV sales in up-coming years through economies-of-scale and more competition, a severe global slowdown or recession could trigger an even slower 2020 in EV sales – something which, given the trade war, is very hard to forecast.