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David Chao

The global electric vehicle market has recovered rapidly from the pandemic-related demand shock as sales grew by 43 per cent last year, reaching a record 3.24 million units.
General Motors, the largest carmaker in the United States, has announced plans to sell only carbon-emission-free vehicles by 2035, while China and Japan are banning sales of fossil-fuel-only vehicles by the same year.
These targets are rippling through global car supply chains, even as new regulatory emission standards and improving consumer acceptance doubled electric vehicles’ share of the global car market to 4.2 per cent in just a year.
China is the core driver of the electric vehicle market, accounting for roughly half of global sales. Covid-19 decimated global car sales last year but in China, electric vehicle sales grew 12 per cent. This year, China’s electric vehicle sales could grow by over 40 per cent on the back of a stable economy and sale promotions, according to the Chinese Association of Automobile Manufacturers﻿.
This is only the beginning of a very long electric vehicle adoption cycle. Recent gains by the industry can be sustained and even strengthened over the next few years. Historical constraints to electric vehicle take-up by consumers include access to vehicle charging, but significant investments in charging networks in China should ease the bottleneck soon.

China’s Politburo meeting last year set out a national plan to boost new electric vehicle charging infrastructure. For example, Shanghai plans to build at least 100,000 charging stations over the next three years, and even relatively underdeveloped Yunnan province plans to build 200,000 charging stations by the end of 2021.
China’s electric vehicle boom has, in part, been powered by generous government subsidies since 2009. A 2018 Chinese study showed that subsidies were the primary reason for an electric car purchase, followed by vehicle performance and purchase cost. These incentives were expected to end last year as production costs fell and the industry gained traction. However, Beijing policymakers have extended the subsidies until the end of 2022, albeit at reduced levels each year.
Subsidies aside, there are many reasons to expect the industry to enjoy longer-term tailwinds. As part of China’s pledge to achieve carbon neutrality by 2060 with peak emissions in 2030, it aims to have electric vehicle sales comprise at least 20 per cent of all new car sales by 2025, rising to 40 per cent by 2030. This is an achievable target.
Global carmakers that have seen China become their largest market over past decades are captivated by the possibility of replicating their success in the rapidly growing electric vehicle segment. China’s top-selling electric car last year was the Tesla Model 3, followed closely by the Wuling Hongguang Mini. Tesla’s sales in China more than doubled last year, accounting for around 20 per cent of the company’s global sales, up from 12 per cent a year earlier.


Tesla’s efforts should help educate Chinese consumers and expedite acceptance of electric vehicles in the next few years. But the world’s largest electric carmaker also faces increasingly stiff local competition. So far this year, the Wuling Hongguang Mini has been outselling Tesla’s Model 3 by two to one. Home-grown models BYD Han and Chery eQ have gained market share on the back of competitive pricing.
These local electric car manufacturers have started to undercut foreign brand prices in recent years: only Tesla’s Model 3 and Model Y cost less than 300,000 yuan (US$46,440) each, qualifying for the buyer subsidies – compared to nearly every single local brand model.
Price-conscious electric car buyers will continue to prefer domestic models, putting price pressure on foreign brands. BMW, for example, recently announced a price cut of up to 15 per cent for its all-electric iX3 SUV.

But it may not be enough: BMW has fallen out of China’s top 10 bestselling electric vehicle chart, which is dominated by local brands. Electric cars will dominate the future of the world’s largest car market and most of these vehicles will be from Chinese brands that most of the world have never heard of.
European and US carmakers are desperate to dominate China’s electric vehicle market but it is hard to see how, when domestic players undercut on price and overperform on technological prowess. But whether Chinese electric vehicle players become global household names is another story – they are more likely to focus squarely on the vast domestic market where there is still a lot of runway.
To date, only 3.3 out of 1,000 people in China own electric cars, compared to 5.4 in the US and 6.1 in Europe. Improving consumer acceptance, falling prices and stricter emission standards will drive electric vehicle sales in China over the next few years. This is good news for global investors in the segment, but don’t expect to start seeing Chinese electric vehicles in American garages any time soon.
David Chao is Invesco’s global market strategist for Asia-Pacific


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Opinion

Business


Tesla is about the only foreign electric vehicle maker making top sales in China amid intense local competition and price cuts
But with their focus on the domestic market, Chinese electric carmakers are unlikely to become global names any time soon



Tesla is about the only foreign electric vehicle maker making top sales in China amid intense local competition and price cuts. But with their focus on the domestic market, Chinese electric carmakers are unlikely to become global names any time soon.


Electric & new energy vehicles

Automotive industry

Tesla

China economy

Future of transport

General Motors

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


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