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The Chinese Automotive Industry's Fast Track Towards a Greener Future
By Amanda Li Linjie. President, NETSOL Technologies China on 15-06-2022In the global race towards reducing fossil fuels used in automobiles and shifting to zero emission electric vehicles, China has proven itself to be the early adopter. The full year deliveries of New Energy Vehicles (NEVs) were at a record 2.99 million units, a 169% YoY increase or 14.8% of the total new car sales in 2021.
A Growing Market
"Sales growth by NEVs largely outpaced internal combustion engine (ICE) cars, suggesting that NEVs will continue to replace oil-guzzlers at a quick pace," said Cui Dongshu, General Secretary of the China Passenger Car Association.
The Chinese government's policies and subsidies paired up with the private sector's innovation has lured in a significant number of new buyers. This has shifted the consumer's paradigm from internal combustion engines to electric vehicles. The country is on track to reach a 20% penetration target nationally this year, surpassing the 2025 forecast of its government.
Sales growth by NEVs largely outpaced internal combustion engine-driven (ICE) cars, suggesting that NEVs will continue to replace oil-guzzlers at a quick pace. - Cui Dongshu, General Secretary of the China Passenger Car Association
Back in 2009, China surpassed the US market as the largest market for vehicles. Currently, it also has the most electric vehicles running as compared to anywhere else in the world. According to UBS Financial Services, by 2030, every 3 cars out of 5 cars would be running on batteries rather than fossil fuels. The government has been focusing on 20% penetration by 2025 through its generous subsidies.
In November 2021, China's monthly NEV sales records surpassed the 20% market share. The number of deliveries by 200 EV automobile manufacturers saw a jump to 122.3% from the previous year. December jumped up to 138.9%, delivering around 505,000 NEVs. This accounts for 22.6% of total automobile sales for the month.
Subsidy Cut Down
However, the situation might change slightly now since the government decided to cut 30% subsidies provided for NEVs from the start of 2022. Eventually, by the end, it plans on cutting down the subsidy completely. Electric vehicles have been slowly and steadily on the rise. The Chinese population has showed acceptance to the technology, bringing their sales at par with ICE vehicles. Since NEVs are more common on the road now, the government plans on cutting its costs and removing subsidies.
In a similar move, the government has now shifted its focus on a larger plan i.e. carbon neutrality which caters to more initiatives as well and not only increasing sales numbers for NEV vehicles. For newer startups, these subsidies proved to be significant support for their business, driving down their production costs and enabling them to ensure quality and drive sales. On February 18, 2022, the sale of NEVs indicated a decrease of 18.6% MoM in comparison to January after this subsidy was cut for NEVs. However, the government feels the industry has been matured enough to be driven by demand rather than subsidies.
The favorable Chinese industrial environment and wide availability of key raw materials has been the driving force making it the top EV market globally. On the contrary, however, it has also created a gap in the industry with a high level of fragmentation and overcapacity. China currently has the highest number of EV manufacturers in the country as compared globally.
This overcapacity has been the fundamental reason why the government has decided to cut down on its financial support. As per media reports, ever since the subsidies were introduced in the country in 2009, it has costed the Chinese government more than CNY200 billion, while local governments added an additional CNY100 billion.
Market's Reception in the Country
The market's reception in the country for EVs, batteries and related technologies is portraying a positive outlook.
With better marketing and a more diverse product mix, the EV market in China can enter an autonomous phase with sales being generated by demand. GlobalData forecasts Chinese production of electric vehicles to reach an annualized 20.5 million units by 2036. In 2009, authorities started giving cash subsidies for NEV buyers, however, sales were weak back then. By 2014, the subsidies had reached up to CNY100,00. An Electric Vehicle with a range up to 400 kilometers could have been bought for CNY12,600 subsidy. "Beijing's efforts to encourage purchases of green cars have paid off and the upward momentum will pick up pace in 2022," said Cao Hua, a partner at private equity firm Unity Asset Management. "The consensus forecast is that NEV sales could double last year's number in 2022."
Slashing subsidies would have a minimal impact on NEV sales in 2022, said Cui, adding that sales could top 6 million NEVs this year.
Top EV Manufacturers
There are a number of international and local players in the market such as Elon Musk's Tesla, Warren Buffett's BYD, General Motors, SAIC-GM-Wuling, Xpeng Motors and Li Auto.
The mini NEVs have a driving range of up to 200 kilometers which can range up to 600 kilometers on a single charge for smart cars. Tesla is the leader in EV technology globally, however, Chinese brands such as Xpeng and NIO are giving it tough completion with intelligent cars, autonomous driving systems and advanced in-car entertainment systems.
Conclusion
Through experience and history, we can conclude that the end of subsidies will not hamper the growth of NEVs in the long run. The impact will be shown only for a few years, but with the government set on its targets for a 20% share of NEVs by 2025 and the population's acceptance towards the technology, the NEV market will bounce back once again.
Most of the world's lithium producers and suppliers are present in other countries, however, China has already secured its right with future buying to the majority of it, signifying the fact that the future of China will definitely be electric.
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Different minimum down payment percentages such as 15% for NEV as compared to 20% for ICEV is an out-of-the-box function in Ascent, fully compliant with the regulations. It also boasts a multi-asset contract management solution to accommodate for the separation of vehicle and battery separately rendering it as an enterprise solution for the boosting NEV industry in China.
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References:
- https://www.scmp.com/business/china-business/article/3163005/electric-cars-account-over-20-cent-chinas-new-vehicle-sales
- https://cnevpost.com/2022/01/11/chinas-wholesale-sales-of-passenger-nevs-reached-record-505000-units-in-dec/#:~:text=Wholesale%20sales%20of%20new%20energy,Passenger%20Car%20Association%20(CPCA)
- https://www.reuters.com/world/china/china-cut-new-energy-vehicle-subsidies-by-30-2022-2021-12-31/
- https://apcoworldwide.com/blog/carbon-neutrality-and-nev-growth-in-china/
- https://www.globaldata.com/new-energy-vehicles-sales-decline-not-pose-threat-ev-future-china-observes-globaldata/
Written By:
Amanda Li Linjie. President, NETSOL Technologies China
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