China’s emergence as an electric vehicle power is long overdue

BILLIONthough mostly still famous for the school buses in the US, BYD has become China’s largest auto manufacturer with a market capitalization of one trillion yuan (~US$149 billion) – larger than the market capitalization of Ford and GM (respectively. $66.01 billion and $56.63 billion) combined. And while Americans prepare for the 4th of July festival, BYD has quietly replaced Tesla by The world’s most prolific EV automaker with Shenzhen-based Berkshire Hathaway-backed car company reportedly outsold Tesla in the first half of 2022 is 641,000 vehicles to 564,000.

BYD is one more 450 electric vehicle companies registered in China, all of which are vying for a share of the world’s largest auto market with futuristic designs for the US and Europe. American ingenuity may have initially ushered in the electric vehicle era, but it’s China’s relentless drive to commodity technology that has put the nation’s automakers at the forefront of the car race. global electricity.

“Development of new energy vehicles is essential for China’s transformation from a large automobile nation to a powerful automobile nation,” said Chinese President Xi Jinping. said in 2014. “We should strengthen research and development, seriously market analysis, adjust the existing policy and develop new products to meet the needs of different customers. This can make a strong contribution to economic growth.” In China, so-called New Energy Vehicles (NEVs) are basically any plug-in electric vehicle (hybrid or battery) that is eligible for financial subsidies from the government – namely electric batteries. , plug-in hybrid vehicles and fuel cell electric vehicles.

These efforts can also help China achieve the Paris Agreement carbon neutral target 20% reduction by 2035 and 100% reduction by 2060 – lofty goals as it is currently the world’s largest emitter of carbon dioxide. The policies aim to reduce pollution in China’s cities, reduce the country’s dependence on imported oil, and “position China as a global leader in a strategic industry,” according to the report. a 2019 study of Columbia University.

The country’s central government has invested heavily over the past decade to spur growth in the NEV industry, leveraging a combination of policy, tax incentives, and consumer subsidies. By 2020, electric vehicles must account for 12% of output for any company that manufactures or imports more than 30,000 vehicles in China (up from the previous year’s 10% requirement). The government has also deeply subsidized consumer electric vehicle purchases by more than $14.8 billion since 2009, providing up to $3,600 for battery electric vehicles (BEVs) with a range of more than 400 km, although this discount was first halved, then it will be phased out in 2021.

The government has also provided funding and standardization tasks to build China’s charging infrastructure with a target of 120,000 EV charging stations and 4.8 million EV charging stations by 2020. Local governments and The city further encourages EVs with license fee discounts and preferential parking spots for NEVs.

The plan seems to be working. Almost 15% of new car sales in 2021 (total 124.2 billion dollars) is NEV – that’s a record 2.99 million units and a 169 percent increase year-over-year, according to data compiled by the China Passenger Car Association (CPCA). Afterward Total 6.75 million EV sold in 2021, up 108% year-on-year, Chinese electric vehicles account for 53% of the global market. Including PHEV, some 3.3 million electric vehicles was sold in China last year, compared to only 608,000 won United States. More, China Passenger Car Association currently estimates that another 6 million EVs will be sold by 2022.

The Chinese government predicts electric vehicles will achieve 20% domestic market penetration by 2025 and 60% by 2030. UBS Global has forecast that three out of five vehicles (60%) of China’s roads will be electrified by 2035, up from the 1% they made up in 2019. By 2027, the market expected to reach $799 billion.

“China’s emerging electric vehicle companies are making concerted efforts to target the domestic market and eventually the overseas market,” said Deutsche Bank analyst Edison Yu. Forbes in July. “We have seen stiff domestic competition in the mass market from Leap Motor, Hozon Neta, WM Motor, BYD and many sub-brands from incumbent OEMs (GAC/Aion, BAIC/Arcfox, SAIC / R-brand). New entrants have shown a willingness to accept deep losses in order to quickly gain volume market share. “

The Chinese electric vehicle market is currently dominated by five companies: Tesla ranked third surrounded by domestic automakers BYD (27.9% market share), SGMW (10.1 percent), Chery (4.9 percent) and GAC (4.2 percent). GeelyThe company, which owns stakes in Volvo, Polestar and Lotus, didn’t make the top five but its various brands posted record sales of 2.2 million vehicles worldwide in 2021. XPeng and NIO are other notable brands, reaching total sales of 98,155 and 91,429 respectively in 2021.

At the 2018 Boao Forum, President Xi Jinping announced a series of sweeping economic reforms aimed at further opening up the nation’s markets, including announcing the gradual removal of existing limits on property rights. foreign ownership of car manufacturers. The Policy for the auto industry In 1994 there was a key provision that prohibited foreign businesses from owning more than 50% of joint ventures with a Chinese company from entering into more than two such joint ventures for any type of vehicle sold in the United States. water – the so-called Rule 50% + 2. Xi Jinping’s reforms will see the 2 joint venture limit lifted by 2022 and the restriction on ownership percentage removed by the end of 2023.

This regulatory easing could have a huge impact on the Chinese electric vehicle market, potentially increasing competition for domestic OEMs from a range of international automakers selling more vehicles. NEV brand and model. The rule change could also see foreign companies renegotiate their ownership shares, potentially even buying out their Chinese counterparts in their entirety, though as Sino Auto pointed out, that is not likely to happen in the immediate future as existing joint ventures have an average remaining contract term of 19 years. Overall, the policy change will help international companies stand more evenly with local Chinese automakers.

That is not to say that local companies will no longer enjoy some of the advantages. For a, conversion cost involves the conversion from an internal combustion system to an electric powertrain mostly non-existent because for many Chinese consumers, EVs will be their first vehicle. Local automakers also have a better handle what their customers wantoffers customizable, tech-filled EVs in a variety of trim levels (starting at $4,300) for the tech-savvy, price-sensitive middle-class consumer.

International auto companies will need to scrutinize any topic of hot button, freestyle and privacy concerns, should they choose to do business in China. For example, GM and BMW were recently embroiled in a dispute over alleged use of forced labor in lithium mining in the Xinjiang region. Beijing denies the allegation, described the report as “nothing but well-intentioned smears against China,” according to Foreign Ministry spokesman Zhao Lijian in April. United States since then individuals and companies are sanctioned participate in Xinjiang activities. Lithium mined from this area is used in Tesla’s battery systems, among others.

Looking ahead, you’ll need to lean back a bit as the Chinese electric vehicle market is expected to grow by more than 30% by 2027. Strict government and population emissions regulations increasing is expected to contribute to the expected growth in demand. Furthermore, “during the forecast period (2022-2027), the country could also witness growth in electric bus adoption”, a recent study from Mordor Intelligence Note. “More than 30 Chinese cities have planned to achieve 100% electrification of public transport in the near future.” That figure doesn’t even include the country’s battery production capacity, which currently accounts for about 59% of the global market. It is also expected to grow 7.5% by 2027.

With China’s domestic market thriving, it may not be long before we see BYD or XPeng brands on American roads, just like other brands. European street. “I imagine it’s only a matter of time before we see more Chinese cars sold in North America,” said Morningstar analyst Seth Goldstein. Capital in February.

He continued: “As EVs are a new powertrain, this is an opportunity for Chinese automakers to establish brands in new geographies where, for many years, with internal combustion engines , Chinese automakers tend to only sell vehicles in China.

The question now is whether China can maintain its pole position. Just as Tesla was eventually overtaken by BYD despite a rather long and long lead, Chinese automakers find themselves in a similar position: at the top of the rankings, but How long does it take once the likes of GM and Ford get a taste of deep pockets and expansive R&D budgets?