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Government regulations and incentives have boosted the market

The Chinese electric passenger vehicle market has grown steadily, and is dominated by domestic Original Equipment Manufacturers (OEMs). According to Frost & Sullivan’s Strategic Analysis of China’s Electric Passenger Vehicle Market, 2018-2025, the market witnessed a 78.3% increase in sales in 2018 compared to the previous year and is expected to experience a compound annual growth rate (CAGR) of 29% in the 2018-2025 period, expanding from 1,181,920 units in 2018 to 7,368,900 units by 2025. The incentives offered by the Chinese government have greatly boosted the passenger electric vehicles (EVs) market.

Government puts growth in top gear

The Chinese government is offering public several incentives such as free license plates to buy EVs. This allows owners to skip typical bidding wars and expensive auctions for license plates. However, this is unlikely to last long as the central government is expected to lessen the incentives by 2020, while regional governments will withdraw purchase incentives in 2019.

The Shanghai government, for instance, provides free license plates to first-time EV buyers with good financial credibility and personal charging points. In Beijing, EV buyers can apply for a green license plate through a separate lottery system with high bidding ratio probability. Other city governments such as Guangzhou, Shenzhen, and Hangzhou provide free license plates for EVs.

The central government also provides subsidies to purchase EVs. In 2018, purchase incentives for battery electric vehicles (BEVs) were in the range of $2,100 to $7,000, depending on the driving range. Plug-in hybrid electric vehicles (PHEVs) were eligible for a subsidy of $3,080, and fuel cell electric vehicles (FCEVs) for a maximum subsidy of $28,000.

For manufacturers, the government offers the new energy vehicle (NEV) credit policy. The policy is likely to impact the production and sales of EVs. OEMs have to ensure they earn at least 10% NEV credits in 2019 and 12% in 2020. The credits are issued based on the driving range and the rated power of fuel cell system in use. OEMs that fail to get the required amount of NEV credits will have to purchase them from other market players or pay penalties. The credit policy is being revised, and a new one is expected to be announced by the end of 2019.

Barriers on the road ahead

Despite the robust growth of the EV market in China, consumers are concerned about spare part supplies and vehicle maintenance across outlets. As repairs of EVs, especially the battery technology, require a highly skilled workforce, some consumers lack confidence in the aftermarket support available for EVs.

There are also safety concerns. The battery, which is the most critical part of an EV, can have several potential hazards. They can develop electrical or mechanical problems, and there is a possible danger of explosion. In 2018, there were approximately 50 electric passenger vehicle accidents in China, where the battery caught fire.

These accidents were caused due to various reasons, such as high temperatures, short circuits, and external collisions. The goal of the Chinese central government is to improve the technology and safety of EV batteries, speed up the process of establishing battery standards, and set up annual inspections to address the safety of EVs.

BEVs winning the race?

BEVs are highly popular in China, and accounted for 76.8% of the market share in 2018, followed by PHEVs. Purchase incentives for BEVs are higher, which is the main factor contributing to the growth of this sector. FCEVs are likely to increase their market visibility by 2025.

The leaders in the electric passenger vehicle market in China are: BYD Co. Ltd., Beijing New Energy Automobile Co. Ltd., Shanghai Automotive Industry Corporation (SAIC) Motor Co. Ltd., Zhejiang Geely Holding Group Co. Ltd., and Chery Automobile Co. Ltd. With advanced battery technology and strong product offerings, BYD will continue to dominate the market. With top selling models in 2018, BYD is the leader in both BEV and PHEV segments.

In the long term, more joint ventures and start-ups are likely in the market. The government is now looking to promote EV sales from domestic platforms for export, and at boosting overseas production.

The way ahead

Though the Chinese government is looking to withdraw incentives, OEMs are likely to accelerate EV sales by reducing the production of gasoline passenger vehicles in the long term. BYD will continue to be the market leader in China between 2019 and 2025, thanks to strong battery fundamentals and superior driving range.

NEVs regulated by the Chinese government will have a significant impact on the production and sales of EVs by automotive OEMs. BEVs are likely to grow in dominance, aligning with global automotive trends. In addition, the further development on FCEVs is expected over the long term. Chinese consumers are looking at EVs with affordable prices, quicker charging times, and longer driving ranges.

For more information on the Strategic Analysis of China’s Electric Passenger Vehicle Market, 2018-2025, please write to Chan Ming Lih, Senior Industry Analyst – Mobility at: minglih.chan@frost.com

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