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China Electric Vehicles

Turning point: All aboard China’s EV juggernaut

The figures tell their own story. Today, one in three cars sold in China is an electric vehicle (EV). The country is the biggest EV market in the world. More than 500,000 EVs were sold in May 2023 alone. And some 75% of new models to be launched over the next 18 months will be EVs, according to the Chinese Association of Automotive Manufacturers.

This is all the more remarkable when you consider this is a country where almost no one was driving an EV 10 years ago.

1 in 3
New cars sold in China is an EV
EVs sold in China in May 2023

In our view, this rise is set to continue. We think EVs could represent more than 50% of sales by the end of 2025, and as much as 90% by the end of this decade. It is no exaggeration to say we see the beginning of the end of the internal combustion age in China. On our predictions China is also set to continue to see, by some way, the fastest EV adoption rate of any large market in the world.
There are a number of factors driving China’s EV juggernaut forward.

The government has a long history of offering policy support to the EV industry. Tax breaks on EV purchases were first introduced in 2014 – earlier than in many other places – and helped to ramp up the industry over the past decade. On 21 June 2023 policymakers unveiled fresh support measures. New energy vehicles (NEVs) will be exempted from purchase tax amounting to as much as RMB30,000 (USD4,170) in 2024 and 2025, and up to RMB15,000 (USD2,085) in 2026 and 2027.

The sheer scale of China’s market helps. With around 20 million units sold in 2022, according to the Chinese Passenger Car Association, China is the single largest auto market in the world. This creates the scope for new brands and models to grow, and for firms to sustain intense research and development.

China has the world’s most competitive EV battery supply chain. The single most expensive element of an EV is the battery. Carmakers based in China have access to high-quality batteries produced at a relative cost advantage, with manufacturers continuing to improve the technology.

The supporting infrastructure for EVs is also well developed. While consumers in many other markets worry whether they will be able to find a convenient place to charge their battery, this isn’t an issue in China, which is home to 60% of the world’s charging points. In addition, electricity prices in China are among the cheapest in the world.

Sales data suggest Chinese consumers have a strong appetite for EVs. In part, this may reflect some smart decisions from EV manufacturers. Domestic consumers are often keen to use the latest technology in connectivity, infotainment, and advanced driving assistant systems: EV manufacturers have been quick to incorporate these features.

Domestic consumers are often keen to use the latest technology in connectivity and infotainment.

What does it mean for the rest of the world? Carmakers elsewhere in the world, including in Europe in particular, have a long history of selling into China. Today, however, a number of home-grown Chinese EV brands have seen their sales grow and are competing directly with imported brands for domestic market share.

We see exports driving the next leg of growth. Last year, China became a net vehicle exporter for the first time thanks to its global leadership in the production of EVs, according to the National Bureau of Statistics. For now the majority of China’s export volumes come from international brands leveraging cost-efficient China production centres. Local brands still represent only a limited amount of exports – but we see scope for this to increase over time.

Would you like to find out more? Click here* to listen to a special episode of the Under the Banyan Tree podcast focusing on the rapid rise of China’s EV market.

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