In the race to cut carbon emissions, countries from the U.S. to New Zealand are rolling out incentives to spur sales of electric vehicles — a tactic China has been using for years as it becomes the largest EV market on Earth.
Beijing’s success has been astounding. Electric vehicles accounted for a quarter of all passenger cars sold in China last year, well above about one-seventh in the U.S. and one-eighth in Europe. And the pace is picking up. HSBC expects EV penetration to reach 90% in the world’s second-largest economy by 2030. Including plug-in hybrid vehicles, sales of clean vehicles in China will reach 5.67 million in 2022, accounting for more than half of the global total. Bloomberg New Energy Finance predicts that China will account for about 60% of global sales of 14.1 million new passenger electric vehicles this year.
Not just buyers. Manufacturing is also booming — HSBC analysts said in a recent report that Chinese brands account for about half of global EV sales.
Adequate infrastructure clearly facilitates EV adoption. China, which has the world’s largest charging network, will add 649,000 public charging piles in 2022 alone, accounting for more than 70% of the total global installations that year.
Buoyed by all these advances, electric car makers have rushed to China with new models, and a price war has erupted this year as companies try to get ahead of rivals. Analysts expect some consolidation in the sector in China to be imminent.
Here’s a deeper look at China’s carrot-and-stick policy to foster EVs:
- Consumer subsidies: A decade-long program offers EV buyers up to 60,000 yuan ($8,375) in compensation. Although state subsidies end in 2022, local governments in places like Shanghai continue to hand out rebates of up to 10,000 yuan.
- tax deduction: The 10 per cent standard tax will be exempted for clean cars purchased under $300,000 until 2025, and the 5 per cent tax will be reinstated in 2026 and 2027. The tax cuts, which have been in place since 2014, are expected to total 835 billion yuan. By the end of 2027. In the US, the Inflation Cut Act passed last year included $270 billion in tax incentives for electric vehicle purchases and cleaner manufacturing, and nearly $12 billion in loans for clean energy projects.
- Manufacturer subsidies: Direct government support for EV manufacturers has helped many EV manufacturers get up and running. While 2019 saw a plethora of companies, with more than 500 EV brands flooding the market, the effort has nurtured successful companies like BYD Corp. The Shenzhen-based company has become China’s best-selling brand, ending Volkswagen AG’s decades-long dominance.
- infrastructure: Widespread distribution of government-subsidized charging stations reduces costs and eases range anxiety for drivers. Thanks to an agreement with the manufacturer, the charging standard is harmonized, so everyone uses the same plug. As of the end of May, China had 6.36 million EV charging points, more than anywhere else in the world. Much of that is part of State Grid, the fourth-largest supplier behind private companies such as Wanbang New Energy Investment Group Co Ltd and Tegute New Energy Co Ltd.
- Gas barrier: Buying and owning a gasoline-powered car is becoming less and less attractive. Cities are tackling congestion by limiting the number of cars on the road, such as Beijing’s lottery for new license plates and Shanghai’s auction system. From January to May last year, the average transaction price at the plate auction in Shanghai was 92,780 yuan. Meanwhile, EV drivers can easily obtain green license plates to show off their environmental credentials. Green license plates are becoming more and more prominent on city streets.
- Production penalty: China introduced a dual credit system for the auto industry in 2017, giving credits for producing clean cars and punishing those with high fuel consumption. Cars from manufacturers with negative scores could be pulled from the market. To avoid penalties, manufacturers can buy credits from higher-scoring competitors such as Tesla or BYD. It can get expensive. State-owned Chongqing Changan Automobile Co Ltd lost 4,000 yuan in profit for every car it sold in 2020 because it bought credits to avoid fines.
- Government Procurement: Some local governments are converting their public transport and taxi fleets to 100% electric vehicles and are encouraging local agencies to purchase electric or plug-in hybrid vehicles. The result has been steady business for EV makers such as BYD, which also makes buses, and Guangzhou Automobile Group Co.
First published date: Jul 18, 2023 08:55 AM EST