ChinaMarket Insights

China’s Electrical Vehicle Sales Expected to Rise 40 Percent Next Year

By 18 December, 2020June 30th, 2023No Comments

A man charging an electric vehicle

China’s electrical vehicle industry is expected to see rapid growth next year. China Association of Automobile Manufacturers (CAAM) predicts sales topping 1.8 million units next year, compared to an estimated 1.29 million units for the whole of 2020, marking a growth of 40%.

China’s interest for green cars is mounting. With government backed incentives, the industry is expected to keep growing aggressively. NEV (New energy vehicles) buyers in China are eligible to enjoy a 10 percent consumption tax cut. Beijing further offers a cash subsidy of about 22,500 CNY (~3,500 USD) for the purchase of an electric car, as long as the driving range is more than 400 km on a single charge. In Shanghai, the local government gives buyers of NEV’s free license car plates, which otherwise needs to be bought at a cost of around 90,000 CNY (~14,000 USD).

As a part of China’s new 5-year plan (which will be released in its full extent in March 2021), the Government called for a continuous green transformation of production and people’s lifestyles. The clear ambition brings tons of opportunities for companies within the Energy & Environment sector, producers of electrical vehicles being one clear winner. By 2025, deliveries of green cars are expected to account for a fifth of the market, up from less than 5 percent in 2019.

Graph showing electric vehicle sales in China

Many new players are joining the race to grab a share of China’s gigantic car market. The three Chinese NEV brands NIO, Xpeng and Li Auto, listed on the New York Stock Exchange, has seen a rapid interest increase lately. Now, the list of the world’s most valuable automakers has been reshuffled. NIO has a market cap (as of December 2020) of 66 billion USD, while Xpeng and Li Auto are valuated to 34 billion USD and 28 billion USD respectively. Putting this into perspective, we find Ford’s market cap being 36 billion USD and Nissan 22 billion USD. Adding to that, Tesla targets the Chinese market more and more, with the initial production of their newest model, Model Y, already in production at Tesla’s enormous Gigafactory in Shanghai.

To further build the hype around China’s NEV market, it is reported that Baidu is considering making its own NEV’s, and have held discussions with several carmakers about the possibilities of collaborating on this co-development. Baidu, which is commonly referred to as “China’s Google”, are the latest tech-firm to join the race for developing smart cars. Building cars would mark a checkpoint of dramatic development in Baidu’s push to diversify income streams.

However, Chinese carmakers need to overcome a shortage of semiconductors (caused by the COVID pandemic) before being able to rev up the production next year. Lockdowns in Europe has disrupted the production of semiconductors, which is a key component for all carmakers and car parts suppliers, including the Chinese ones. Some assemblers might be forced to reduce, or even halt output completely, unless the bottleneck of semiconductors is being solved.

In conclusion, the sales of Chinese electrical vehicles are expected to rise dramatically next year. Driven by a desire to transform China to a more climate neutral and green nation, the government offers highly lucrative incentives for its citizens. Many companies are now trying to grab a share of China’s huge car market, but they all face a shortage of semiconductors which has to be solved before ramping up the production.

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