China started the development and promotion of electric vehicles (EVs) in 2001 and aims to become a dominant global producer.
China is currently the largest electric car market in the world with 336,000 new electric cars registered but the EV’s market penetration is only 1.5%. Norway is the global leader for EV market share with 29%. In 2016, approximately 375,000 EVs were manufactured by Chinese OEMs which accounted for 43 percent of the total production worldwide. According to a survey from UBS, about one of every three Chinese people now have a strong interest to buy an EV, mainly due to Chinese government policy launched in recent years to support the use of EVs to control air contamination.
The policy includes strong financial and non-financial incentives to the EVs sector with local and central government approving subsidies of up to $15,000 per vehicle and large cities allowing total or partial waivers from license plate availability restrictions. The combination of ease to obtaining a license plate, financial subsidies as well as massive advertising has paved the road for EVs to access and penetrate the Chinese consumer market quickly.
China has set itself to become a global powerhouse in green energy technology and it sees EVs market growth as a key component to achieve this objective. This trend is recognized by automakers worldwide and many programs to develop EVs or to seek partnership with Chinese local vehicle brands have been formed in recent years to participate in this growth. For the first time, China has overtaken the U.S market in the total number of EVs on road.
Compared to Europe, China is growing much faster registering 70% new EVs vs. 7% during the same time period. In November 2017, Swedish automaker Volvo Cars, along with its Chinese parent company Geely holding, announced an investment of $755 million on Polestar, a high-end EV, at the manufacturing facility in Sichuan province. The model will first launch mid 2019 in the Chinese market and expand further the choices of vehicles to the consumer – today there are already around 75 different models in the market. Overall, Chinese automakers are moving quickly to meet the fast growing demand.
The central government is also exploring policies to promote cross-border collaboration, like easing restrictions on foreign electric vehicle makers by gradually opening up access to free-trade zone to foreign auto manufacturers (starting July 2016, foreign companies are allowed to set up fully-owned motorcycle and battery manufacturing operations in China). Additionally, the new policy by President Xi Jinping, “Big Strides in Reform”, will drive to a much better structured and transparent business environment for automakers to collaborate or invest in the China market.
The lithium battery is a key component for the electrical vehicle industry as it determines the driving range for the vehicles and represents between 25-50% of the total cost of the vehicle. According to Simon Moores, the director of Benchmark Mineral Intelligence, “whoever controls the lithium supply chain will control the future of the electrical vehicle space”. Currently, China’s battery suppliers are growing faster the battery manufactures in Japan and South Korea despite having a short of supply of Lithium and trailing technologically versus the battery market industry leaders. For instance, China is still behind Japan and Korea manufacturer’s on battery energy density technology, key factor that determines the driving range for a vehicle on a single battery charge.
On a different front, the average battery lifespan for most of EVs in the Chinese market is around five years. It is expected that by 2020 nearly 276,000 tons of batteries will be ready to be retired. Eventhough China’s EV battery policy states that the auto manufacturers are responsible for the recycle process, local battery recycling industry is relatively small, inefficient and burdened with high recycling operation costs. Defining solutions and technologies to overcome these challenges are crucial for China’s ambitious plan on both EVs and EV battery industry.
In summary, China is paving the road for a large market potential in the EV vehicle market. The China and global focus on environmental concerns and pollution control puts the EV market right at the center of programs to reduce gas emissions. Today, China is already the largest user of EVs and this demand is expected to grow significantly for many reasons:
- It key component of the environment protection initiatives by the central government
- Market penetration of EVs is still very low compared to other developed countries
- China central and local government have rolled out significant financial and non-financial incentives to the market
Despite these favorable conditions, supply and technology challenges remain but the government is fostering an environment that is open and friendly for collaboration between local and foreign market players. These factors are building the road for China to be the largest market for EVs in the world and an opportunity for business growth.
Read about our consulting services and our experience in the automotive sector.
The insights provided in this article are for general informational purposes only and do not constitute financial advice. We do not warrant the reliability, suitability, or correctness of the content. Readers are advised to conduct independent research and consult with a qualified financial advisor before making any investment decisions. Investing in financial markets carries risks, including the risk of loss of principal. Past performance does not guarantee future results.
The views expressed herein are those of the author(s) and do not necessarily reflect the company's official policy. We disclaim any liability for any loss or damage arising from the use of or reliance on this article or its content. ARC Group relies on reliable sources, data, and individuals for its analysis, but accuracy cannot be guaranteed. Forward-looking information is based on subjective judgments about the future and should be used cautiously. We cannot guarantee the fulfillment of forecasts and forward-looking estimates. Any investment decisions based on our information should be independently made by the investor.
Readers are encouraged to assess their financial situation, risk tolerance, and investment objectives before making any financial decisions, seeking professional advice as needed.
