China's new energy vehicle boom and changing competitive landscape
China's NEV sector is burgeoning. How did it happen? What are the implications for global auto market?
“There is no greater wisdom than well to time the beginnings and onsets of things.” -- Francis Bacon
Green license plates is becoming a common sight on the road as a lot more Chinese consumers have showed preference for new energy vehicles (NEV). The flip side to such a preference could be a growing alienation from fossil-fueled automobiles and some ensuing changes in the competitive landscape.
Leading electric vehicle manufacturer BYD for instance saw its market cap topping 1 trillion yuan (about $146 billion) in June, becoming the only Chinese player to rank among the world's top 10 automakers by market cap.
In the first seven months, sales of NEVs in China skyrocketed 121.5 percent year on year to 2.73 million units, with BYD taking up nearly one third of the sales, according to the China Passenger Car Association (CPCA).
Accumulative NEV sales in the country reached 11.08 million units as of the end of May. Back at the end of 2012, the figure stood at only 20,000 units.
Globally, the country has ranked first in terms of production and sales for seven straight years since 2015, spearheading the global auto industry transformation, said Xin Guobin, vice minister of industry and information technology.
Fu Bingfeng, secretary general of the China Association of Automobile Manufacturers (CAAM), attributed rapid growth of China's NEV industry to the synergies created by policy support and technological innovations of auto enterprises in an interview with the Economic Daily.
Policy stimulus at work
As the world races to cut carbon emissions, China has also made the pledge to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.
Achieving these goals entails effective policies to decarbonize the transport sector.
In the roadmap to global net zero emissions by 2050, the International Energy Agency stressed the role of policies in cutting carbon emissions.
Policies that end sales of new internal combustion engine cars by 2035 and boost electrification underpin the massive reduction in transport emissions. -- International Energy Agency
China has been fast in laying out policy framework. According to a five-year energy development plan unveiled in March, China planned to promote NEVs in public transport and set a target of increasing the share of NEVs in aggregate car sales to around 20 percent by 2025.
It has also, in an industry carbon-peaking action plan issued this month, detailed measures to spur the development of new energy cars.
According to the plan, China will raise the proportion of NEVs used in delivery, logistics and other areas, carry out R&D on electric heavy trucks and hydrogen vehicles, and establish a convenient charging network.
On top of these overarching plans, more than other 600 supporting policies have been rolled out by central and local governments, covering technological innovation, promotion and application, and security.
Policymakers have been leveraging incentives to lure car buyers to choose NEVs over fossil-fueled cars. At different localities, new-energy car buyers can enjoy various benefits ranging from tax exemptions and purchasing subsidies to looser traffic restrictions and special plates.
Tax, for instance, is among the most frequently-utilized policy tools. Last week, China decided to extend the vehicle purchase tax exemption for NEVs, which has already been extended twice and is due to conclude at the end of this year, to the end of 2023. The move is expected to waive 100 billion yuan of taxes.
China's NEV market is expected to expand rapidly during the 2022-2026 period, with the number of NEVs reaching 15.98 million by 2026 and the penetration rate of new NEVs topping 50 percent, global market research firm International Data Corporation said in a report.
An opportunity to excel
While most auto enterprises across the world are grappling with pandemic-induced business slowdown, China's leading NEV manufacturers are looking to expand their global presence.
BYD has recently decided to tap the market in Germany after entering the Japanese market. The Shenzhen-headquartered carmaker is now selling electric buses and taxis to over 70 countries and regions.
Given that both Japan and Germany have dominated global car production for decades, BYD's expansion to these markets could point to a meaningful change in global auto arena: China's NEV manufacturing has grown stronger, and its domestic auto brands begin to excel.
NEV-related technological advances are what underpin such a turnaround. When fossil-fueled cars were at its golden days, China's local manufacturers were dwarfed by overseas brands in core technologies. The shift to NEVs, however, has created a new racing track for China to catch up with and even surpass other major auto manufacturers.
In core NEV technologies such as batteries, motors, and controllers, China has already been among the top in the world.
At a press conference in July, Tian Yulong, chief engineer with the Ministry of Industry and Information Technology, said that China has made new breakthroughs in technological innovations this year.
Newly-developed lidars, domestic chips and in-vehicle computing platforms have all been put into application, and the country is quite competitive in power battery industry, said the chief engineer.
Supported with technological advances, more made-in-China NEVs are able to "go global." Last year, China's NEV exports surged by 304.6 percent from 2020, accounting for 15 percent of its total auto exports. Orders from Europe grew the fastest, with its imports from China surging by 204 percent from a year ago in 2021.
Foreign-funded enterprises and joint ventures have also contributed to the expansion of NEV exports. In the first six months, Tesla's Gigafactory in Shanghai exported nearly 100,000 cars, taking up 48 percent of China's aggregate NEV exports during the period, according to Xu Haidong, assistant secretary general of the CAAM.
Though Europe is the world's biggest NEV market, its new energy transition is yet to be quickened, which has opened up an opportunity window for China's NEV manufacturers to drive into the continent, said Cui Dongshu, secretary general of the CPCA.
The surge of China's NEV exports is a result of decade-long accumulation. Sustained policy support and manufacturers' proactive steps have built up overall industrial strength and capacity to meet diversified demands in global markets. -- Xu Haidong(Assistant Secretary General of CAAM)
This is an opportunity too good to miss out on, Cui was quoted as saying by the People's Daily.
To foster growing competitiveness in the race, Xu Haidong noted that China's car manufacturers still need to improve their "hard power," which demands efforts to enhance product quality, increase R&D investment and encourage innovation.
Moreover, localization based on a thorough understanding of indigenous cultures and consumer demands is also required if China seeks to build up its own auto brands, Xu said.
Bumps on the road
To get more NEVs on the road, a reliable and stable power supply is key. This factor has become more prominent this summer as scorching heatwaves have strained power supply in parts of the country.
In hydropower-dependent Chongqing, where soaring temperatures coincide with droughts, power shortages have prompted major electricity supplier State Grid to stagger NEV charging to ease peak loads.
Power curbs have also forced Telsla and Xpeng to suspend charging services in parts of Sichuan and Chongqing.
In the country's northern region, where NEV penetration rate is significantly lower than national average, the promotion of NEVs are faced with the dual challenges of cold weather and a lack of charging infrastructures.
The road ahead might be bumpy for China's NEV producers. But in light of its solid start and sustained momentum in new energy transition, there are still reasons to look beyond these short-term constraints and put faith in the country's fledgling new energy carmakers.