Updated: Aug 21, 2018
When in China, it’s difficult not to notice the many electric scooters swinging past you on side-lanes or electric three-wheelers used as delivery vehicles or for selling fried tofu in the evenings. Today, China is both the largest producer and the biggest market for different types of electric vehicles. There was a total of 777,000 electric vehicles sold in 2017 in China (2.3% of total vehicles sold in China), which is a gigantic 63% of total EVs sold across the globe. To put this into perspective, 199,000 EVs were sold in the USA, the European Union registered sales of 287,000 EVs spread across its member countries, and India sold a meagre 25,000.
Another interesting fact is that there is a whopping number of 497 EV manufacturers in China. At the Beijing Auto Show this year, 174 new energy models were at display, out of which 124 were made by Chinese companies. So, the mandate that China is the largest player in the EV game is out, but what are the reasons that made it the leader of electric vehicle industry and led to this steep rise as compared to 2008 when only 866 electric vehicle were sold here?
High demand and production of vehicles: Growing economic development and better disposable incomes have ensured that China beats the USA as the largest market for vehicles. Almost all of the major international brands have JVs with Chinese companies to manufacture and sell vehicles domestically. This is also one of the base factors contributing to large EV sales numbers as overall consumption for public and personal vehicles is high.
Government subsidies: With the motivation to push the sales of electric vehicles, the Central government of China provided incentives to manufacturers as well as buyers. Government offered subsidies between $3000 to $6600 based on the range of the vehicle. This was topped on by local governments and in some cities the total subsidies reached up to $10,000 for different models. This policy lead to faster adoption as the electric vehicle prices became comparable to ICE vehicles. However, this cost the exchequer a total of $7.7 bn in subsidies in 2017. A recent update to push for EV innovation has been introduced to the subsidy policy, which came into effect from June this year. The aim of the update is to improve the efficiency of the vehicles, and now the minimum single-charge mileage bar for subsidy eligibility has been raised from 100km to 150kms, and is expected to be raised to 200kms soon. The subsidy for vehicles offering above 400kms has been increased by 13% to 50,000 Yuan per vehicle. China is moving away from carrots, in a push for innovation.
Charging infrastructure: State Grid of China, the largest utility company in the world, has announced a plan to add 120,000 charging stations to an existing estimated number of 214,000 stations around the country. The target is to reach 500,000 stations by end of 2020. This is the largest state-level initiative for setting up charging infrastructure, so that the consumers feel secure to use EVs. When the cost of the vehicle goes down and the fuel (charge) is accessible and cheaper, EVs start becoming truly competitive with ICE vehicles and the adoption goes up.
Policy frameworks: Apart from subsidies and charging infrastructure there are other favorable policies that push the adoption of new energy vehicles. Some local government offer assured issuance of vehicle license. For e.g. Beijing restricts the number of vehicle registrations in an year but EVs are exempted from this limit. Other incentives include faster access to carpool lanes, green number plates, among others.
For the manufacturers, though, the norms have been toughened by introducing a credits and dis-incentive system in a bid to remove the subsidies by 2021. This new system would help to improve the fuel efficiencies of traditional fuel vehicles as well as promote more production of EVs. According to the proposal, automakers would be required to produce fleets with Corporate Average Fuel Consumption (CAFC) of 42 miles per gallon by 2020 and 54.5 miles per gallon by 2025. Automakers would earn credits and would have to reach certain CAFC target for credits set out for them based on the kerb weights and mix of vehicles. Unable to meet the targets, automakers would be subject to penalties or would have to purchase the credits from other manufacturers with surplus.
Strategy or a need: Some analysts believe that the push for EVs is not just a strategy but also a need for China. Oil import bill for the country is going up regularly. Additionally, rising pollution levels and a need to curb CO2 emissions leaves the country with two options. Either to limit its people from using personal vehicles or to offer them highly efficient and non-polluting EVs. According to the Made in China 2025 mission, China intends to be the world leader in 10 high tech industries including electric vehicles. The slowing down of its economic growth rate has made the government to look at new industries and higher value manufacturing areas.
We believe that electric vehicles are the inevitable green future and a lot of valuable lessons can be learnt by other countries from how China is ensuring the quick adoption of EVs as well as pushing for innovation in EV manufacturing.
Aurora Ventures offer supply chain consulting for electric vehicle industry from China. Reach out to us at email@example.com to know more about our work.