Insights into China’s booming new-energy vehicle market

On January 30th, an official source released key data on China’s new-energy vehicle (NEV) market during the year of 2017. Total NEV sales achieved 777,000 in China, making the country the world’s NEV sales champion three years in a row.

Apart from the traditional factors driving China’s NEV production, such as the push towards sustainable development and addressing energy shortages, a national mission to lead the NEV tech trend in order to secure a place in the long-term international power competition also fuels the country’s motivation.

Challenges ahead

However, a key issue remaining to be solved is technology. Besides general car technology, battery technology is another battleground for NEV players and their supply chain partners. China’s Contemporary Amperex Technology Ltd. (CATL), a supply partner of top car makers including Volkswagen, BMW and Aston Martin, plans to construct a battery-cell plant second in size only to Tesla’s Gigafactory. At the moment, Tesla’s products dominate the NEV tech market in terms of tech patents and strategic battery collaborations with industry established gurus like Panasonic. Nevertheless, China is ambitious and is catching up.

CATL battery production. Photo from CATL.com

A more recent concern for the NEV industry is the fluctuation of raw material prices. Apart from lithium, rising cobalt prices are testing companies’ core competitiveness and market power, as producers tend to have low profit margins. Volkswagen attempted to sign a contract with major producers including Glencore to land 5-year fixed-rate cobalt deals. It was ultimately rejected. In addition to business, the commodity field also plays host to power wars of global interest groups, which function beyond the reach of business negotiations.

Domestically, as the Chinese state is phasing out NEV subsidies and announcing tighter credit-based regulations, anxiety accompanies excitement in the NEV industry.

Another little-known problem is the fragmented Chinese market haunted by protectionism. Miao Yu, Head of the Ministry of Industry and Information Technology, said during a 2018 industry conference that a variety of local protectionist policies have limited EV vehicle options for customers to purchase. As a result, market vitality has been suppressed.

According to Miao, pure electricity vehicles dominate 98.1% of the Beijing market share with only 25.9% market share in Shanghai. On the other hand, plug-in hybrids secure only 1.9% of Beijing’s market but dominate 74.1% of Shanghai’s market. This disparity is in part owing to the fact that Beijing limits plug-in hybrids’ growth by imposing strict regulatory policies and providing little to no subsidies.

Infrastructure may pose another obstacle. Official sources reported that China now owns around 210,000 charging piles. Reuters reported that by 2020, China will have built 500,000 public charging piles for NEVs. As NEV now shoulders a national mission, supplemental infrastructure is likely to quickly make its way to the market. Yet at this stage, consumers lack systematically assessed data to evaluate the piles’ performances and the state’s management.

Future Expectations

The Chinese government has demonstrated a stable approach to strategically develop technology: 1) government policy signals to start, 2) massive state and private financing to follow, 3) frequent M&As (mergers & acquisitions) to power, and 4) mixed approaches combining regulation framework as well as marketization to push out non-qualified players. Financing, fierce tech competition, domestic, and global M&As, regulations, disputes, and the eventual emergence of market giants are to be expected in the NEV field.

Another point to take away is that of Chinese NEV customer profiles. According to a 2017 Mckinsey report, current owners of EVs are mainly status and luxury enthusiasts as well as risk-averse environmentally-oriented individuals. The report paints a portrait of the near-term purchase consumer as one who seeks low-cost performance, mass premium value, and mainstream mobility. The categories drawn from a survey correspond to that from U.S, Germany and Norway. However, due to income parity and policy, current Chinese NEV consumers are already demonstrating traits of the near-term kind. While Mckinsey says near-term consumers will generally show a lower range of expectations, heated competition in the Chinese NEV market will likely to lead to an opposite expectation and a desire for more affordable good-performance vehicle options for mainstream consumers.

In the coming years, we also expect to see several leading NEV brands from China emerge onto the global stage. An interesting focus will be startups like XPENG and NIO. The latter announced earlier this month that it was establishing  a partnership with BP for an NEV fund. Traditional car makers in China such as BAIC BJEV and BYD will leverage existing market power and accumulated advantages to defend and expand their businesses. It is also expected that the NEV technology will soon find more ways to secure a larger segment of China’s sharing economy.

(Top photo: ARCFOX car from BAIC BJEV. Photo from Sohu.com)

Fiona Zhao
Fiona Zhao

Fiona writes for AllTechAsia. She has rich business experience across several industries in China. She holds a master's degree in Anthropology from the London School of Economics and Political Science and a bachelor’s degree in Economics and Politics from The University of Manchester. Fiona is particularly interested in how technology and business combine to shape societies across the world.

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