The People’s Republic of China is regarded around the world as a pioneer of new energy vehicles (NEVs). State support for the buyers of battery-powered, hybrid and fuel cell vehicles was introduced as early as 2014, although in some regions such as Bei Jing it was available only for battery-driven vehicles. In 2019, electric passenger cars accounted for 5.3 percent of new sales in China. However, this does not indicate a special predilection for electric mobility – instead the Chinese pay a lot of attention to the total costs of ownership (TCO), according to Dr. Thomas Meurers, General Manager of VDA China. In Bei Jing, for example, vehicles with internal combustion engines are not allowed on the roads one day per week. This is another state incentive to purchase e-cars in addition to the large subsidies.
First subsidies, then quotas
However, the Chinese Government’s promotional scheme for electric cars will terminate at the end of 2020. In order to avoid an abrupt transition, it is expected that over the course of the year the technical requirements for vehicles to qualify for a subsidy will be raised and the financial bonus will be reduced simultaneously. The recent introduction of a penalty system, under which a certain percentage of the new vehicles sold must consist of cars with electric drive, represents the next challenge for the manufacturers. The German OEMs are tackling these ambitious quotas, as usual, with their premium products.
In this situation the German automotive industry benefits from the high quality of its products that more and more customers appreciate – also in China. In 2019 the German premium manufacturers were once again able to buck the trend and increase their sales on the Chinese market. The main reason for this – apart from the very high quality of the vehicles – is the great prestige the Chinese associate with owning a German car.
China remains one of the most attractive markets
Despite the current market shrinkage in China, it must not be overlooked that the Chinese market is still much larger than the US market, and almost six times as large as the German automobile market. At the same time, the Chinese market still harbors significant potential for growth. Short-term negative effects like a trade dispute with the US or the outbreak of a virus are not expected to have a great impact on the long-term prospects. Yet the global automotive industry is clearly feeling the effects of the coronavirus in China as the year kicks off. Sales of new vehicles have fallen in the People’s Republic since the virus entered public consciousness. What is more, China is expanding as a production location for the export-intensive German automotive industry.
Chinese startups expect difficulties
Alongside the large number of OEMs, China also has numerous startups that are dedicated primarily to electric mobility. Startups in particular find themselves confronted in the short term with huge financial problems given that state support will soon come to an end. They are still a long way from being profitable despite having powerful investors. Some observers therefore expect take-overs and a general consolidation of the market in the long term.