Experts See Chinese BEV Sales Slipping After Subsidies Expire

The Chinese government’s renewed efforts to pump-prime its domestic battery-electric vehicle markets might boost already burgeoning sales in the short term, but it may herald a future flatlining of growth, a worrying sign for Chinese automakers, industry experts tell Wards Auto. 

China’s Development and Reform Commission (NDRC) and Ministry of Finance in late July jointly announced an effective doubling of subsidies for consumers replacing old vehicles with emission standards of China 3 and below or BEV/hybrid passenger cars registered on or before April 30, 2018, with new models. 

These consumers are now receiving a subsidy of Chinese Yuan Renminbi  (CNY) 20,000 ($2,810), from CNY 10,000 ($1,405) before and those buying fuel passenger cars with a displacement of 2.0L or less receiving CNY15,000 ($2,105), up from CNY7,000 ($980) before. https://www.ndrc.gov.cn/xxgk/zcfb/tz/202407/t20240725_1391941.html 

These payments augment other earlier packages, such as a CNY520 billion ($73 billion) tax incentive package for BEVs and environmentally friendly vehicles that will remain in place until mid-2027. It provides a complete exemption from the 10% purchase tax for BEVs purchased in 2024 and 2025, with savings per auto of up to CNY30,000 ($4,210). From 2026 to 2027, the exemption will be halved and capped at CNY15,000. 

The Chinese government has acted because overall domestic car sales growth has been tepid, says Ferdinand Dudenhöffer, director of the Center Automotive Research in Bochum, Germany. January-August 2024 cumulative retail sales of all passenger vehicles in China totaled 12.1 million units, up just 3%, according to the China Passenger Car Assn. (CPCA), as cited by the Shanghai-based BEV information service the CnEVPost. That is less than the 5% GDP growth projected for China this year by the International Monetary Fund (IMF).  

The good news for Chinese OEMs and BEV exporters serving this market, notes Dudenhöffer, is that BEV sales are outperforming the rest of the Chinese auto market, with cumulative retail sales of passenger BEVs in China totaling 4,387,000 units in January-August, up 34% year-on-year. https://cnevpost.com/2024/08/14/china-nev-retail-274000-aug-1-11-2024/ 

“The Chinese government is pursuing two goals with the scrapping bonuses: firstly, to stimulate the economy, and secondly, to further promote the development of electric cars,” adds Dudenhöffer, telling Wards Auto: “In July, for the first time, 50 percent of new cars in China were NEVs (new energy vehicles – also including hybrids and fuel-cell models), which is a great success and will continue, so every carmaker who is in China and ‘can’ do electric cars is the champion of the future.” 

However, Tu Le, founder and managing director of the Detroit-based Sino Auto Insights, stresses that while subsidies may boost BEV sales, they may ultimately set the stage for future demand doldrums. “The risk with subsidies is that it pulls in sales that likely would have happened later, so when they expire, there will be a lull in sales,” predicts Le. 

Charlie Paglee, a Shanghai-based founder and CEO of heritage hybrid brand American Bantam, is also skeptical about strong future BEV sales in China, regarding the new double subsidies as signaling the Chinese public is losing interest in BEVs and the Chinese economy is softening (the IMF predicts 4.5% overall growth n 2025). 

“There is a very limited appeal for electric vehicles as either a second car for people who already have gasoline cars or as a primary car for people who do not have a license plate to purchase a gasoline car,” Paglee says. In major cities, such as Beijing, Shanghai, Shenzhen and Guangzhou, the release of license plates is heavily restricted. Buyers must enter a lottery to obtain one. 

“For instance, there are the Chinese New Year automobile buyers who only really drive their (second) cars during Chinese New Year to show off to relatives, and there are also businessmen who use their cars to travel between factories and conduct business, and both of these market segments will never purchase electric vehicles because of range anxiety.” 

Paglee predicts, however, that the subsidies will spur hard-to-track parallel gray-market used Chinese-made exports, so they may lead to a temporary increase in new BEV sales for immediate on-sales. He says parallel exports go to left-hand-drive countries, such as Uzbekistan, Kazakhstan, the United Arab Emirates (especially Dubai), Saudi Arabia and sometimes left-hand-drive countries in Africa. “Exporters will find straw men to purchase a vehicle, get the subsidies and then export the vehicle as a ‘used’ vehicle even though the vehicle has only six miles (10 km) on it,” says Paglee. 

Another cost-lowering tactic of Chinese BEV OEMs has been shifting production to southeast Asia. For example, BYD in early July opened its first factory in the region, in Thailand. 

https://asia.nikkei.com/Business/Automobiles/Electric-vehicles/BYD-to-open-Thai-factory-as-new-EU-tariffs-on-China-EVs-kick-in 

But Tu Le warns that the region may not be sustainably cheaper as a manufacturing base than China, given most of its 150,000-unit annual capacity is to be exported elsewhere in southeast Asia and to Europe, the company said when originally announcing the Thailand project. “The scale is still in China, so it will take time to reach (cost) parity, and it is also important to remember that if too many OEMs and Tier 1 suppliers want to build in the same country, then demand for labor will increase, which should push up hourly rates as well,” Le adds. “So, even if it is cheaper to build in ASEAN (Association of Southeast Asian Nations countries) today, that might not be the case in five to seven years.”