China leapfrogged from the bicycle age to the automobile age in just 20 years.
Before 1994, most people in China were still getting around on bicycles. Some people even had motorised scooters.
Fast forward 15 years, and China had dislodged the U.S. to become the world’s largest car market – with 13.6 million in unit sales per year.
Today, China is by far the world’s largest car market, with 28.8 million in unit sales (both passenger and commercial vehicles) in 2017. That compares to the U.S. with 17 million in unit sales. (We’ve written about China’s car market before here and here.)
Now, China’s automotive market is leapfrogging into to the age of the electric vehicle.
China is leading the world in electric vehicles
Around 2009 – when Tesla Motors (Exchange: New York; ticker: TSLA) delivered its first small batch of all-electric Roadster cars in the U.S. – the Chinese government saw that electric vehicles could address two pressing problems. The first was the country’s dependence on (mostly imported) fossil fuels. The second was deadly levels of air pollution caused partly by by too many gasoline-powered cars on the road.
China’s government wanted to promote the development of the domestic electric vehicle industry. So in 2010 it launched a trial programme to provide manufacturers with incentives of nearly US$9,200 for every battery-powered car sold in the cities of Shanghai, Shenzhen, Hangzhou, Hefei and Changchun.
Soon, Chinese auto manufacturers were scrambling to develop better, faster and more affordable electric cars. These are known in China today as new energy vehicles (NEVs).
It took a few years to take off. In 2011, just 8,159 NEVs were sold. The total number of NEVs sold the following year jumped 56 percent to 12,791… and by 2014, it had grown nearly six-fold to 74,700 units.
By 2015, there were more than 20 different models of NEVs being sold in China. (The imported Tesla Model S, which retailed for well over the equivalent of US$100,000 after taxes, was one option.) That year, 331,000 NEVs were sold. Even though that was just 1.3 percent of the total cars sold in China, it was a 41-fold increase in annual sales within just four years.
Last year, over 777,000 NEVs were sold in China. That was a 53 percent jump from the previous year. Overall, China now accounts for two-thirds of total sales of NEVs.
And China’s NEVs give Tesla’s best-selling luxury cars a run for their money. They offer a host of safety features, including high-end stereo systems, digitised dashboards that can change colour (depending on your mood) and complete connectivity to the internet.
Sales to grow seven-fold on strong government support
The Chinese government wants electric vehicles to account for 10 percent of total vehicle sales in the country by 2020, and 20 percent by 2025. That’s a target of 5.8 million in annual sales of NEVs, which would be a 640 percent increase from last year’s total.
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The government is helping with additional subsidies. In 2013, the National Development and Reform Commission (NDRC) – which oversees the country’s finance, science and industry ministries – announced a maximum buyer subsidy of US$9,800 toward the purchase of an all-electric passenger vehicle. So instead of paying manufacturers for NEVs sold, the government was now enticing consumers with generous rebates.
Of course, electric cars and buses require charging stations. So in September 2015, the NDRC said it would order the State Grid Corporation of China (their electric utility monopoly) to build a nationwide charging-station network. Its aim by 2020 is to meet the power demand of nearly 10 million electric vehicles.
This network will include up to 500,000 charging stations and cover residential areas, business districts, public spaces and inter-city highways. As of last year, China already had 214,000 charging stations installed. That was an increase of 51 percent from 2016. So they’re on track to reach their goal.
The government will also require new residential complexes to build charging points or assign space for them. At least 10 percent of public parking will need to have charging facilities.
Then in 2016, China’s Traffic Management Bureau introduced “green license plates” to differentiate NEVs from normal petrol-powered vehicles.
Cars with these green license plates enjoy preferential policies. These include exemptions from measures that ban the use of cars to one day each week. In some selected cities, green license plate vehicles can use the bus lane during rush hour.
Probably the most effective support for NEVs is the vehicle quota system. It was implemented in heavily-congested cities in 2011.
Not everyone who wants a gas-powered car in China can just buy one and start driving it. In Beijing, for instance, the government is limiting the number of new petrol-powered cars to hit the streets to just 40,000 a year.
It’s estimated by the Beijing City transportation authorities that every time a new license plate becomes available, 2,000 people are waiting in line for it. They might have to wait as long as five years. And those license plates now cost US$14,300 each. That’s almost the price of a new car.
This dissuades consumers from buying a petrol-fuelled car and encourages them to buy an electric vehicle instead. NEVs have a much higher quota (and sometimes no quota at all) than petrol-fuelled cars. And of course, government-backed discounts can be as much as 40 percent of the sticker price.
With such strong government support, a booming network of charging stations and competitive prices, it’s almost a certainty that NEV sales in China will continue to soar.
So if China’s electric vehicle industry isn’t on your radar yet, it should be.
Editor, Stansberry Churchouse Research