China’s EV Strategy: Shopping for Subsidies
Frontrunner in EV implementation, China was the first and most successful to develop an EV transition strategy. Many countries have since used its blueprint (or parts of it) to land their electric ambitions. Now, a few years in, China is in a different place and it’s time to question whether the model still holds.
China has developed a dynamic 360 strategy to achieve its EV targets:
- 360: the strategy includes all aspects of electrification, from sourcing ground materials to production, to distribution, to sales & marketing. It includes incentives for consumers, OEMs and charging providers. The strategy includes manufacturing processes to promote efficiencies, use of materials and recycling, all contributing to building the ultimate EV
- Dynamic: initially, subsidies were simple and massive, but these evolved and were finetuned to incentivize manufacturers and consumers to produce and buy a certain type of EV; as such, there are no longer incentives in place for inefficient EVs
The strategy has been successful. Between 2016 and 2020, EV sales have grown from a few hundred thousand to close to 2.5 million to jump above 5 million a mere few years later. Penetration of charging infrastructure has made a similar jump, whilst the average cost for an EV has decreased.
As China’s growth has been impacted by factors such as the pandemic, adjusted GDP growth expectations, supply chain and microchip challenges, a shift has happened. Traditionally optimistic, the Chinese consumer as well as the Chinese corporate client have become more careful: the shift is one of optimistic consumerism to careful sourcing and risk mitigation.
EV penetration continues to increase, but the sales of ICE vehicles has dropped dramatically: from beginning of 2023 to mid-February, passenger car sales fell 26% compared to the same period in 2022, composed on 30% decrease of ICE vehicles, slightly offset by a 9% increase of EV sales. Chinese car buyers seem to have become more concerned about the residual value risks of buying a petrol car, especially as it has become clear that salary increases or growth are no longer guaranteed.
Sticking to a strategy is what China is typically strong at, but strategies need adjustment when peripheral conditions change. To ensure consistent car sales growth, consumers and corporate clients need to be incentivized. This implies either one of two strategies: 1/increase EV sales dramatically, so it can compensate for the loss in ICE sales or 2/incentivize ICE sales.
Option 1 is now being put in place: governmental subsidies, local subsidies, promotional events and car fairs, OEM subsidies to buy EVs or scrap old ICE vehicles are part of the portfolio of tactics that are being deployed.
For the Fleet Manager
It’s a good timing to order new vehicles, or even move up the renewal date of a Chinese fleet and source for new vehicles. This is most probably the last opportunity to benefit from higher-than-average subsidies. It’s worthwhile to use the opportunity to source differently, and start shopping for subsidies.