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Tesla’s sales in China and other EV makers may be on the rise as the country is encouraging NEV sales.

With the world’s most aggressive EV mandates in place, China has become the largest market for plug-based vehicles, and demand could ramp up even more rapidly if government regulators follow through on a proposal that would call for 25% of the new vehicles sold there in 2025 to be electrified.

That could trigger an all-out war between Chinese automakers – particularly those, like BYD, who are focused on battery power – and Western manufacturers who have long dominated the China market. Tesla, in particular, hopes to gain a solid foothold, though the company has yet to win approval from Beijing to open its new Gigafactory on the outskirts of Shanghai.

Complicating matters, the decision by the Chinese government to end hefty EV subsidies last July has resulted in a sharp drop in demand for plug-based vehicles even as regulators hope to push for heightened sales.

(China’s annual NEV sales trending for decline in 2019)

The New Energy Vehicle, or NEV, regulations that were formally enacted in late 2017 quickly set off a battery-car boom, sales in China topping the 1 million mark for the first time in 2018. Demand remained solid through the middle of this year but then came unplugged when consumer subsidies were cut back.

BYD is expected to be in a good position to take advantage of any government enticements to encourages NEV purchases.

The overall Chinese market has been in a slump this year, but the EV market has taken an even sharper plunge, down 46% for the year-to-date when compared to the same period in 2018. A clearer indicator: Plug-in vehicles, including both PHEVs and pure battery-electric vehicles, or BEVs, slipped to just 3.5% of all Chinese new vehicle sales in October compared to 5.5% for the first 10 months of the year combined.

The main reason, according to a report in Clean Technica, “drops lies in the subsidy changes that happened June 26, when … subsidies were cut off completely for vehicles with fewer than 250 km (155 miles) of electric range (in an overly generous rating system) and even those with higher range saw their subsidies halved.”

The news isn’t entirely bad, the green-minded publication noted. The subsidy cuts have hit hard those Chinese domestic brands providing relatively affordable, albeit low-range, EVs. On the other hand, it noted, “the most expensive end of the (EV) market continues to thrive, helping foreign OEMs to increase market share, now up to 14 percent.”

(September auto sales fall in China)

That could give a running start to Tesla which began rolling out Model 3 sedans at the new Gigafactory plant in Shanghai last month. But, for reasons so far unexplained, government authorities have yet to give the U.S. automaker permission to actually start selling those vehicles. For now, Tesla must rely solely on American-made imports facing hefty tariffs.

Tesla isn’t the only foreign automaker hoping to gain traction in the Chinese EV market. Volkswagen is in the midst of an aggressive ramp-up, with plans to have nearly 50 all-electric

The ID.3 is the first production model off VW’s new MEB all-electric architecture, but it won’t come to the U.S. However, it might be viable in China.

models in its global line-up by 2025. It has already launched the Audi e-tron SUV and, in select markets, the Volkswagen ID.3 hatchback. It has the new Porsche Taycan coming next year, along with a variety of other new, all-battery models to follow. VW also plans to have three separate plants building BEVs in China.

General Motors has indicated it will have 23 BEVs globally by 2025, some directly targeting China. And other foreign players hoping to plant stakes in the market include Renault and its Japanese affiliates, Nissan and Mitsubishi, BMW, Mercedes-Benz and Ford.

They could all benefit from the plans regulators laid out on Tuesday. The Ministry of Industry and Information Technology wants to raise the target for sales of NEV models to 25% by 2025, up from the current 20 percent.

(China NEV sales drop in July after 80% jump in June)

That may seem like an odd move considering the current slump, but “Demand for new energy vehicles may recover over the next two years and the 2025 target set in the policy seems reasonable,” said Cui Dongshu, secretary-general of China Passenger Car Association.  “There are always uncertainties in technology breakthroughs and it is more prudent to set a target for a closer time frame like we see here.”

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