China is not only the world’s largest car market but leads in EV sales, as well — and demand is growing so fast that battery-car sales are expected to hit 20% this year, three years ahead of the Beijing government’s target.
If anything, the challenge is coming up with enough vehicles to meet customer expectations. Tesla has developed a solid lead in the market since opening its Shanghai assembly plant in late 2020. Volkswagen plans to start production at its third Chinese EV plant, boosting production capacity to 900,000 vehicles annually.
Sales of so-called “New Energy Vehicles,” or NEVs, more than doubled between late 2020 and December 2021. For the full year, deliveries rose to 2.99 million vehicles, or 14.8% of the total Chinese market, according to the China Passenger Car Association. But in December, NEVs captured a 20% share for the first time.
“Sales growth by NEVs largely outpaced internal combustion engine-driven (ICE) cars, suggesting that NEVs will continue to replace oil-guzzlers at a quick pace,” according to Cui Dongshu, general secretary of CPCA, a trade association.
Consumers take the lead
Long struggling with endemic urban air pollution, the Chinese government has put a high priority on electrification. It has steadily ramped up industry sales targets under the NEV program and is aiming for a 20% penetration rate by mid-decade. If anything, though, EV advocates — and some industry analysts — felt regulators were aiming too low.
Now, it seems, consumers agree. In November, NEV sales were up 122.3%, reaching an even 20% market share. In December, year-over-year sales surged 138.9%, hitting 22.6% market share for the month.
By comparison, overall Chinese car sales were up just 4.4% for all of 2021, at 20.15 million vehicles. It was, nonetheless, the first annual increase for the market since 2017, the CPCA reported.
The NEV numbers can be a bit misleading, however, as vehicles that qualify for the program include some longer-range plug-in hybrids, as well as pure battery-electric vehicles.
EVs gaining ground around the world
Even so, China is experiencing one of the biggest growth curves for electric vehicles of any country in the world. That said, demand is growing fast in other major markets as well. The U.S. saw sales of pure BEVs jump 83% in 2021, and some forecasts call for such vehicles to achieve 5% of the market in 2022, driven by a flood of new products scheduled to reach showrooms.
Plug-based vehicles achieved a 74% growth rate in Great Britain and more than doubled in some other European markets in 2021.
But China appears positioned to retain a lead, according to some analysts. A study by UBS forecasts 60% of the country’s new vehicles will be battery powered by 2030.
Shaking things up
The move to NEV technology has shaken up the Chinese market in a number of ways. Until recently, the sales charts were dominated by foreign-based companies like Volkswagen and General Motors. But demand for electrified vehicles has given momentum to new players, including Tesla, as well as some of the estimated 200 Chinese auto companies planting a stake in the market.
Tesla is the current market leader, and a consortium headed by General Motors teamed with local players SAIC and Wuling, is running close behind. But domestic brands BYD, Nio, Xpeng Motors and Li Auto are also giving chase.
Volkswagen, which has long been the dominant player in the overall Chinese market, is now worried about losing its lead. It has begun expanding its line-up in the NEV segment. It hopes to regain some momentum with the opening of a third plant that will boost its current capacity from 600,000 to 900,000 vehicles annually.
The new plant will be in the Anhui Province and jointly owned by VW, with a majority 75% stake, and local manufacturer Anhui Jianghuai Automobile Group.