As part of efforts to reduce carbon emissions and urban air pollution, countries around the world are encouraging the adoption of new energy vehicles. China, which lacks top-tier players in the traditional auto industry, has seen the possibility of overtaking other competitors.
By implementing measures including direct subsidies to manufacturers and consumers, various tax exemptions, and supporting the development of charging infrastructure, the country has become one of the most prosperous countries in boosting the production and sales of NEVs (especially electric vehicles).
Also, thanks to mature automobile manufacturing capabilities and a comprehensive auto parts supply chain, as well as advantages in the battery sector, China's EV industry has evolved rapidly in the past decade and has bred a highly competitive industrial cluster.
James Frith, BNEF's head of energy storage, said that China's dominance of the industry is to be expected given its huge investments and the policies the country has implemented over the past decade. "Chinese (battery) manufacturers, like CATL, have come from nothing to being world-leading in less than 10 years," he added.
Since 2012, the Chinese government has continuously introduced policies on EVs, including:
Planning for the Development of the Energy-Saving and New Energy Automobile Industry 2012–2020 (June 2012)
Accelerating the Promotion and Application of New Energy Automobiles (July 2014)
13th Five-Year Plan for National Strategic Emerging Industries (December 2016)
Action Plan for Enhancing the Charging Capacity for Electric Vehicles (November 2018)
Recently, the State Council announced the latest "New Energy Automobile Industry Development Plan," proposing to unify the domestic market, improve industrial concentration, and sharpen market competitiveness.
By next year, at least 80% of all public sector vehicles, including buses, taxis, and municipal trucks, operating in ecological pilot zones and areas with high air pollution levels would be driven by clean energy, said the plan. According to Evergrande Research Institute, in 2018, 46.1% of all NEVs sold in China went to public sectors.
In order to encourage innovation, China's EV subsidies have been purposefully designed to be closely linked to technological metrics and performance indicators across EV models. Besides, the government also provides tax relief and monetary subsidies for R&D expenditure for companies.
It is worth mentioning that in the early stage of the policy implementation, due to weak supervision, some companies were established to defraud subsidies. However, after market screening and strengthened surveillance, these fraudsters have been eliminated.
Frequent high-level official statements, major policy implementations, massive governmental and industrial investments, and generous purchase and adoption incentives injected vitality into the industry.
Meanwhile, China, the world's largest auto market, also has a leading edge in the EV supply game. It is the world's largest lithium producer, reaching more than 60% of the world's lithium supply by April 2019 and controlling 51% of the global chemical lithium at the beginning of 2020.
The country also controls 62% of global chemical cobalt and 100% of spherical graphite. These are all the main component elements in the lithium-ion battery technology that dominates EVs as their power source. Even the new cobalt-free Lithium Iron Phosphate (LFP) batteries that promise a dramatic reduction in pricing are coming from China.
Since the establishment of a pure electric technology route in 2012, China has taken the lead in developing core battery technologies and formed a competitive battery industry. Among the top 10 battery companies globally, there are 7 Chinese companies, including CATL, the supplier of Tesla's Shanghai Gigafactory, and BYD, which provides batteries for Mercedes-Benz.
The automobile industry is one of the significant pillars of the Chinese economy and a major employer. In 2019, the sector contributed 9.6% of total retail sales of consumer goods and accounted for approximately 10% of total employment in China.
COVID-19 placed significant burdens on China's economy. According to the China Association of Automobile Manufacturers (CAAM), sales of passenger cars declined 42.4% year over year during that period.
To stimulate the economy, the government has issued several policies, and high hopes are placed on the construction of NEVs and related infrastructure. The state-level subsidy to New Energy Vehicles that was planned to phase out by the end of 2020 was extended until 2022. Additionally, the State Grid plans to build 78,000 charging stations at the cost of 2.7 billion yuan ($402.08 million) in 2020.
As of June 2020, China has established more than 558,000 public EV charging outlets, ranking first globally. In terms of sales volume, China accounted for more than half of the global EV market in 2019, with nearly 1.2 million EVs sold.
The NEV industry has driven rapid growth in investment, employment, and taxation and has become a new driving force for China's economic growth. Investment in China's NEV sector has exceeded 2 trillion yuan, becoming a new engine for China's high-quality development, the latest plan released by the State Council showed.
China's top EV makers are also highly favored by investors in the US stock market. As of October 14, the share prices of Li Auto and XPeng Motor, which went public in the middle of this year, rose by 80% and 47%, respectively, while NIO’s share price increased by more than five times, dwarfing Tesla’s quadruple growth.