Chinese Provinces Seek To Build EV Momentum With Higher Incentives

China, which has built the most formidable Electric vehicle ecosystem under the very noses of global competitors over the past 15 years, is in no mood to let the advantage slip. Electric car sales, which are expected to keep rising and top 17 million units in 2024, accounting for over 20% of cars sold worldwide. With a stranglehold over the battery ecosystem in terms of raw materials for Lithium Ion batteries, the mainstay of EVs so far, China has ensured that in case of EVs, its domestic market actually leads rather than follows exports. This is in keeping with the shift in the country’s approach to many ither key sectors where it has built a global dominance or seeks one, from renewable energy, to EVs, to Chemicals, and in the future, semiconductors as well.

As one would expect from Chinese manufacturers seeking to outcompete each other and foreign players, the EV market has been ruled by tight margins, made worse by volatile battery metal prices, high inflation in key markets, and the phase-out of purchase incentives in some countries . Despite all this, in the first quarter of 2024, electric car sales grew by around 25% compared with the first quarter of 2023, similar to the year-on-year growth seen in the same period in 2022. In 2024, the market share of electric cars could reach up to 45% in China, 25% in Europe and over 11% in the United States, underpinned by competition among manufacturers, falling battery and car prices, and ongoing policy support. The Chinese dominance is not just limited to raw materials and manufacturing however. Even when it comes to processing key metals like nickel and cobalt, or even the software inside these cars, an increasingly decisive edge, Chinese built vehicles are more than matching their western counterparts.  This has been reflected in the shrinking marketshare of western brands in China, as Chinese built brands prove their roadworthiness over time.

Now comes news that municipality of Hangzhou in China’s Eastern Zhejiang province will grant subsidies of up to CNY18,000 (USD2,530) for residents trading in their cars for NEVs. Subsidies for trade-ins of old vehicles for fossil fuel-powered cars will be up to CNY15,000. While ostensibly targeted at reducing pollution, the move will probably be aimed at supporting local manufacturers as well, over 400 of which exist in China on date. The Hangzhou move is in line with incentives that are already in place for consumers in many other provinces, besides the high alleged subsidies provided to manufacturers at the time of starting up itself.

China exported about 818,000 new energy vehicles in the first eight months of 2024, up 12.6% from a year earlier, according to data from the China Association of Automobile Manufacturers. The country’s NEV production rose 29% to 7.01 million in the period. These numbers have already led to closures in many other countries, or the shelving of plans to expand in others, as manufacturers find the idea of competing with Chinese prices too forbidding without protectionist policies in place.

Ironically, these fresh subsidies in Hangzhou come at a time when the view in many other key markets is turning away from EV subsidies, as they seek answers elsewhere in Hybrid cars for instance, or even solid state batteries and other technologies that China does not dominate as strongly.