Faced with a hostile international market and growing overcapacity at home, Chinese EV brands need to find new customers.
▲An SUV is being assembled at an automobile factory in Changzhou, Jiangsu Province. Photo credit: Associated Press / Alamy
EV sales in the United States and Europe may have begun to slow, but the Chinese market is not yet a problem.
In July, electric vehicles accounted for more than 50% of new car sales in China for the first time, reaching nearly 1 million units. This trend continued in August, with more than 1 million electric vehicles sold, accounting for 54% of total vehicle sales in the month.
In July, electric vehicle sales increased by 27% year-on-year, while gasoline vehicle sales fell significantly. Sales of gasoline vehicles fell 28% year-on-year in August, which also expanded the share of the electric vehicle market.
Nonetheless, China's EV industry could be at risk. Accusations of overcapacity and state support in the electric vehicle industry have been overwhelming, with the United States, the European Union and Canada imposing tariffs on Chinese-made electric vehicles. Other countries are likely to follow suit, such as Brazil, which saw a surge in EV imports last year.
According to the New York Times, China's domestic overcapacity has hit the auto industry hard, with gasoline vehicles being the most affected. The growing hostility in foreign markets could exacerbate problems within China's EV industry, exacerbating an already fierce price war.
Industry players should plan ahead, and China's rural market could be a potential solution.
Risks and opportunities in rural markets
Electric vehicle sales in rural areas tend to be lower than in urban areas. Part of the reason is that Chinese EV makers have a better understanding of the needs of urban consumers. Anders Hove, a senior research fellow at the Oxford Institute of Energy Studies, said that motorists in rural China "tend to have lower incomes, more unpredictable driving patterns and are more price-sensitive" than urban counterparts. Hoff also noted that many people in rural China already own two- and three-wheeled electric vehicles.
From the perspective of Chinese electric vehicle manufacturers, this situation is both "dangerous" and "opportunity". Existing EV models are largely geared towards urban driving habits. Investing in models that are suitable for rural consumers may not pay off financially. Between 2022 and 2023, EV market penetration in rural areas more than quadrupled, from 4% to 17%, but still significantly behind national levels.
And the huge market in the countryside also brings opportunities. Cory Combs, deputy ·director of Beijing-based Celwell Consulting, said that with 500 million rural people in China, which is larger than the entire European Union, "if there are brands that can tap into that potential, then this is a big opportunity." ”
This poses a challenge for policymakers and private sector leaders. "Charging infrastructure is expensive, and the return on investment is still low," Coombs said. ”
Despite the price drop, national sales of electric vehicles are still growing sluggishly, suggesting that cost is not the only problem. BYD, the world's largest electric car maker, has a cheapest model that costs less than $10,000. According to the assessment, the average price of electric vehicles in China is already lower than that of gasoline vehicles.
▲比亚迪推出的海鸥电动车。 (Image: Peerapon Boonyakiat / Alamy)
When EV prices are relatively high, it's easy to attribute the low ownership in rural areas to consumers' price sensitivities, Coombs said. "Now that the price difference is negligible, there has been no significant increase in EV sales in rural areas, suggesting that there are more structural barriers to rural consumers buying EVs."
The development of charging infrastructure is an ongoing challenge for the global adoption of electric vehicles. While China leads the world in the construction of charging infrastructure, most of these facilities are concentrated in urban areas where the market penetration of electric vehicles is already high. At present, there are 3.12 million public charging piles in the country, the vast majority of which are located in eastern provinces such as Guangdong, Zhejiang and Jiangsu.
Solving this problem is undoubtedly challenging. Most of China's infrastructure is led by state-owned enterprises, but about 90% of the country's public charging piles are owned and operated by private companies, making the industry very profit-sensitive.
The low number of electric vehicles in rural China has led to a low commercial value for installing charging piles in rural areas. The chicken-and-egg problem is unlikely to be solved internally as a result of low EV sales leading to a reluctance to invest in charging infrastructure, which in turn leads to a reluctance to buy an EV.
Policymakers' responses
One way to solve this dilemma is to increase government spending. Policymakers at the central level have been ambitious, but incentives have been lacking.
For the first time, this year's Central Document No. 1 (an annual policy document focusing on rural issues) proposes to focus on the development of electric vehicle charging infrastructure in rural areas. Despite this requirement, the share of new public charging piles built by state-owned enterprises is small and decreasing. The share of public charging piles operated by the two major utilities involved in the construction of charging piles, State Grid and China Southern Power Grid, will fall from nearly 15% in 2023 to 10% in 2024.
This is in line with the central government's macroeconomic growth strategy. In late June, Premier Li Qiang announced at a World Economic Forum event in Dalian that China was unlikely to rely on government spending to accelerate GDP growth.
Officials at the local level have taken responsibility for building charging infrastructure, but their strategy is to encourage private companies rather than take matters into their own hands.
In Yunnan, an economically underdeveloped province with a large rural population, for example, the province's EV market penetration rate is 23% in 2023, well below the national average. Later that year, local leaders pledged to build at least 60,000 public charging stations by the end of 2025, but June figures showed that more than 59,000 had been built, indicating a modest target. This suggests that Yunnan policymakers are not hopeful of persuading the private sector to speed up the construction of charging piles, and on the other hand, they are not able to build them themselves.
China's local governments are struggling with debt. The University of San Diego's latest estimates show that total local government debt in 2022 ranged from 90 trillion to 110 trillion yuan, accounting for 75% to 91% of China's GDP in 2022. Coombs agrees with this analysis. "Spending on charging infrastructure could boost consumption in five years," he said, but given the cascading economics of consumption, "they need to invest more now." ”
The central and local governments seem to have more hope of speeding up the construction of charging facilities. In April this year, the three ministries jointly issued a pilot project notice to select 70 counties in 24 provinces, and provide each county with up to 45 million yuan in incentive funds for the development of electric vehicle charging and swapping infrastructure. At least 70 per cent will be allocated by the central government, with the remainder coming from the relevant local governments.
If 70 counties are selected and rewarded according to the maximum amount, then this will be an important step forward in the rural charging infrastructure subsidy policy. However, it is unclear what the total amount of the reward will ultimately be, and it will not be paid out until the end of 2026 at the earliest, so the immediate impact is likely to be minimal in the short term.
However, this does send a strong signal to the market that all levels of government support increased rural EV consumption, and the private sector may take the lead in strengthening rural charging infrastructure.
How the private sector is responding
Felix Ye, senior supply chain manager at a major Chinese EV manufacturer, said production and consumption factors do have the potential to increase market penetration ·of rural EVs. On the production side, Ye said, better "domestic supply chains and large-scale production have reduced costs," while on the demand side, "the migration of urban dwellers to rural areas has increased GDP per capita."
These changes have made electric vehicle manufacturers such as NIO and Huawei another force in the construction of rural charging piles.
NIO, as I previously wrote, has built a network of charging piles and battery swap stations across China, and its charging and swapping map not only details all available battery swap stations in the country, but also provides advice on how to use them for long-distance travel as far as Xinjiang. Huawei recently unveiled an electric car, and the company is currently building a network of fast-charging stations and promises to cover rural areas. For companies like NIO and Huawei, the goal may not be to generate revenue through rural charging stations, but to improve the user experience for EV owners who want to travel around China. Although the current EV owners are mainly urban consumers, for rural EV consumers, the effect is the same.
Create the right incentive plan
More charging infrastructure, coupled with financial incentives from local governments, could encourage rural Chinese residents to buy electric vehicles, which in turn would lead other charging companies to build more infrastructure, potentially creating a virtuous cycle.
A successful incentive program, whatever its specifics, is only a matter of time before EV sales in rural areas are ramped up. The growth of rural EV consumption will represent progress on many macro policy goals, from building a first-class EV manufacturing industry, to rural revitalization, decarbonization, stimulating consumption, and building a "moderately prosperous society". Such synergies cannot be underestimated.
This article was first published on the Dialogue Earth website.
文章来源：Dialogue Earth