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Energy Economics Weekly Briefings

China’s New Energy Vehicles

Written by: Ellen Hughes-Cromwick

Key Takeaways:

  • China’s government leaders have outlined an ambitious plan to increase the sales and production of new energy vehicles.
  • As in other countries, without substantial subsidies or carbon taxes, aggressive targets will be difficult to achieve.

China’s long-term strategy for the automotive industry is to expand the production and sale of new energy vehicles (NEVs), or plug-in hybrid electric (PHEV) and battery electric vehicles (BEV). The long-run goal is to be positioned as a leader in connected and autonomous vehicles (AVs), both in the technological development as well as in smart city transportation.

By 2025, the government planners are charting a path to:

  • Establish global leadership position in important auto-related technologies, especially battery and electric motor, power transmission, and electronics to support AVs.
  • Achieve best-in-class quality across vehicle platforms of all sizes.
  • Expand “smart” R&D and what they call a “new industrial ecology.”
  • Lower CO2 emitting vehicles as a gateway to fully autonomous machines servicing gate-fenced cities.

With these goals in mind, it is helpful to look at the data on vehicle production, sales, and the NEV segment (see table). NEV sales reached 507,000 units last year, while total sales were 28 million units (all vehicles, retail and commercial). Earlier this year, Ministry of Industry and Information Technology (MIIT)officials announced a total vehicle sales target of 35 million units, with NEVs making up 7 million units or one-fifth of the total target. At a 1.7% market share last year, there is a long way to go to achieve an NEV market share of 20% by 2025.

Technology and innovation leadership is an aspiration among the central planners. Last weekend, the vice minister of MIIT stated that China will set a target deadline for the termination of all production and sale of gasoline and diesel powered cars and trucks. One advantage China has in achieving the NEV sales target is the minicar car market (segments A and B) as well as commercial buses where they are achieving scale volumes of NEVs.

Even so, challenges to achieve this target are numerous. Many larger NEVs are more costly to produce and pricing is higher, thereby making the market equation difficult for buyers. Product development of NEVs is more complex and requires ongoing innovation and breakthroughs, particularly in battery storage. And, as Tesla has done, in order to set sights on connected and autonomous features, this technology likely needs to be embedded into existing vehicle platforms to ensure a cost-effective transition in the future which can exploit these features.