China powers towards global electric vehicle supremacy

China electric vehicle cars EV BYD Tesla
Production of electric cars in China has increased 85% and sales by 97% in the first seven months of 2018.

The electric vehicle revolution is accelerating at unprecedented speeds with the news that China has doubled electric vehicle (EV) production this year.

Doubled EV production comes hot on the heels of a global shift towards renewable energy storage made possible by lithium-ion batteries.

The companies leading the charge have been the likes of Tesla and BYD – two electric car manufacturers from two economically (and politically) opposed regions of the world.

Tesla is a US giant that has set up operations in Nevada, close to a bountiful supply of high-grade lithium brine in the salt flats near its gargantuan Tesla gigafactory.

The US giant is on course to establish a production line of around 300,000-500,000 EVs per year over the coming five years.

Meanwhile, the Warren Buffet-backed BYD has based its operations in China in order to serve the largest consumer market on earth.

The potential market in China is far greater than the US, given the larger market capacity and earlier stage of economic development and wealth creation.

China’s growing population is not only increasing in number, it is also expanding in wealth, and buyer preferences have shifted towards greater consumption of manufactured and tertiary goods.

EV popularity drives higher production

The popularity of EVs is visibly growing in China and is being further supported by Tesla, which plans to build an additional car plant in China with a production capacity of 500,000 cars per year.

Last year, Tesla sold 17,000 vehicles in China, making the country its second-largest market for EVs after the US.

According to the China Association of Automobile Manufacturers (CAAM), China almost doubled the production and sales of alternative fuel vehicles in the first seven months of 2018, compared to the same period last year.

With production of electric cars in China increasing 85% while sales have rose by 97%, according to a CAAM representative speaking at a press conference last week.

CAAM officials confirmed that in total, China produced 504,000 “eco-friendly” cars, which include both EVs and other non-petrol variants in the first six months of 2018.

This is compared to approximately 375,000 EVs manufactured by Chinese manufacturers merely two years ago in 2016.

China’s annual production rate has almost doubled, with analysts confident that future annual growth could reach even higher multiples – rather reminiscent of everything China does on the international stage including its rambunctious 7% annual GDP growth rate.

From the cars produced, Chinese manufacturers sold 496,000 (98.4%) indicating a high rate of demand for EVs and potentially significant future capacity as electric cars become more widely adopted by China’s 1 billion-plus inhabitants.

Compared to petrol-powered vehicles, EVs still make up a rather small share of overall car sales, but this trend is changing fast.

A total of 16.1 million cars were produced in the first six months of this year, while 15.9 million vehicles were sold – indicating that electric vehicles make up around 3% of total vehicles sales.

EV higher production China

What’s even more impressive from China’s perspective is not only its strong rates of demand, but the rate at which Chinese companies have come to the fore to increase EV supply.

China has quickly established an impressive 47% of global EV production since EVs became a readily available to consumers around five years ago.

Some market analysts have forecast that China will account for as much as 57% of EV sales by 2035 with its citizens buying around 6.42 million cars per year – all without including the second-hand market, which is also taking shape to further boost EV car adoption and reduce running costs.

The effect has become a virtuous circle for Chinese car makers, which has given rise to the world’s largest EV market.

What Tesla is accomplishing in the US, is being replicated to an even greater degree by its Chinese peers such as SAIC, FAW, Dongfeng, Chana, BAIC, GAC, Chery, BYD and Geely.

The stampede to build EVs in China sparked over a dozen Chinese car brands to showcase more than a hundred new models at the country’s annual auto show in April this year.

The Chinese government has been at the forefront driving the switch to new energy vehicles, and it also wants to lead and dominate the EV market.

In fact, Chinese authorities have announced policy intentions for EVs to account for 12% of overall sales by 2020.

So-called “new energy vehicles” (NEVs) have become both more affordable, convenient and possibly most important for modern consumers: fashionable.

China’s authorities have supported consumer sentiment with government funding providing subsidies for manufacturers and a recent introduction of a “cap-and-trade quota system” that will force car companies to make at least 10% of their total car production in the form of NEV vehicles or face steep fines.

Norway drives faster EV uptake

The speed with which China has taken to electric cars has been rapid, but it still trails truly committed adopters such as Norway, a country with over 30% of existing cars and around 12% of new cars sold being electric.

The critical-mass figure is 50% – when more new car sales are electric rather than petrol-powered, and this day is not too far off given Norway’s swift EV uptake.

Pollution sparks EV surge

One of the leading attractions behind electric cars has been the ongoing spread of air pollution, especially in urban areas where industrial behemoths such as China and the US have been predominant during their rapid industrialisation phases over the past 20 years.

The Chinese government has introduced a number of measures to tackle the issue of pollution, including various policies aimed at decreasing the country’s staggering reliance on coal.

As an example, China has planned to build over 50 nuclear power reactors over the next 15 years in order to sustain its domestic energy consumption demand forecasts.

With China’s policymakers keen to address the country’s worsening air pollution problem, it’s no surprise several companies have come to the fore to produce China’s next generation of products, underpinned by lithium-ion batteries.

Chinese EV start-up

Chinese electric vehicle company NIO backed by Tencent Holdings filed for its maiden US public offering to raise US$1.8 billion earlier this week.

NIO has raised over US$2.4 billion spread across six investment rounds from investors including Tencent, CITIC Capital, Baidu Inc, Hillhouse Capital, Capital Today, Sequoia Capital and Joy Capital.

In June, NIO started delivering the first orders for its first electric car – the ES8, a seven-seat sports utility vehicle. According to NIO, it plans to introduce a lower-cost SUV in 2019 and says it will launch more models in subsequent years.

NIO Chinese electric car IPO

Toyota has also announced intentions to tread into the Chinese car market.

Deciding to abandon its distinctive triple-oval brand, Toyota will come to China to sell an EV featuring the label of GAC Motor, Toyota’s Chinese partner, and will be built around GAC’s lower-cost technology.

Toyota plans to start selling the GAC Toyota ix4 by the end of this year – a battery-powered compact SUV based on GAC’s Trumpchi GS4 which has been in development for two years.

The tentative first steps by one of the world’s largest car makers are also being taken by scores of other companies including the likes of European-based VW, BMW and Mercedes.

With lithium-miners and energy storage technology providing the necessary building materials, EVs have begun their march towards greater market share.

As with many other industries, China’s electric car market is growing twice as fast as the US, with China now firmly in the driving seat as both the world’s largest manufacturer and consumer of EVs.

George is an award-winning market analyst who has authored articles and editorial opinion pieces for multiple publications around the world. He has written about a wide variety of topics including financial markets, stocks, trading, politics and economics.