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China’s Cheap Electric Vehicles Could Disrupt Global Markets

Tsvetana Paraskova

While Western automakers race to capture market share in the world’s biggest electric car market, China, hundreds of Chinese electric vehicle (EV) makers have sprung up in recent years to snag a piece of the EV pie too.  

Government support to the Chinese EV industry and China’s ambitions to have new energy vehicles (NEVs) sales account for a quarter of car sales in 2025 means that the Chinese authorities want the EV industry in the country to flourish—and some think this ambitious target would require both Western and Chinese EV makers.  

Western analysts, however, warn that a Chinese EV oversupply could lead to cut-price exports of China’s electric cars, potentially distorting and pressuring the auto industries in other countries, and potentially setting the stage for the next U.S.-China trade war front—electric vehicles.

Even the leaders among the Chinese EV manufacturers admit that Tesla is the pioneer in the field. But some of China’s largest EV makers still believe that they can compete with the U.S. manufacturer and make good electric cars, The Washington Post’s business correspondent Jeanne Whalen writes.

Tesla has just delivered its first cars to customers from its newly built Gigafactory in Shanghai, just a year after it broke ground on the site for the construction of its Gigafactory in China.  

For Chinese manufacturers, Tesla was the EV maker to beat even before the U.S. company started delivering this month locally made cars that are not subject to import tariffs and which are now, as domestically manufactured, eligible for subsidies.

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Chinese EV makers believe that it’s now their second chance to try to manufacture good-quality electric cars, after China failed in the all-Chinese-made conventional vehicles manufacturing a few decades ago.

In the EV market, “the chance has come again,” Izzy Zhu, executive at Chinese EV maker NIO, told The Washington Post’s Whalen.

Making electric vehicles in terms of engineering infrastructure is lighter and simpler than manufacturing cars with internal combustion engines, according to Zhu, who was previously an executive at BMW.

Some Chinese EV owners, however, are not entirely happy with their Chinese electric vehicles, and some of them have bought EVs because they immediately get license plates. China makes drivers wait for months to obtain a license plate for a gasoline car—a kind of a ‘stick’ incentive for EV sales.

Although China has started to gradually decrease the generous subsidies for EV sales in recent months, Beijing still aims to have EVs hold a large share of car sales over the next half a decade.  

China is looking to raise its target to have NEVs account for 25 percent of all car sales in 2025, up from a previous target of ‘over 20 percent’, but amid the massive subsidy cuts, the world’s largest EV market could find reaching the 25-percent share target a huge challenge, IHS Markit said last month.  

But China will continue to support its EV market, analysts say.

China has more than 450 EV manufacturers who compete for a share of a market of 1.8 million vehicles at best, according to a recent analysis by the Washington-based think tank Center for Strategic & International Studies (CSIS).

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“Despite China’s claim to be weaning manufacturers and consumers off subsidies, we estimate that in 2018 formal sectoral subsidies alone still totaled 123 billion yuan ($17.6 billion),” CSIS’s Scott Kennedy and Daniel H. Rosen wrote in October.

“The biggest challenges as a result of China’s strategy will not occur in China but in other markets,” Kennedy said in November 2018 in a report entitled ‘China’s Risky Drive into New-Energy Vehicles’. 

CSIS expects Chinese supply of EVs to exceed demand in the future, and Chinese EV makes could ramp-up exports, “most likely at cut-rate prices.” Initial exports could be to developing and nearby economies, but eventually those exports could reach developed industrialized markets, according to Scott.  

“Although the world’s auto market does not have the exact dynamics of commodities such as steel and solar panels, a rush of Chinese exports could create challenges not only for individual competitors abroad but also put pressure on the entire auto industries of other countries and the global supply chain,” Scott said.

By Tsvetana Paraskova for Oilprice.com

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