Why is China the World Leader on Electric Vehicles?

China has become the world’s largest market for electronic vehicles (EVs).  Last year, EVs accounted for 25% of all passenger cars sold in China, well ahead of the 14% sold in the U.S. and 13% sold in Europe.  The pace of China’s EV sales is expected to accelerate as HSBC Holdings Plc projects EV penetration in China, the world’s second-largest economy, to reach 53% by 2025 and 90% by 2030.

China’s clean-car sales, including plug-in hybrids, rose to 5.67 million in 2022, accounting for more than half of all global auto deliveries.  BloombergNEF predicts China will account for about 60% of the world’s 14.1 million new passenger EV sales this year.  Also, China’s manufacturing of EVs continues to expand, with HSBC Holdings Plc noting that Chinese automakers last year accounted for about 50% of all EVs sold globally.

The pace of EV expansion in China looks to accelerate even more as the country builds up its EV infrastructure. China has the largest charging network in the world, adding 649,000 public EV chargers last year, more than 70% of all installations done globally.  The widespread government-subsidized charging stations reduce drivers’ costs and are widely accessible.  China had 6.36 million EV chargers at the end of May, more than any other country.

The continued use of combustion-fueled vehicles in China is becoming more expensive and less appealing for consumers.  Chinese cities are fighting pollution by limiting the number of fossil-fueled cars on the road with measures such as having lotteries for new license plates. EV drivers, meanwhile, can easily get a green license plate for much less than one for a gasoline-powered car. Also, some local Chinese governments converted their public transport and taxi fleets to 100% electric and have encouraged local agencies to procure electric or plug-in hybrids.

Strong EV sales in China are due largely to favorable government policies and attractive pricing. China’s government sees EV vehicles, like solar and wind, as national champion industries where China can take the global lead in both domestic sales and exports.  Those sectors have the side benefit of cleaning up China’s environment and reducing global warming pressures.

Some analysts have turned more favorable on China’s EV sector.  HSBC Holdings Plc forecasts that China's new energy vehicle sales may reach 8.2 million units this year, 10% more than an earlier forecast, saying, “As prices stabilize, we see a stronger demand recovery, as consumers who have been waiting for a better price are more likely to buy a new car.”  Also, Sanford C Bernstein is turning more positive on China’s auto cycle after seeing improving retail demand. 

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.