Chinese cars are taking over the world

Electric vehicles in India are feeling the pinch of lower subsidies since April 1, 2024. India wound down its large subsidy program for personal vehicles that allowed many Indians to buy electric cars and two-wheelers. But the sales numbers of the industry for April and May might come as a surprise to some.

But it’s an existential issue.?

The subsidies allowed EVs to be cheaper, and led to a boost in sales. In FY24, electric car sales rose over 91% to nearly 91,000 units. Just stay with that number for a bit. That is half of what Maruti Suzuki sells in a month. These are mostly internal combustion engine cars and hybrids.

Hybrids are expensive in India, but many car buyers are gravitating towards them because of range anxiety. Electric cars make sense in a city where there could be many chargers. But on highways, the infrastructure is still picking up. The month-on-month dip in April 2024 electric car sales is worrying. This is a clear impact of the subsidies running out.

At the other end of the spectrum is China’s electric car industry. Chinese companies, armed with loads of subsidies by the government, have managed to bring the sticker price of the cheapest EV to less than $10,000 (Rs 8.30 lakh). There is no car at this price point in India yet.

This might of China’s auto industry is what is giving the world the jitters.

Let’s get into it.

Tariff war continuum

The number of electric cars sold in the world in the first three months of 2024 are equal to the total electric cars sold in 2020, according to the International Energy Agency. Demand for electric cars is concentrated in China, the US and Europe, making up for 95% of EV sales in 2023.

In the midst of this, China is shipping out cheap electric cars across the world. The US has already imposed 100% tariffs. Europe has also hinted that it would consider tariffs on Chinese electric cars.

If you look at the numbers of European and American for electric cars, you will realise that this is just another step in the tariff war to protect their domestic industry. American companies like Tesla, Ford, and European ones like Volkswagen and Mercedes-Benz are losing out to Chinese cars that are way cheaper than local ones. Even Korean carmaker Hyundai saw its electric car sales fall 3% in April 2024.

The US claims that excessive subsidies given by the Chinese government to its electric carmakers allows them to undercut everyone across the world. For example, Tesla has had to take price cuts to counter more affordable Chinese electric cars.

India has tweaked its policy to allow foreign car makers to import EVs at a cheaper import duty if they follow up with investments in capacity creation in India. The import duty is down to 15% from more than double the import price of these cars.

The winners in the EV race could be any company, in any part of the world. But it could most likely be a Chinese company.

Target practice

Nearly 50% of cars sold in China are electric. The global number is around 14%-15%. In India this number is just about 5%. Most EVs sold in India are either two-wheelers or three-wheelers.

China’s state subsidy fueled EV boom could lead to a glut in electric cars across the world. The cheaper price offer might tilt many buyers to these cars. The US is also looking at Chinese EVs as a national security threat, with many legislators pushing President Joe Biden to take action to ward off threats, including to local companies.

Ironically, India has been protecting its domestic auto industry with high tariffs for a while now. The change in the rules for EVs is a very recent phenomenon. In the end, electric cars are quite expensive, which means the number of buyers will always be lower than for a conventional petrol or diesel car.