A Guide to China's Electric Vehicle Playbook

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Accounting for half of the world’s electric cars and more than 90% of electric buses and trucks,?China has swiftly fostered the world’s largest electric vehicle market. In the backdrop of intense worldwide competition and the country’s new commitment to achieving carbon neutrality by 2060, China is plunging into a new era of its electric vehicle development.

China EV ecosystem timeline

Starting the EV course in 2009, China was contemplating a path toward a world-leading auto industry and discovered new energy vehicles as a fast lane. With a confirmed electric vehicle development plan of action during 2009-2012, China initiated new energy vehicle pilot programs on a large scale; cities in big numbers prioritized deployment in public fleets and received immense support from the government through investments in research and development and direct subsidies. Steered by the air quality, industry revitalization, and oil security goals, in the subsequent span of five years, from 2013 to 2017, China witnessed rapid growth in the EV industry and market. Post-2018, China started to transition from principally subsidizing the industry to providing a combination of incentives and regulations to further facilitate the market’s potential. The increasing market openness and competition in a symposium with the policy shift demonstrated China’s confidence and reliance on its electric vehicle strategy and thriving electric vehicle market. In a short span of a decade, China established the world’s largest electric vehicle market, industry, and the largest number of leading electric vehicle city markets.

How policy is helping to pave the way

China’s success in vehicle electrification is credited to the government initiatives that supported EV manufacture and sales at both the national and provincial levels. The cost of EVs has been lowered to match the traditional vehicles, placing China on the way to mass adoption of the technology. China released the New Energy Vehicle Industrial Development Plan for 2021 to 2035 in October 2020, focussing on putting in place a globally competitive auto industry with advanced New Energy Vehicle (NEV) technologies.?

While the policies of the Central government included a target of 5 million electric vehicles on China’s roads by 2020, even the provincial governments supported preferential access to license plates, free and preferential parking spaces, and more. EV sales increased to 3.52 million units in 2021.

The Chinese central government’s principal policies to promote electric vehicles include the following.

1. Zero-emissions vehicle mandate: Each Chinese vehicle manufacturer and importer (that imports more than 30000 vehicles) in 2019 was required to make or import at least 10% of electric vehicles with a percentage increasing to 12% by 2020.
2. Subsidies: The Chinese government furnishes subsidies to the manufacturers of electric vehicles.?Until June 2019, subsidies could be as high as RMB50,000 (US$7,600) for an RMB250,000 (US$38,000) car. Price support has now been reduced to RMB9-22,000 for 2020-2022 and will be eliminated in 2023. The government is scaling back price support because battery technology is improving and costs are falling, reducing the need for subsidies. Moreover, considering that China has vested heavily in building its entire EV supply chain from upstream material, specific auto components, and EV batteries to downstream car design and manufacturing, the government may consider another EV subsidy extension in the near term if there are signs that the phasing out of EV subsidies would seriously dent EV sales.
3. Tax exemptions: The Chinese government exempts electric vehicles from consumption and sales taxes, which can save purchasers tens of thousands of RMB (equivalent to thousands of dollars). It also waives 50% of vehicle registration fees for electric vehicles.?The policy when initiated declared that relevant authorities will exclude NEVs from vehicle purchase tax until the end of 2022. The tax exemption includes PEVs and PHEVs, while FCVs were excluded. EV businesses can apply for tax exemption by uploading their ‘Motor Vehicle Factory Qualification Certificate’ for approval to the MIIT.
4. Procurement: Using its procurement power the government in 2016 required the purchases of the central government to be new energy vehicles within five years.
5. New auto factory requirements: Chinese regulations strongly discourage the construction of factories for manufacturing internal combustion engine vehicles only. Subject to exceptions that are difficult to satisfy, any new vehicle factory is required to include capacity for the construction of electric vehicles.
6. Investment in EV infrastructure: Advocating the development of EV charging infrastructure as a part of the national policy, the central government provides funding and mandates standards.?Additionally, various provincial and municipal governments promote EV charging infrastructure with financial incentives and requirements that building owners provide EV charging. The government aims to prioritize investments in new infrastructure including?NEV charging stations, sustainable energy, and the Internet of Things. Besides, extra incentives for renewable energy, high-tech, and research and development have also been made available to NEV makers.

The Future of China is electric

Making the EV industry an important one for the government,?EV manufacturing, and consumption fit perfectly into China’s economic, industrial, and carbon reduction goals. Worldwide, China has emerged as a leading power in the manufacturing of?lithium-ion batteries and acquired a majority of lithium mines for future production.

With President Xi Jinping’s pledge to make China carbon neutral by 2060, EVs will become one of the strategic industries helping the country to achieve its climate goals. This is why, despite some of the current exaggerated hype and market valuations, the outlook for the EV industry will remain strong in China for years to come.?It indicates that for China, its future will be electric.