Chinese EV makers Nio, Xpeng Motors, Zeekr, and Aito, as well as Tesla’s operation in China, are racing to get the last slice of the sales pie before the end of 2022, offering special promotions with the country scheduled to phase out subsidies for electric vehicles beginning next year.
Why it matters: Analysts have projected slower EV sales in the coming months after the phase-out but remain positive on the overall growth of the EV sector in China in 2023.
The end of subsidies: The Chinese government currently grants a small number of subsidies to EV buyers, with all-electrics and plug-in hybrids eligible for subsidies of RMB 12,600 ($1,836) and RMB 4,800 ($689) per unit, respectively. Beijing reduced the incentives gradually by 10%, 20%, and 30% from 2020 to 2022.
- Multiple Chinese automakers, including Nio, Xpeng Motors, Volkswagen’s Chinese partner SAIC, Geely’s premium EV unit Zeekr, and Huawei-backed EV brand Aito, have recently promised to cover the price increase if customers place their order before the end of 2022 when those subsidies expire and EV prices rise accordingly.
Tesla’s multiple discounts: Tesla China has offered various discounts on its vehicle lineups amid investors’ fears of a looming slowdown in demand, including an additional discount of RMB 6,000 and a rebate of RMB 4,000 on customers’ end-of-the-year orders.
- The US automaker kicked off the price war on Sept. 16 by offering customers an insurance incentive of RMB 8,000 and then slightly lowered the amount to RMB 7,000 for orders made from October to December.
- This was followed in October by a round of price cuts of its base Model 3 sedans and Model Y sports utility vehicles by at least RMB 14,000 and RMB 20,000, respectively.
Outlook for 2023: Some other automakers have announced the upcoming car price rises in advance, pushing customers to place their orders by the end of the year.
- BYD said on Nov. 23 that the price of most of its EV models would be up by up to RMB 6,000 starting next year to offset the increase in vehicle costs from expiring government subsidies and rising battery prices.
- GAC’s EV unit Aion and Ford’s manufacturing partner Dongfeng followed suit by previewing a price increase for the next year of up to RMB 8,000 and RMB 9,000, respectively.
- The phase-out will also increase profit pressure for EV makers, who have already been hampered by the rising cost of battery raw materials and other supply chain issues over the past year. Carmakers are facing challenges to increase market share while maintaining their margin guidance, UBS analyst Paul Gong told Chinese media outlet Caixin in a Tuesday report.
- Gong remains positive on the market’s growth prospects for 2023 and forecasts that the penetration rate of new energy vehicles (NEV), mainly all-electrics and plug-in hybrids, will rise to 37% of all new car sales next year from the current level of 27%. China’s state council in 2020 set a goal of NEVs to account for 20% of new car sales by 2025, which was completed well ahead of time.
- Cui Dongshu, secretary general of the China Passenger Car Association (CPCA), expressed a similarly positive sentiment during an online conference on Thursday, saying he expected China’s NEV sales to more than double annually to 6.5 million units this year. The CPCA estimates the number will reach 8.5 million units in 2023, representing a 31% growth year-on-year.
Context: Beijing’s various policy measures and a vast selection of offerings by automakers have allowed the Chinese EV industry to thrive even amid increased competition. EV buyers will still be exempt from a 5% purchase tax next year, the central government said in August.
- In November, retail sales of passenger NEVs increased 58.2% from last year and 7.8% from the previous month to around 598,000 units. BYD and Tesla are the two most prominent players, recording sales of 229,942 and 100,291 units respectively, according to CPCA figures (in Chinese) published Thursday.