News & Insights Is a recharge on the horizon for China’s NEV market?

Is a recharge on the horizon for China’s NEV market?
It’s been a tough couple of years for China’s overall car market. Last year was the first time sales of new vehicles fell in decades, dropping 3% to around 28 million units. And that slowdown is continuing in 2019. In the year to September, cars sales registered a year-on-year decline of 11%. By comparison, over the same period in 2018 cars sales were showing growth of 1% even if they did eventually end in negative territory.

Alex Xie, Managing Director and Partner at the Boston Consulting Group (BCG), told the audience at the 10th Credit Suisse China Investment Conference that he expects car sales volumes to end the year 5% to 10% down on 2018.

Unsurprisingly, this slump is having a knock-on effect on New Energy Vehicles (NEVs) with many of the headwinds – such as the weaker economy – that have impacted the traditional car market (known as ICEs or internal combustion engines), also hurting NEV sales. In addition, NEVs face some sector specific challenges. For example, earlier this year China cut the subsidies for NEVs by as much as 60%, which has put some of the local manufacturers under pressure.

“Although the local players have a big market share, they are not making money. I can give the example of a manufacturer producing an A-class car that, with subsidies, made a margin of 40%, but without subsidies, is losing money,” explained Xie.

In addition, the world’s largest NEV market is preparing for the entry of Tesla, which says its new Shanghai factory – the company’s first outside of the US – will produce 1,000 cars a week by the end of the year. While this is a small fraction of the overall Chinese market, Tesla is likely to put domestic manufacturers under more pressure given its reputation for quality.

“If you look at technology, brand power, performance, Tesla is still well ahead of all the other guys in the market,” said Xie, while also noting that the arrival of Tesla could also act as a boon to the incumbents. 

“When Tesla comes in, it will help consumers improve their acceptance of NEVs, and it will also help improve the NEV supply chain in China, both of which will be good for the local players.” 

Global top 10 NEV markets in 2017
Source: Credit Suisse

Despite the headwinds, Xie believes the outlook remains positive for NEVs. BCG is forecasting a Compound Annual Growth Rate (CAGR) for the NEV market of 20% between now and 2030, equal to about 10 million units a year. Credit Suisse is even more bullish, expecting NEV sales to enjoy a 28% 13-year CAGR from 2017 to 2030. Moreover, the costs associated with buying an NEV are set to decrease. 

“We don’t see the NEV price dropping soon, but the cost of owning a car is more than just the purchase price, and China will be one of the first countries where total ownership cost will be less than a traditional car,” said Xie.

Far from slowing down, China’s NEV market is moving into a higher gear.