China’s EV Strategy: Paying Large Dividends in Asia by Being Cheap and Small
It is well known that China leads the world in both the manufacture and sales of electric vehicles, but recent research from the International Energy Agency (IEA) suggests that China is also becoming more influential in the car industry throughout Asia’s rapidly expanding economies.
China accounted for 60% of all EV sales in 2023, according to the IEA’s Global Electric Vehicle (EV) Outlook 2024 study, which was published on Tuesday. This quick uptake is predicted to continue, with one in three cars on Chinese roads being electric by 2030.
More importantly, according to the IEA, China is leading the way in EV adoption throughout Asia by utilizing its enormous industrial resources to invest in and encourage the sale of less expensive EVs in nations like Thailand, Vietnam, and Indonesia.
When compared to cars built in Europe and North America, the price of China’s EVs is crucial to their success.
“In China, we estimate that more than 60% of electric cars sold in 2023 were already cheaper than their average combustion engine equivalent,” according to the paper.
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China’s EV Strategy
“However, electric cars remain 10% to 50% more expensive than combustion engine equivalents in Europe and the United States, depending on the country and car segment,” according to the IEA.
Compared to Europe and North America, China is taking a different approach with EVs, prioritizing smaller, less expensive city cars that are competitive—if not better than—equivalent internal combustion engine (ICE) vehicles.
On the other hand, the majority of EVs produced in Europe and the United States have been larger, more opulent, and more expensive, with the intention of catering to a wealthy market of early adopters of new technologies.
What’s actually happening is that China has established an early lead in lowering the cost of EVs and increasing their accessibility, a move that is probably going to pay off throughout Asia.
This is particularly true in nations where governments provide incentives and policy assistance for people to switch to electric vehicles (EVs), including cars and two- and three-wheelers.
“In 2023, 55% to 95% of the electric car sales across major emerging and developing economies were large models that are unaffordable for the average consumer, hindering mass-market uptake,” according to the IEA.
“However, smaller and much more affordable models launched in 2022 and 2023 have quickly become bestsellers, especially those by Chinese car makers expanding overseas,” according to the research.
Asia EV Surge
In Thailand, EV sales quadrupled year-on-year in 2023 to reach a 10% market share and the Southeast Asian country has launched subsidies for battery manufacturing and lowered tariffs, which allowed Chinese car makers to increase their presence.
According to the IEA, automobile sales in Vietnam fell in 2023, but EVs managed to increase to 15% of the market, and in Malaysia, EV registrations more than tripled as a result of tax cuts and import duty exemptions.
In 2023, EV registrations increased by 70% over the previous year in India, the most populous country in the world, while overall car sales increased by 10%.
An excellent illustration of the mix of cheaper Chinese-made EVs and legislative incentives may be seen in Indonesia.
According to the IEA, sales of electric cars in Indonesia increased from less than 100 in 2019 to 17,000 by 2023 as a result of EVs’ advantage over internal combustion engine (ICE) vehicles, which paid 11% more in value-added tax.
Additionally, last year, Indonesia implemented a 40% local content criteria for EVs to be eligible for purchase incentives. As of right now, just two models meet this condition.
However, additional automakers are establishing themselves in Southeast Asia. These include BYD of China, which intends to construct factories capable of producing 150,000 cars annually, and VinFast of Vietnam, which intends to build 50,000 cars annually.
It is worth noting that China’s EV sector is facing its own struggles. The state planner expects an intensifying price war amid a glut of supply and new models. China is also facing a European Union investigation on whether to impose tariffs on imports of EVs on the basis that the state has subsidised Chinese car makers, a claim Beijing dismisses as baseless.
Overall, the IEA report shows that China’s path of cheaper and smaller EVs is likely a winner in Asia, the fastest-growing region of the world.
It also shows that European and U.S. automakers have substantial work to do to improve the affordability of EVs and boost the infrastructure needed to support their widespread adoption.
The report also hoses down some of the worries about a rapid shift to EVs, such as the additional electricity required, saying that the power required by EVs is likely to rise from 0.5% of the global total of electricity generated in 2023 to less than 10% by 2035.
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