Pushed by strong government incentives, dirty air pollution and an appetite for automobiles, the world’s largest car market, China, is on a path to buy a record number of electric cars this year.
The China Association of Automobile Manufacturers said this week that companies likely will sell 700,000 electric cars in China in 2017. That’s an estimate based on the latest monthly sales figures for September, which hit 77,000, and brought the year’s total EVs sold in China to 398,000 so far. The last three months of the year historically have the best sales of electric cars in the country.
Compare the annual sales figure to the around 500,000 electric cars sold in China last year, according to CAAM, and that’s substantial growth. Other groups, like the International Energy Agency, put the number of electric cars sold in China last year a bit lower.
At the same time, the industry group’s sales estimate of 700,000 is a smaller number than China’s own forecasts of 800,000 electric cars to be sold this year.
While China has spent billions of dollars on subsidies to promote electric cars, this year the country has reduced its subsidies for the vehicles by 20%, and hopes to eliminate the subsidies entirely within a decade. Big incentives have led to major growth, but also some accusations of cheating on green government programs.
The large size of the Chinese electric car market -- it makes up the majority of the world’s -- has attracted both domestic and international automakers alike. Chinese electric car company BYD, which is backed by Warren Buffett, was the best-selling electric carmaker last year and sells seven models in the country.
Chery Automobile is the country’s biggest passenger-car exporter and recently showed off a new line of high-end battery-powered cars. Another big Chinese electric car player is Beijing Electric Vehicle, the electric car division of state-owned BAIC Motor.
It’s decidedly harder for international companies to break into China’s notoriously difficult market. Foreign companies need to jump through hoops like getting a license to make cars, or partnering with a domestic automaker that already has a license. Foreign-made cars sold in China also face import duties.
Tesla has been trying to grow its sales and strategy in China for years. Last year the company, run by CEO Elon Musk, boosted its revenue in China to over $1 billion, a bit less than a quarter of its annual revenue.
This summer, it was reported that Tesla was in talks to set up an electric car factory in Shanghai. Such a move would enable Tesla to avoid steep import tariffs and lower the price of its cars in the country (a Model S can cost between $100,000 and $200,000 in China). But to do so, Tesla would also need to find a joint venture partner for a factory. At least, that's typically the requirement.
Since this story was first published, The Wall Street Journal reported that Tesla has reached an agreement to build a factory in Shanghai's free trade zone. Tesla would pay a 25 percent import duty, but it would retain its independence and be able to easily and cheaply ship products to Chinese customers.
This week it was also reported that Tesla has a new connector charge port design for its cars that will be enable Chinese customers to use China’s homegrown charging standard. It’s the latest move to suggest that Tesla is ready and eager to adapt to the Chinese market.
Tesla bulls think the company will continue to take off in the country.
“Tesla has little to fear from Chinese brands, at least based on the current competitive landscape,” wrote Piper Jaffray analyst Alexander Potter this week. “Branding and performance are just as important, and in this regard, we think nobody (least of all Chinese OEMs) can compete with TSLA.”
While the electric-car market in China continues to grow, it’s still at an early stage -- both in China and globally. Automakers sold close to 700,000 electric cars across all countries last year, according to figures from Bloomberg New Energy Finance. Yes, that's the same number that might be sold in China alone this year.
In comparison, there were 88.1 million cars and light commercial vehicles of all types sold worldwide last year, according to Macquarie Bank. Electric cars made up less than 1 percent of the total number of all cars sold last year.
China will likely continue to be the largest electric car market for years to come. In September, a Chinese official indicated that the country plans to develop a long-term plan to eliminate fossil fuel-powered cars completely.