China’s New Energy Vehicle sector [ Electric] takes center stage

The Pandemic induced severe contraction in the auto industry across the world. However, China’s New Energy Vehicle (NEV) closed 2020 with a 13% YoY growth, against the industrial backdrop.

One reason behind this, the supportive government practices and also how the NEV sector has been changing rapidly.

The arrival of NEV – specific platforms have played a critical part in this growth pattern. In the earlier pattern, vehicles were being built on the traditional platform, with modifications to chassis and appearance. This did not always attract the buyers sufficiently. Examples of the Volkswagen Lavida and Ford Territory are a part of this trend.

However, the importance of the NEV platform has been gaining currency; and the auto majors are now developing bespoke platforms example Volkswagen MEB, the BYD e, and the GAC GEP.

The new architectures have added a new level of competitiveness while also, possibly, will bring down the vehicle costs too, in the long term. And there has been an improvement in product quality too.

Earlier, most NEVs. driven by government subsidies, were designed for use by leasing companies and in the low cost and economy segments. The leased vehicles contributed to over 56% of total volumes. Now with the improvement in product quality; and getting traction from user segments too, the contribution of leased vehicles has dropped to 43.5%. Premium and Near Premium Vehicles had a share of 56.2% in 2020: Tesla Model 3 leading the pack.

The Intelligent Connected vehicle technology has evolved significantly and the driver monitoring systems have become more sophisticated. Chinese startups NIO, Xpeng and Weltmeister, have shown the way and have reached a collective BEV market penetration of 10% last year. More clearer and realistic government measures continue to drive innovation and sales. The Shanghai local government's plan for accelerating NEV industry (2021-25) is a case in point.

The NEV industry, earlier focussed on purchase subsidies has now moved on into areas of infrastructure, parking fees, and driving restrictions gaining access. The increase of NEV credit value has been a key factor in the expansion of the market.

The NEV credit has grown from CNY 500-800 in 2019 to CNY 3000 in 2020. All the above developments, as they increasingly become integral to the industry, will further expand the NEV market in the near future. It is estimated that the industry will grow by 55% in 2021, and total sales will be approximately 2 million units.