China has emerged as the global leader in the new energy vehicle (NEV) sector, capturing roughly 45% of worldwide electric vehicle (EV) sales in 2016, alongside nearly all electric bus sales. On July 17, Fitch Ratings published their report titled "China's New Energy Automobile Blue Book: Government Policy to Promote Market Development." According to Fitch Ratings, China's NEV market is set to expand steadily under robust policy support, aiming to boost annual sales from 570,000 units in 2016 to 2 million units by 2020. Policies such as consumer incentives, fuel restrictions, and extensive public sector promotion initiatives are expected to drive this growth. However, the long-term success of the market will hinge on advancements in battery technology and the expansion of charging infrastructure.
Fitch anticipates that the share of motorized passenger cars in China will gradually rise from 1.4% in 2016. In urban centers with fuel vehicle restrictions, EV retail demand is anticipated to remain strong. In 2016, sales in these restricted cities accounted for around 75% of total EV sales. Additionally, as stricter oversight of low-speed EVs continues and cheaper low-end options face supply challenges, demand for EVs in tier-three and tier-four cities is likely to pick up. Developed coastal areas, benefiting from ample local government subsidies and advanced charging networks, have historically driven most of China’s NEV sales.
Between 2013 and 2015, thanks to generous government subsidies, China's NEV sales skyrocketed over 18 times. However, following a crackdown on fraudulent practices in the industry, year-over-year growth slowed significantly in 2016, dropping to approximately 50%. For 2017-2020, the government has adjusted the subsidy policy, introducing a staged phase-out mechanism, raising technical thresholds, and extending the subsidy application period. Fitch predicts that manufacturers will absorb some of the consumer losses resulting from reduced subsidies by lowering prices, given the favorable profit margins of certain NEVs (particularly electric buses), along with anticipated economies of scale and technological improvements.
By 2019, Fitch forecasts a doubling of China’s EV model offerings, leading to fiercer market competition. Both domestic and international automakers will need to comply with stringent fuel efficiency standards set by Chinese regulators, while passenger car manufacturers will also face requirements to earn new energy vehicle credits starting in 2018 or 2019. In 2016, the top ten domestic manufacturers accounted for roughly 96% of China’s EV sales, while Sino-foreign joint ventures are expected to ramp up investments in the NEV segment over the next five years.
China’s dominance in the NEV space is undeniable, representing 45% of global EV sales in 2016 and virtually all electric bus sales. In 2015, Shenzhen-based BYD Auto surpassed California’s Tesla to become the world’s largest electric vehicle manufacturer. Among the top 20 EV producers globally for 2016, nine are Chinese electric vehicle brands. This unprecedented growth underscores China’s pivotal role in shaping the future of sustainable transportation.
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