Fitch Ratings released the "China's New Energy Automobile Blue Book - Government Policy to Promote Market Development" report on July 17. Fitch Ratings believes that China’s new energy vehicle market will steadily expand under strong policy support to achieve its target of 2020 annual sales growth from 570,000 units in 2016 to 2 million units. These policies include consumer incentives, fuel restrictions, and large-scale promotion programs in the public domain. However, the medium and long-term market development will depend on the improvement of battery technology and the construction of charging infrastructure.
Fitch expects that the proportion of motorized passenger cars in China will increase steadily on the basis of 1.4% in 2016. In first- and second-tier cities that impose restrictions on fuel vehicles, retail demand for electric vehicles will continue to grow. In 2016, sales of electric vehicles in restricted cities accounted for about 75% of total sales. At the same time, as the country tightens the supervision of low-speed electric vehicles and the supply of cheap low-end electric vehicles, the demand for electric vehicles in third- and fourth-tier cities will also increase. Due to more abundant local government subsidy funds and more developed charging infrastructure in developed coastal regions, these regions contributed to the vast majority of sales of new energy vehicles in China.
Thanks to generous government subsidies that stimulated consumer demand and new energy vehicle production, China’s new energy vehicle sales surged by more than 18 times between 2013 and 2015. However, after the government began cracking down on new energy swindling, the year-on-year growth of sales of new energy vehicles in 2016 dropped sharply to about 50%. The government revised the new energy vehicle subsidy policy for 2017-2020, which stipulated the phased subsidy retreat method, raised the technical threshold, and extended the subsidy claim period. Fitch expects that manufacturers will cut the price of new energy vehicles with subsidies to bear some of the consumer losses caused by subsidies. Given the good subsidy profitability of some new energy vehicles (especially electric buses) and the potential savings from future economies of scale and battery technology improvements, manufacturers have enough room for price cuts.
Fitch expects that by 2019, China's electric vehicle models will not only double, but the market competition will become more intense. Local and foreign automakers need to produce new energy vehicles to meet the strict fuel economy targets of Chinese regulators; and from 2018 or 2019, passenger car manufacturers must also meet the requirements for new energy vehicle points in order to avoid being fined. The top ten domestic manufacturers accounted for approximately 96% of the sales of electric vehicles in China in 2016. Sino-foreign joint venture brands are still lagging behind, but will increase investment in new energy vehicles in the next five years.
China is the world’s largest market for new energy vehicles, accounting for approximately 45% of all global electric vehicle sales in 2016 and almost all sales of electric buses. In terms of sales volume in 2015, BYD Auto Co., Ltd. of Shenzhen replaced Tesla of California as the world’s largest manufacturer of electric vehicles. Of the top 20 electric car manufacturers in the world for 2016 sales, 9 are electric car brands in China.
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