With Battery Electric Vehicles (BEV) and Plug-In Hybrid
Electric Vehicles (PHEV) now entering the market in the mid-$20,000
range, disruptor brands are going all-in on New Energy Vehicles
(NEV). S&P Global Mobility forecasts significant market growth
of electrified-vehicle sales in mainland China by 2030, with
two-thirds of them being pure battery-electric. And NEV exports are
sharply on the rise.

Whereas government policy and subsidies have been the driving
force in the development of the market for electrified vehicles in
mainland China, organic consumer demand is beginning to play a role
as well. And while outright purchase subsidies are disappearing,
tax incentives and providing free or subsidized license plates to
BEV owners in some cities will also continue to support market
growth.

Such incentives notwithstanding, battery price has been a
barrier to growing consumer demand for electric vehicles due to its
impact on the overall vehicle price. The price of raw materials
used in EV batteries spiked in mid-2022 and has been volatile. That
led automakers to utilize plug-in hybrid technology – which has
smaller battery capacities installed than battery-electric vehicles
– to keep costs down while also offering relatively good fuel
efficiency.

In contrast to Japanese brands that have dominated the
full-hybrid (non-plug-in) market with the Honda IMMD and Toyota
THS, mainland Chinese domestic brands have now come to the fore,
achieving robust growth of the hybrid market share with their
advanced dedicated plug-in-hybrid technology.

As there is no NEV incentive for Parallel Full-Hybrids (FHEV),
Japanese brands are struggling to compete with PHEVs from Chinese
OEMs. Compared with HEVs, PHEVs have a better performance in fuel
consumption, a longer electric range, and – for a long-term
carbon-free individual mobility strategy – it helps as a bridging
technology. To wit, see BYD’s success in developing PHEVs, due in
part to positive stimulus from the Chinese government with the
purchase tax reduction policies extended to CY2027. Chinese OEMs
like Great Wall, Geely, Changan, GAC, and Chery also are
reinforcing their PHEV products with dedicated hybrid propulsion
technology developed to work as an important solution for NEV
strategy by 2030.

For the medium term, PHEV technology is expected to be a
bridging solution for BEVs, while BEVs remain mostly expensive and
charging options are limited to certain consumers, or specific
areas.

The long-term trend, however, is in battery-electric vehicles.
And while established automakers have taken a more gradual approach
to introducing BEVs, new entrants have focused mainly on
battery-electric technology.

There are positive developments supporting lower prices in both
the BEV and PHEV segments. Consumer demand has grown resulting from
a continuous improvement in battery density – which allows either
an improved range or a lower entry price for vehicles with a
shorter range. Concurrently, charging infrastructure development is
expanding, as well.

S&P Global Mobility forecasts NEV passenger car production
in mainland China in 2023 to be 8.1 million units, nearly tripling
to 21.2 million annual units by 2030. Of that number, 58 percent of
the overall mainland China passenger vehicle production in 2030 is
expected to be BEVs, an increase from around 25 percent in 2023.
(Note: S&P Global Mobility defines New Energy Vehicles as
battery electric, plug-in hybrid electric, range-extended electric
vehicles, and fuel cell vehicles.)

That said, S&P Global Mobility is still recommending the
implementation of various electrification technologies that address
different scenarios and user demands. Doing so could result in huge
incremental gains for the future development of the NEV market.

Examining the market penetration of Tesla and BYD illustrates
the advantage of having a diverse product portfolio in mainland
China. Tesla’s battery-electric vehicles are concentrated in Tier
One and Tier Two cities. But BYD – a domestic automaker with a much
broader product portfolio of both battery electric and plug-in
hybrid electric vehicles in a wider price range – has a more
balanced distribution across all tier cities.

Models in the 100,000 to 200,000 yuan price range (around
US$14,000 to $28,000) are most popular in the BEV and PHEV markets
right now. BYD dominates the PHEV market and has a significant
market presence in the BEV segment. Its models are concentrated in
the B-, C- and D-segments.

Meanwhile, Tesla, which resorted to price cutting to gain market
share, has significant BEV sales primarily in the D-segment. There
is, however, fierce competition in the middle of the BEV market.
The premium segment, already well populated with both gas and
electrified engines, offers more opportunities for the introduction
of electric vehicles with intelligent features such as ADAS and
intelligent cockpits.

By 2030, we forecast 11% of BEV passenger cars will be equipped
with battery capacity equaling or exceeding 100 kWh.

Looking at the technological aspect of the electric vehicle
industry, China has a strong advantage in three key areas. It has a
complete and competitive supply chain in rare earth materials and
positive/negative electrode materials. It also has leading battery
manufacturing companies with technological expertise. That will
allow for significant increases in battery capacity.

With the manufacturing of electrified vehicles booming, the
export of NEVs from mainland China could also be a potential growth
industry. In 2022 about 10% of mainland China-produced NEVs were
exported to other sales countries.

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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• Source: http://www.spglobal.com/mobility/en/research-analysis/mainland-chinese-consumers-crossing-the-chasm-to-mainstream-ev.html