Cheap Subsidized Prices a Big Driver Of Small Electric Car Sales In China

Small electric cars with cheap prices have helped China lead global plug-in vehicle sales.

In Shanghai, you could buy a small, two-door all-electric Chery eQ for about 60,000 yuan ($8,655) after subsidies before the end of the year. Without the government’s incentive plan it would have cost about an additional 100,000 yuan ($14,437). Even without these incentives, that car would be about $7,000 less than an all-new Chevy Bolt sold in the U.S. after a $7,500 federal tax credit.

“EV cars are very cheap (in China), you’ll only spend a little money to buy a car. If you just go to work or use an EV in the city, it’s OK … for using within 100 kilometers (62 miles),” said Xie Chao, who works for a chemical company in Shanghai.

Xie has purchased three EVs since 2015 – an Anhui Jianghuai Automobile iEV4, a BAIC EV160, and a Geely Automobile Emgrand EV – one for him to drive, one for his wife to use, and one that he rents out.

The Chery eQ has been the top seller in recent months, with decent enough quality at a low price, said Dawei Zhang, CEO of EVBuy, a dealer.

Most of the electric cars made in China look like each other with similar specifications. Pricing is the deciding factor Zhang said.

“It’s a transport tool,” he said. “It’s purely for mobility rather than for showing off, having a big car for all the family, or for any technology factors.”

The government has spent the equivalent of billions of dollars on subsidies that have tipped the scale toward surging sales to urban drivers, taxi fleets, and government agencies. It helped sales of battery electric and plug-in hybrids increased 60 percent from January through the end of November, to 402,000 vehicles.

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Foreign automakers like Tesla Motors have been hurt by the EV sales trend, and by the fact that you have to be a Chinese automaker – or have a joint venture with one – to qualify for the subsidies. Foreign automakers standing alone, or even those in JV alliances, can be hurt by Chinese automakers aggressively lowering their costs and car prices regardless of quality, according to an executive at a multinational auto parts firm.

Getting around the city could be another reason a Chinese consumer might be an EV. Some EV buyers in Beijing and Shanghai told Reuters they bought their plug-in electrified vehicles to have access to a license plate. Six of China’s largest cities have clamped down on the number of traditional gasoline-powered cars they’ll allow on their streets; but PEV owners are freely awarded license plates.

Price is king for many Chinese car shoppers.

“I only considered BYD and BAIC. I definitely can’t afford the 300,000-600,000 yuan ($43,311-$86,622) price of a luxury-style Tesla or Denza,” said Qu Lijian, a 31-year-old government worker in Beijing, who eventually purchased a BYD Qin pure electric car.

Denza is a Chinese brand produced by a joint venture between BYD and Daimler.

Nissan has felt the squeeze in sales of an adapted Leaf all-electric car. Nissan has a joint venture with Donfeng Automobile, which sells the Leaf in China under the Venucia brand. It isn’t selling very well, Nissan’s global chief Carlos Ghosn told Reuters in November.

Chinese EV buyers don’t want to spend much more than $8,000, after incentives, and the Nissan vehicle is too expensive, he said.

Subsidies are declining, starting this year with a 20 percent reduction. That adds about 15,000 yuan (about $2,165) to the price of a Chery eQ. Official 2017 subsidies for individual models haven’t been announced yet, though.

While the subsidies are scheduled to go away in China by 2020, Chinese manufacturers should be in a good position to stay competitive. Local companies have been able to achieve economies of scale, pushing down their per-unit costs and opening up more funds to research and development, one executive said.

“By 2020, China will have no subsidies, but your scale has expanded, your costs have come down, and you’ll be able to hit a price that consumers can accept,” said Li Yunfei, BYD’s deputy chief of branding and public relations.

Reuters

 


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