With more than 200,000 vehicles sold to date and an exciting product pipeline that ranges from semis to sports cars, Tesla is truly creating an electric vehicle revolution in the U.S.
But, it seems China may be the market that gives the biggest shove to gas burning vehicles and helps accelerate global EV adoption. With that in mind, it makes sense that Tesla would rush to create a stronger presence in the country – from showrooms to factories.
China’s EV Fast Track
There are now about 3 million EVs worldwide, two-thirds of which are made and used in China. Global electric vehicle sales climbed more than 50 percent from 2016, to about 1.2 million in 2017. And it was China that was the biggest catalyst for that growth, accounting for half the global electric market. In fact, 11 of the 25 cities for electric vehicles are in China. Beijing and Shanghai, for instance, have developed policies to boost the EV market, including meaningful incentives and privileges for electric vehicles.
The timing is right, as China’s middle class experiences growth they’re allocating more spend toward vehicles. China has also announced a plan to require substantial sales of plug-in electric cars by all automakers who want to enter the world’s largest car market. The system allocates points to all-electric cars, hydrogen fuel-cell vehicles, and plug-in hybrids. Total points earned must add up to 10 percent of each automaker’s sales. China wants “new energy vehicles” to account for 40 percent of the country’s auto sales by 2025.
Last year, EVs represented about 2.7 percent of all cars sold in China, which shows how ambitious the country is in creating an electric-powered transportation infrastructure. To accelerate the transition, some cities may only offer new licenses to EVs. Older vehicles with internal combustion engines could be taxed or regulated out of existence.
Local Brands
Chinese brands accounted for 96% of 711,000 EVs built and sold in China last year. BYD, Beijing Electric Vehicle Corp, ZhiDou, Shanghai Auto and Zotye are among the major in-country producers. Tesla, Nissan Leaf and Denza are the only three non-Chinese EV brands for sale today.
Beijing Auto EC 180 is the best-selling EV in China, with sales of more than 80,000 in 2017. The car has a maximum speed of 62 mph and range is 110 miles. The EC 180 starts at $7,740 after subsidies. Among the five best-selling EVs, three retail for under $10,000 after subsidies.
China’s Best-Selling EVs in 2017
#1 – Beijing Auto EC 180
#2 – Geely ZhiDou D2
#3 – BYD Song DM
#4 – Chery eQ
#5 – BYD E5
Interestingly, the EV market has attracted so much attention that Chinese authorities may stop issuing new permits to electric car makers in hopes of weeding out those who do not meet a standard of quality. A total of 15 new companies have been granted production permits in the past two years.
Battery Advantage
China’s EV industry certainly benefits from the strength of China’s battery sector. Battery production there is expected to soon be triple that of the rest of the world. The world’s largest player in batteries is China’s CATL. Its closest rivals include Japan’s Panasonic and South Korea’s Samsung. Panasonic is also a supplier for Tesla.
Trade
A trade war between the U.S. and China has definitely had implications for the EV market. China has imposed a 40 percent tariff on Tesla vehicles compared to 15 percent duties placed on imported autos from other countries. So, it makes a lot of sense for companies to invest in Chinese factories for their vehicles, helping avoid the tariffs and place manufacturing closer to both battery supply and customers.
And, that’s exactly what Tesla plans to do.
“Tesla continues to lack access to cash incentives available to locally produced electric vehicles in China that are typically around 15% of MSRP or more,” Tesla said in its Q3 earnings report. “Taking ocean transport costs and import tariffs into account, Tesla is now operating at a 55% to 60% cost disadvantage compared to the exact same car locally produced in China. This makes for a challenging competitive environment, given that China is by far the largest market for electric vehicles. To address this issue, we are accelerating construction of our Shanghai factory, which we expect to be a capital efficient and rapid buildout, using many lessons learned from the Model 3 ramp in North America.”
Tesla’s Partnership in China
Tesla announced in July a deal with the Shanghai government to build a factory capable of producing 500,000 electric vehicles a year. Tesla has acquired a plot in Shanghai’s Lingang area for factory at a cost of $140 million. The planned facility’s floor space will be about 1.7 million square meters. The factory will be Tesla’s first outside the U.S.
Construction is expected to take about two years, then another two to three years before the factory ready to produce the 500,000 vehicles per year Tesla hopes to achieve. Tesla currently produces about 100,000 cars annually in the U.S.
While a factory may not be up and running, Tesla expects to start taking orders in China for the Model 3 before the end of this year and do some contract manufacturing in the country. “In order to significantly increase the affordability of Model 3, we have decided to accelerate our manufacturing timeline in China,” the company said in its Q3 report. “We are aiming to bring portions of Model 3 production to China during 2019 and to progressively increase the level of localization through local sourcing and manufacturing. Production in China will be designated only for local customers.”
By the end of 2018, the worldwide plug-in vehicle population is expected to reach 5.4 million, an increase of 64 percent over 2017. While that seems like a drop in the bucket considering there are more than 1.3 billion cars on earth, it shows strong momentum.
For EV fans, China is going to be an exciting region to watch as it puts millions of electric vehicles on the road.