Cadillac advertises its electric car in Shanghai on May 23, 2023. A female traffic police officer stands below.
Hugo Hu | Getty Images News | Getty Images
BEIJING – Subsidies for electric cars are not enough to boost growth in China’s slowing economy.
One of the few detailed stimulus plans Beijing has announced this year extends tax breaks for electric car purchases, according to documents released Wednesday.
The incentives, which were supposed to expire this year, will now run until the end of 2027.
Authorities expect additional consumer savings of 520 billion yuan ($72.43 billion) as a result.
But the tax breaks don’t address the fundamental reason people in China haven’t bought more electric cars: concerns about mileage.
Charging prompts
Charging a car battery is still “relatively problematic,” said Craig Zeng, CFO of online automotive information and shopping site Autohome. That’s according to CNBC’s translation of his Mandarin remarks.
He was talking about the electric car market in general.
The layout of China’s residential areas means there aren’t many private parking spaces and there is a limit to the number of chargers communities can install, he pointed out.
Most people live in apartment complexes in Chinese cities, with some parking spaces underground or on lots around apartment buildings. In the capital city of Beijing, a dedicated parking space – without a battery charger – can cost nearly $100 a month or more to rent an apartment.
In such an environment, “after many people buy a car, the charging problem will gradually become more obvious,” Zeng said, adding that the issue will affect people’s future EV purchase decisions.
During a press briefing on Wednesday, Chinese officials noted charging issues and called for faster installation of charging infrastructure in residential parking lots — especially in new developments. This is according to the official transcript of their notes.
Officials pointed out that the country has rapidly expanded its charging infrastructure over the past seven years, and that in central urban areas charging stations offer the same coverage as gas stations.
However, China still has a long way to go.
More than 70% of all public fast chargers are located in just 10 provinces, the International Energy Agency said in its Outlook report for electric cars to 2023. That’s only about a third of the country.
Fast charging allows drivers to recharge car batteries in less than an hour, but it still takes much longer than filling the gas tank.
China still leads the world in the installation of public fast-charging stations – accounting for nearly 90% of the global growth in such chargers last year, the IEA said.
“Electric car sales growth can only be sustained if charging demand is met by available and affordable infrastructure, whether through private charging at home or work, or publicly accessible charging stations,” the IEA report said.
A broader economic slowdown
Accelerating EV demand also faces challenges in the form of tepid consumer spending.
Retail sales in China grew more slowly in May than expected a year ago.
Car sales, one of the largest components of retail sales by value, maintained steady year-on-year growth – but fell 8% from the previous month. Many brands have also reduced prices increase sales this year.
Recent meetings of the highest executive body, the State Council, have taken note of the economic problems and called for further support, especially for new energy vehicles. But the notice and lowering interest rates they fell short of market expectations for broader stimulus.
“While Beijing may still introduce some policy measures to stabilize growth in the coming months, the disappointing State Council meeting suggests that measures to stimulate the economy could be phased in as decision-making is now highly centralized with an emphasis on ‘security.’ ” Nomura analysts said in a report on Monday.
Growing market penetration
Analysts still expect growth for electric cars in China, the largest car market in the world.
China typically puts electric cars in a broader category called new energy vehicles, which includes only battery and hybrid cars.
The penetration of new energy vehicles into total passenger car sales has reached approximately one-third of the market in recent months, according to data from the China Automobile Association.
This is far behind the official target of at least 20% penetration by 2025.
Autohome’s Zeng said he expects new energy vehicle sales penetration to remain between 30% and 40% this year and reach 50% in 2025.
Chinese authorities have encouraged the growth of the domestic market for new energy vehicles over the past decade in an effort to become a global player in the automotive industry.
On the consumer side, cities like Beijing and Hangzhou have made it much easier for drivers to get a license plate for an electric car versus a traditional combustion engine vehicle.