China and the United States are the two largest markets for plug-in electric vehicles (PEVs) in the world, accounting for more than 75% of global sales. Both countries have enacted policies to promote the production and sale of these vehicles. However, PEV sales in China have recently increased at an impressive rate. A study led by researchers at Oak Ridge National Laboratory (ORNL) examines the major and unique characteristics of the Chinese PEV market in order to provide a better understanding of its possible driving forces, barriers, and prospects by using data from government, auto companies, and consumers. It analyzes sales distribution by class, region, season, and electric range, examines charging infrastructure development, characterizes industry competition, and quantifies the role of policies. Wherever applicable, comparison to the U.S. PEV market is made to facilitate understanding.
A detailed description of the study and its results can be found in Light-duty plug-in electric vehicles in China: An overview on the market and its comparisons to the United States.
PEV Market Explosion in China
PEV market penetration in China was initially slow, similar to that in the U.S. However, aggressive policies and investment aimed at promoting PEVs began to take hold around 2014, resulting in an explosion in PEV sales. China became the world's largest light-duty PEV market in 2015, with 207,000 PEV sales. As of the end of 2017, cumulative sales in China reached over 1.1 million. The fast-growing light-duty plug-in electric vehicle (PEV) market in China has important implications for both the global vehicle market and energy policies.
Demand-Side Factors
PEV Characteristics
The popularity of the domestically produced small-size BEV is the key driver of PEV sales growth in China. Small cars have dominated the PEV markets in both China and the U.S., but they comprise a much larger share in China (60%–80%) compared to the U.S. (20%–40%). In addition, nine out of the ten best-selling PEV models in China are compact or minicompact vehicles while, in the U.S., seven of the top ten PEV models are midsize or larger.
PEVs are generally more expensive than their conventional counterparts, but the price differential is much lower in China. In 2017, the sales-weighted average MSRP of PEVs in China was $22,327 USD (before subsidies), about $5,000 higher than the average for passenger vehicles ($27,485 USD). In the U.S., the sales-weighted average MSRP of PEVs was $49,037, about $16,000 higher than the average for passenger vehicles ($34,670 USD). This may be because high-end brands are more popular in the U.S. PEV market, capturing about 64.2% of sales in 2017. However, on the supply side, it may also be due to a lack of less expensive models, as 12 of the 18 plug-in hybrid electric vehicle (PHEV) models and 6 of 16 battery electric vehicle (BEV) models belong to high-end brands.
Consumer Characteristics
In China, PEV buyers are more concentrated in megacities and provincial cities. This may be due to income level and consumer awareness of PEVs. These more populated regions may also be more motivated to PEVs to relieve severe traffic congestion and air pollution, and may be more financially capable of providing monetary incentives, investing in public infrastructure, and providing purchase, parking, and driving privileges.
Still, studies have shown that more potential consumers from outside the first tier cities would like to purchase PEVs. In 2018, 69% of consumers indicated they would like to purchase a PEV, 24% more than in 2017. Furthermore, the ratio of non-first-tier-city interviewees who explicitly expressed interest in purchasing PEVs (42%) surpassed that of consumers in first-tier cities (35%).
Electric Range and Charging Infrastructure
The electric range distributions of BEVs sold in China are very different from those in the U.S. even though BEV driving range falls within 60 to 350 miles in both markets. From 2016 to 2018, the sales-weighted electric range increased from 129 to 189 miles in China and from 175 to 280 miles in the U.S. Thus, average battery capacity and range are 36% higher in the U.S. More interestingly, the electric range of BEVs sold in the U.S. concentrates around two extreme ranges—80 to 150 miles and 250 to 300 miles—while in China the electric range is spread more evenly from 80 to 250 miles.
The availability of charging stations might affect consumer PEV choice. China has four times as many public charging facilities as the U.S. Consumers in China rarely have garages where charging outlets could be installed. However, by December 2018, the ratio of home-charging piles to PEV sales in China was 67.46%, and the Chinese government has set a goal of 12,000 charging stations and 4.8 million charging piles available by 2020—a charging pile can have multiple outlets.
Supply-Side Factors
A new, innovative domestic PEV industry is being cultivated in China. Domestic, privately-owned start-up auto firms represent the leading force in the Chinese PEV market although top-tier established conventional automakers in China are catching up and becoming more pro-active in designing and producing PEVs. This is a clear contrast to the U.S. market, where established automakers have been the major players in the PEV market from the beginning, with Tesla as the obvious exception. The PEV market in China is also less concentrated than in the U.S. The eight top-selling PEV companies represented 68.9% of PEV sales in 2018, while the rest of PEV sales were divided among 30 other PEV producers. In the U.S., the top eight automakers account for nearly 95% of the PEV market.
Policies
China's growth in PEV sales in recent years are largely influenced by demand-side policies and incentives. Several key incentives were enacted beginning in 2013 and 2014, resulting in a five-fold increase in PEV sales between 2013 and 2014:
- Qualified PEV models were exempted from the vehicle purchase tax, which can range from 1% to 40% in China.
- At least 30% of government vehicles were required to be PEVs.
- A national incentive for BEV charging infrastructure was issued.
- The refined oil consumption tax was increased, driving up gasoline and diesel prices.
- PEV purchase subsides from the central government ranged from $5,056 to $8,683, which can account for 25% of the MSRP for a BEV and 10% MSRP for a plug-in hybrid. Local monetary subsidies from local governments were similarly generous. (The central government subsides will end in 2020.)
Other incentives have also been an important factor. In some cities, PEVs have been exempted from driving restrictions and received discounts for parking and road/bridge tolls. Furthermore, megacities often have regulations limiting new vehicle registrations, which are waived for some PEVs. This can add over $18,000 USD to the value of a vehicle. Going forward, the government is transitioning from demand-side to supply-side incentives, such as Corporate Average Fuel Consumption credits, that encourage automakers to produce more PEVs.
In the U.S., both demand-side and supply-side incentives have been use to promote PEV sales. However, the total value of incentives is smaller. The total value of incentives and other policy-based benefits in the most aggressive cities in populating PEVs (e.g., Atlanta, Denver, San Francisco, and Los Angeles) is estimated to be $13,000–$14,000 USD per vehicle, including the $7,500 federal tax credit. In China, the combined value of the purchase subsides and car registration priority is estimated to be $20,000 USD. Furthermore, U.S. subsidies are often in the form of tax credits, which is inconvenient and delays reimbursement, while the Chinese government subsidy is paid to the PEV producer and acts more like a rebate.
It is still unclear whether the favorable PEV policies in China have driven technological innovation or simply created policy dependence, or both. However, with the Chinese central government subsidies ending in 2020, we will see whether or not the PEV sales induced by these policies can be sustained.