Chinese Car Market 2024 – Part 2

 This article focuses on forecasting trends in the Chinese passenger car market, while the previous section highlighted factual data about the market.

Government policies regarding new energy vehicles

There are two major beneficial policies for purchasers of new energy vehicles (NEVs):

1.      Purchase subsidies, introduced in 2009 and concluding in 2022, have significantly boosted EV sales.  Data from 2023 indicates that the cessation of these subsidies has had a limited negative impact.

2.      Vehicle purchasing tax deduction which have been in effect since 2009 and are set to end in 2027. The maximum tax relief is 30,000 RBM, while the standard vehicle purchase tax is 10%. Given the amount of tax relief, it is unlikely to deter customers from choosing EVs over ICE vehicles.

Opportunities

·        China has established a comprehensive supply chain for EVs, encompassing everything from raw materials and new factories to skilled employees, computer software and infrastructure. This development has positioned China as a leader in the new energy vehicle industry.

·        Urbanization is still ongoing, which is expected to drive increased vehicle sales in fourth and fifth tier-cities.

·        Compared to developed countries, China’s GDP growth remains relatively high, supporting further market expansion.

Obstacles

·        The inland birth rate is continually decreasing, which will likely lead to a reduction in sales over time.  In 2023, the birth rate was 6.39‰ while the death rate was 7.87‰ resulting in a natural growth rate of  -1.48‰.

·        Expanding exports have been hindered by tariffs imposed by Western countries.

  ü  US: New tariffs on Chinese electric vehicles will increase from 25% to 100% as announced in May 2024.

  ü  EU: The European Commission has started investigation into state subsidies provided to Chinese companies. It could impose additional tariff on Chinese EVs.

  ü  Turkey: In 2023, Turkey imposed an additional 40% tariff on Chinese EVs bringing the total tax rate to 50%.

  ü  Brazil: Brazil is gradually increasing tariffs on EVs from 10% to 35% by July 2026.

·        The US has imposed sanctions on advanced AI chips to China, which could hinder the development of EV systems, as these vehicles are known for their high technology reliance.

·        There is Increasing customer concern about data being transformed back to China, impacting customer trust and potential sales.

Forecast: Passenger Cars Sales in the Chinese market

According to CNN, China’s exports of passenger cars reached 4.14 million in 2023, slightly surpassing Japan’s total of 3.9878 million. A significant boost came from exporting over 800,000 cars to Russia. Despite ongoing trade tensions with the US and potential conflicts with the EU, Chinese auto manufacturers continue to expand their overseas markets, and exports are expected to continue to rise.

Table 1 Forecast of exports and domestic sales of cars up to 2030

The 2024 forecast is based on data from the China Association of Automobile Manufactures. I anticipated that the overall growth rate for total car sales will remain at 2%, influenced by China’s decreasing population, which are likely to curb the rapid growth of domestic sales. Additionally, increasing automobile tariff imposed by other countries on Chinese exports are expected to negatively impact China’s auto exports.

Forecast: New Energy Cars

As detailed in the previous article – Chinese Car Market 2024 -Part1, the distribution of car sales among the tier-cities has remained quite stable over the past 4 years. Based on this stability, I have projected the same distribution to apply from 2025 to 2030 as well (Table 2).

Table 2 Forecasts of domestic sales of new energy cars for 2030

The future of new energy car sales is fraught with uncertainties, though the trend is undoubtedly upward. For domestic sales, I have therefor outlined two scenarios: a  base and a more optimistic scenario. Currently, new energy cars account for around 25% of total car exports in 2023 up from 9% in 2020.  The increasing penetration of new energy cars is expected to continue. However, the extent of this growth is uncertain leading me to consider two scenarios for export projections as well, 35% for the base scenario and 50% for the better respectively, as illustrated in Table 3.

Table 3 Forecast of export sales for new energy car by China for 2030

Combining Table 2 and Table 3, the prediction for total car sales for 2030 is display in Table 4.

Table 4 Forecast of total new energy car sales by China for 2030