The EV subsidy policy that came into effect in 2010 is the foremost reason for China's triple crown of auto sales. Under this policy, Chinese local automakers have shifted from international technology and capital partnerships to developing their own EV brands and industrial chains. In the first quarter of 2023, China exported nearly 1.07 million vehicles, of which nearly 250,000 were new energy vehicles (NEVs, EVs + PHEVs). NEVs became a key factor in China replacing Japan to be the world's top auto exporter for the first time. The full effort to develop the NEV industry is a major driver of China's automotive industry transformation, helping the country gradually achieve its goal of becoming a strong automobile country across the globe.
Globally, China is leading the way in NEV development. In the first quarter of 2023, China's share of NEV sales reached 25.5%, significantly ahead of the global average of 13%. This compares to 18% in Germany, 15.3% in the European Union, 8.8% in the US, and just 2.8% in Japan, among other major automobile producing countries. The US has also been making progress in the EV market. The IRA (Inflation Reduction Act) passed in August 2022 provides subsidies of up to $7,500 for EVs manufactured in the US. This has helped to boost the US EV market, which saw sales of 259,000 units in the first quarter of 2023, representing a year-over-year increase of 44% compared to the 179,000 units sold in the first quarter of 2022. As a result, the US surpassed Germany to become the world's second-largest EV market. In addition, it is worth noting that Japan, a traditional automobile manufacturing powerhouse, has a market share of only 2.8% for NEVs. While major markets worldwide are reporting explosive growth in EV sales, Japan is drifting away from that trend.
The booming development of China's EV industry has also led to the rapid development of the related component industry chain. The battery industry, the most critical component, is now developing at an even faster pace. CATL has become the world's largest battery supplier. In the first quarter of 2023, its installed capacity share of 46.6 GWh reached 35%. If we add the second-place BYD's installed capacity of 21.5 GWh, which had a market share of 16.2%, the two companies alone accounted for more than half of the global automotive battery supply. The strong EV market in China and the complete supply chain have also contributed to the local brand BYD outperforming Volkswagen Group, the long-standing sales leader in China, in the first quarter of 2023.
Volkswagen is taking a more flexible approach than BYD, which has already stopped producing traditional gasoline vehicles, to regain the top sales position in China. In addition to accelerating the introduction of EVs, Volkswagen announced on April 18, 2023 that it will invest €1 billion to open an EV R&D center "100%TechCo" in Hefei, Anhui Province next year. The center will focus on the integration of vehicle and parts R&D and procurement, which is expected to shorten product development time by about 30%. In 2022, Volkswagen also announced an investment of €2.4 billion to cooperate with Chinese artificial intelligence chip designer Horizon Robotics, hoping to secure its position in the Chinese market through AI-assisted self-driving cars.
Moreover, Volkswagen has been actively seeking necessary acquisition and cooperation partners in China. For example, it has signed a long-term cooperation agreement with XPeng Motors, in which Volkswagen invested US$700 million (approximately NT$22 billion) to acquire a 4.99% stake in XPeng Motors, becoming its third-largest shareholder and an observer on the board of directors. Another agreement is that Audi and SAIC will expand their existing cooperation to develop vehicles exclusively for the Chinese market. SAIC's IM Motors platform is of particular interest to Volkswagen, as it is the platform for the premium L7 and LS7 SUVs and is built using the 800V voltage architecture. In the future, there will likely be Audi vehicles equipped with this platform on the market in China. These partnerships are in line with Volkswagen's important strategy of "In China, For China".
Volkswagen sold only 321,600 pure electric vehicles globally last year, accounting for just 7.4% of its total sales. By contrast, in addition to being the top-selling EV brand in China, BYD has made inroads into other markets around the world, becoming the EV sales champion in Israel, Singapore, Thailand, New Zealand, and other countries. After creating a beachhead in the European Union market and Japan, BYD is expanding the presence of its EVs even more. BYD is not only aiming to become the number one EV brand in China, but it also has a burning ambition to surpass Tesla to become the world's number one EV brand.
The above EV sales and share data show that China has not only gained a foothold in the world's auto landscape, but its existence also weighs too much for the global auto industry to ignore. For example, Ford has invited CATL to help set up a lithium iron phosphate (LFP) battery plant for EVs in Michigan, USA. Additionally, BYD is planning to set up overseas EV factories in Brazil and Thailand. With the current momentum, China is poised to replace current auto powerhouses Japan and Germany to become the dominant automaker of the new era.
However, is the actual situation as optimistic as it appears? It is too early to tell. There are still some factors that need to be considered, and we need to watch closely.
First of all, China's current economic situation is not very stable. Local government debt and the real estate sector's bad debt problems are both major concerns for economic growth. Many of the major shareholders of China's major automotive groups are affiliated with local governments. Therefore, the potential risk of such local debt could become a burden for these automotive groups. This is something worth paying attention to.
In the first few years of China's EV market, many new EV brands were established thanks to policy subsidies. However, under the fierce competition in the market, most of these brands are facing a survival crisis, and more than a hundred EV-related companies have closed down in the past few years. Two of the most notable examples are Byton and Singulato Motors. Byton signed a strategic cooperation framework with Hon Hai, but it has since gone bankrupt. Singulato Motors, incorporated in 2014 along with NIO, Li Auto, and XPeng, has also gone bankrupt. Both brands share the common characteristic of having burned through their capital and financing (RMB 8.4 billion and RMB 17 billion, respectively) without building a single electric car.
It is noteworthy that the government's subsidies for EVs a few years ago may have wasted resources. We need to continue to monitor whether the waste will have any other impact on China's current economic situation. Finally, the global "New Cold War" situation triggered by the China-US trade war, and the restrictions imposed on China by the Western world on semiconductors and other key technologies, may have a critical impact on China's self-driving car development in the next phase. It is an area that demands our utmost attention.
About the author - Kenny Liu
Graduated from Dept. of Aeronautics and Astronautics, Cheng Kung University in 1988, started his auto industry career since July 1990 after two year military service. Starting as a service engineer and a temp technician, product marketing specialist in Peugeot/ Daihatsu, marketing and dealer channel specialist in VW LCV from March 1992, then field manager in GM Taiwan from Feb. 1994, sales and service / parts head in Ford Lio-Ho from Sep. 1998 till retirement in May 2019. Kenny then started to work for JLR Taiwan as sales/service head and consultant/ lecturer. After that, he was invited to work at a Suzuki dealer of Taipei as the general manager until April 2022.