Reports

    BYD, Tesla, Porsche: Will EVs continue to dominate China’s auto market in 2023 as tax rebates resume?

    China plans to offer a $72.3 billion package of tax breaks for new energy vehicles. Will more luxury car brands accelerate into the EV segment?
    Potential taxes on China-made EVs could impact both local and non-Chinese manufacturers. Photo: BYD
    Shilpa DhamijaAuthor
      Published   in Finance

    Soon after China announced a 520 billion yuan ($72.3 billion) package of tax breaks for new energy vehicles (NEVs) in June, sales reached a record high for the country’s leading EV players.

    Chinese EV brand BYD sold over 253,046 vehicles, almost double the number of vehicles it sold in June last year. Li Auto delivered over 32,500 vehicles, achieving 150 percent growth from a year ago. And while Tesla does not release country-specific figures, the American car brand reportedly sold 93,680 made-in-China EVs in June, up 18 percent year over year (YoY).

    Chinese EV brand BYD sold 253,046 new energy vehicles in June 2023. Photo: BYD
    Chinese EV brand BYD sold 253,046 new energy vehicles in June 2023. Photo: BYD

    This is a welcome change from the first quarter of 2023, when total vehicle sales in mainland China fell approximately 1.4 percent YoY, triggered by “wait-and-see buyer sentiments” according to Cui Dongshu, secretary-general of the CPCA (China Passenger Car Association). A discount price war started by Tesla last year — that was quickly joined by over two dozen other car brands — dallied buyer sentiments as they waited for the discount prices to stabilize. China also discontinued its decade-long subsidies on EVs last year.

    Now, China’s resumption of subsidies will bring the country closer to its goal of having at least 50% of new car sales be NEVs by 2035. Through this plan, all NEV sales will continue to receive tax exemption in 2023. NEVs purchased between 2024 and 2025 will be exempt from purchase tax amounting to as much as 30,000 yuan ($4,175) per vehicle, while those bought between 2026 and 2027 will benefit from half of this exemption amount.

    As EVs charge ahead, will the market for gasoline vehicles slow down?#

    2022 was a remarkable year for EVs in China. Out of the 26.86 million vehicles sold, EVs made up for 25.6 percent of the share according to China Association of Automobile Manufacturers (CAAM), making China the world’s largest market for EVs.

    In 2023 too, among passenger vehicles, EV sales grew 29 percent YoY in the first quarter despite the wait-and-see buyer sentiments. As demand for NEVs is expected to surge with the rebate rebound, will the market weaken for gasoline-powered vehicles?

    Porsche, which predominantly has a line up of gasoline-powered cars, has not yet seen an adverse impact on its sales. The German brand made about 21,365 deliveries in Q1 2023 in China, a 21 percent YoY increase. About 20.6 percent of these cars were EVs. For Porsche, China has been the single most important market for almost a decade.

    The Porsche Taycan is the first series production car with a system voltage of 800 volts instead of the usual 400 volts for electric cars. Photo: Porsche
    The Porsche Taycan is the first series production car with a system voltage of 800 volts instead of the usual 400 volts for electric cars. Photo: Porsche

    To maintain and grow its China (and global) market share, Porsche aims to drive more than 80 percent of its sales from EVs by 2030, according to Michael Kirsch, President and CEO of Porsche China.

    “The fully-electric Macan is scheduled to be available to customers in 2024; the 718 series will be electrified in the medium term. This will be followed shortly by the all-electric Cayenne and a new all-electric SUV above the Cayenne,” Kirsch tells Jing Daily.

    In Q1 2023, Mercedes saw an impressive 109 percent growth in EV sales in China, but its top-end vehicles grew only 1 percent. Meanwhile, BMW reported a sales dip of 6.6 percent that quarter, attributed to the “aftereffects of China's receding coronavirus wave.”

    Localizing bespoke luxury#

    Premium top-end brands like Rolls-Royce are also plugging into EV production. Rolls-Royce will start delivering its first ever EV, the Spectre, in Q4 2023 and plans to make only EV models by 2030.

    However, switching to electric alone may not be enough to power the growth of a bespoke luxury brand in the world’s most important luxury market.

    Rolls-Royce is entering the EV sector with the release of its Spectre model, which retails for upwards of $420,000. Photo: Rolls-Royce
    Rolls-Royce is entering the EV sector with the release of its Spectre model, which retails for upwards of $420,000. Photo: Rolls-Royce

    Rolls-Royce will soon open a new office in Shanghai with designers trained at Goodwood and special client managers, who will focus on bringing more personalized experiences to the British car maker’s second largest global market. “Success here requires crucial local knowledge,” said Torsten Müller-Ötvös, CEO of Rolls-Royce, in a LinkedIn post.

    “Globally, the top 2 percent of luxury customers account for around 40 percent of luxury sales, and China’s luxury market typically attracts a high concentration of these individuals,” he wrote.

    Despite a single-digit drop in sales, China accounted for 25 percent of Rolls-Royce’s global sales last year. According to Müller-Ötvös, apart from China’s “Tier 1+” cities — Beijing, Guangzhou, Shanghai and Shenzhen — its other Tier-1 and Tier-2 cities are emerging as critical luxury centers.

    According to a Knight Frank report, the Chinese mainland's millionaire population (in dollars) is expected to cross 17 million by 2026, almost double the 9.2 million millionaires recorded in 2021. And this growth in high-net-worth individuals may begin to gradually show in the sales of luxury cars as the country returns to normalcy post-pandemic.

    As for 2023, the CAAM has cautiously predicted that China’s auto market will grow 3 percent over 2022 with the sale of about 27.6 million vehicles.

    Discover more
    Daily BriefAnalysis, news, and insights delivered to your inbox.