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Chinese EV Sales Reach Record High with 34% Surge

China’s 10 millionth EV rolled off the production line on Thursday, beating the 2023 production seven weeks before the year’s end amid growing worries of overcapacity. Chinese EV makers delivered 9.75 million units to mainland buyers between January and October, good for a robust 34% Y/Y increase. Helped by government subsidies of up to $2,800 apiece for trading in older cars for EVs as well as more fuel-efficient cars, China Passenger Car Association (CPCA) secretary-general Cui Dongshu has predicted that China’s EV revolution will continue undeterred by a faltering economy. Sales of new energy vehicles (NEVs) in China overtook conventional auto sales for the first time ever in July, and now account for more than half of all units sold during the month.
“As EVs outsell conventional petrol cars, more existing production facilities and workers will become redundant. Demand for petrol cars will weaken in the coming years,” Phate Zhang, founder of Shanghai-based EV data provider CnEVPost, told South China Morning Post
BYD Company Ltd (OTCBB: BYDDY) remains China’s biggest EV seller, with sales topping the 500,000 benchmark for the first time in October. BYD reported Q3 2024 revenue of $28.2 billion, good for a 24% Y/Y growth while net profit increased 11.5% Y/Y to $1.63 billion. In comparison, Tesla Inc. (NASDAQ:TSLA) reported third-quarter revenue of $25.2B, good for a 8% Y/Y increase while net income rose to about $2.17 billion, or 62 cents a share, from $1.85 billion, or 53 cents a share, a year ago.
Leading EV makers in China are all on course to meet their 2024 sales targets.
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Tariff Storm
However, Chinese EV stocks have largely underperformed amid a tariff storm that has hit the sector. Of the major Chinese EV stocks, only BYD is in the green after returning 21.8% in the year-to-date: NIO Inc. (NYSE:NIO) has tanked -51.5%; XPeng Inc.(NASDAQ:XPEV) is down -12.8% while Li Auto (NASDAQ:LI) has crashed -39.6% over the timeframe. Back in June, BYD CEO Wang Chuanfu scoffed at Western nations adopting a protectionist stance against China's clean energy sector, suggesting they are “afraid” of Chinese EVs,  “If you are not strong enough, they will not be afraid of you,” he declared.
Last month, the Office of the U.S. Trade Representative (USTR) finalized its plan to raise tariffs on a slew of Chinese goods, largely adopting hikes it first proposed in May. The expanded tariffs mainly target strategic product categories, including electric vehicles, batteries, solar cells, semiconductors and critical minerals. The final tariff structure covers thousands of items under 14 product categories, with the first tariff hikes having gone into effect on Sept. 27 and the rest over the next two years. And, they are just as punitive as those of the first Trump era: Chinese EVs have been slapped with a hefty 100% tariff; a 25% tariff on lithium-ion EV batteries, and a 50% tariff on photovoltaic solar cells. Meanwhile, a 50% tariff on China-made semiconductors will go into effect in 2025.
But the U.S. is hardly an outlier here. The 27-member European Union is currently in the process of determining whether or not to impose duties on imports of Chinese electric vehicles. A year ago, EU President Ursula von der Leyen launched the anti-subsidy probe, and it concluded by recommending duties ranging between 8 percent and 35 percent on Chinese EVs. An informal vote held on July 15 saw a group of countries representing 62.5 percent of the bloc’s population in favor of the tariffs, meaning the final vote is likely to see the tariffs approved. Whereas these duties could buy time for the likes of Volkswagen (OTCPK:VWAGY) or Stellantis (NYSE:STLA) to adapt, they are likely to trigger another huge trade war with Beijing already threatening to impose tit-for-tat tariffs on a range of European goods including high-end autos, brandy, pork and dairy products.
The tariff storm that has hit China’s EV sector was probably expected. In China, many of the most popular EVs--including BYD’s Seagull--sell for around $12,000--and some budget models cost less than your average e-bike. The Seagull would likely cost ~$25,000 in the U.S. if BYD was allowed to sell it here; in contrast, Tesla’s popular Model 3 starts at $40,630 and goes up to $54,630 depending on the trim and options. To be fair, some of China’s huge competitive advantage in the EV arena can be chalked up to a healthy dose of ‘cheating’ as Biden put it, including abuses of intellectual property and currency manipulations. However, ample government support in the form of incentives and subsidies has probably played an even bigger role. Back in March, U.S. Treasury Secretary Janet Yellen announced that she intends to warn Beijing that its national underwriting for energy and other companies is creating oversupply and distorting global markets when she pays the country an official visit.
"I intend to talk to the Chinese when I visit about overcapacity in some of these industries, and make sure that they understand the undesirable impact that this is having--flooding the market with cheap goods- -on the United States, but also in many of our closest allies, Yellen said in a speech in Norcross, Georgia.
That said, some analysts have argued that China is so far ahead in the game that these tariffs will do little to slow its momentum.
“But the Chinese manufacturers are so efficient, are so ahead of the curve, that tariffs like this – I don’t think will impact too much the pricing here. They will still be more competitive than their EU counterparts,” Anthony Sassine, senior investment strategist at KraneShares, told CNBC’s “Squawk Box Asia” on Tuesday.
Whether Chinese EVs will continue to dominate global markets after these tariffs take effect remains to be seen. However, EV manufacturers in general can take some comfort in predictions that their products could start going mainstream sooner rather than later. To wit, Gartner has predicted that EVs will be cheaper to produce than ICE vehicles of the same size in three short years, thanks in large part to improvements in manufacturing methods with production costs dropping faster than battery costs.
By Alex Kimani for Oilprice.com

Nov 30, 2024 14:24
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