China's electric carmakers are just getting started

If you search the internet for news on new registrations of electric cars, you regularly come across the “subsidies^[1]” and “discounts.” Electric cars so far are as much self-selling as they are self-driving: In other words, purchases must be strongly supported.^[2] The road to profitable, unsupported sales may be rough. News of hefty price cuts, especially in the low-price segment, has recently been coming out of China again. This segment is dominated by the roughly 100 young Chinese carmakers, more and more of which are getting into financial trouble.

Are the ruinous price wars, company bankruptcies and stagnating sales in China a sign that the electric car dream is over before it even began? On the contrary, believes Stefan Bauknecht, Senior Automotive Analyst at DWS: "News of financial difficulties in the Chinese car sector should not reassure Western carmakers in any way. Rather, it is part of the maturation of the young sector. In the end, a handful of strong companies should remain. I don't doubt for a second Beijing's determination to strive for global leadership in this industry." China’s race to catch up in the internal combustion engine segment never really took off and the switch to electric cars offers the country a golden opportunity. While there have been strategic failures in the West, China has taken a long-term approach and made sure that it had control over the entire value chain.

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Share of Battery Electric Vehicles (BEV) of all car sales

^{* Monthly battery electric vehicle (BEV) penetration by regions in % of Light Vehicles market}

^{Sources: Various national sources as compiled by Exane BNP Paribas, DWS Investment GmbH as of 8/16/23}

The result is evident in our Chart of the Week, where China leads in the share of purely battery-powered cars in all new registrations with a 26% share. If plug-ins are included, this figure rises to 37%.

Western suppliers face a double shock. First of all, their growth plans in China seem no longer be working out, with their market share in China for electric cars shrinking continuously. Secondly, exports of Chinese electric cars, now still negligible, are likely to increase significantly. Stefan Bauknecht comments that "In the battle for market share, economies of scale will play a decisive role. In China - in absolute terms - over 1,300,000 electric cars were sold in the first half of the year, almost three times as many as in Europe and almost five times as many as in America^[3]. We expect that China's market share in the global car market could grow by well over ten percentage points in the coming years, at the expense of Western manufacturers, who are likely to increasingly focus on defending margins rather than on growth." The recent declaration of war by China's leading carmaker that they should "unite to destroy the established competitors"^[4] is unlikely to be dismissed as mere rhetoric by Western car companies today, especially given that Beijing might choose to help Chinese carmakers by raising purchase incentives further, if the government deems this necessary. In the West, on the other hand, resistance to subsidies is liable to grow.