2021 has been a milestone year for China’s electric vehicle industry. For one, there was incredible growth in the number of EV sales. The China Association of Automobile Manufacturers (CAAM) reported that annual EV sales surged 160% to reach 3.4 million units in 2021. Demand for EVs in China remained robust over the past year despite sluggish global auto sales owing to a worldwide semiconductor chip shortage and supply chain difficulties.
2022 is set to be another exciting year for the sector, with an estimated 500 EV manufacturers competing in China, one of the fastest growing markets for this type of vehicle. The success of established players such as BYD and Tesla, alongside homegrown brands such as Nio, Xpeng, and Li Auto, is creating pressure for more legacy automakers to launch electric models.
Here are five key trends in the EV space to keep an eye on.
#1. EV sales subsidies will be cut after 2022
Even though we’ve seen a substantial climb in the number of EV deliveries in 2021, industry experts say that this will slow down in 2022. Government subsidies for new energy vehicles have been cut by 30% since January 1. That means NEVs priced under RMB 300,000 (USD 47,200) will become RMB 3,900–5,400 more expensive for consumers this year.
“The subsidy cut will likely lead some car buyers to make their purchases earlier than they planned. It also leads to a higher production cost for EV manufacturers, therefore affecting EVs’ sales volume in 2022 and 2023, when the subsidies will be terminated. Compared with cars running on fossil fuels, EVs will be less competitive once they become more expensive.” Zhang Xiang, a researcher at the Automobile Industry Innovation Research Center, which is part of North China University of Technology, told KrASIA.
Zhang referred to a similar development in 2019 after the subsidies for NEVs were cut. In all, 1.242 million NEVs were delivered and 1.206 million were sold, down 2.3% and 4%, respectively.
Cui Dongshu, secretary-general of the China Passenger Car Association, holds a different view. He believes that the subsidy cut will have a limited impact on these transactions. Instead, he raised his expectation for NEV sales in 2022 from 4.8 million units to more than 5.5 million. This adjustment was based on an extended fiscal subsidy policy issued by the Ministry of Finance that removes the cap of subsidy recipients, which currently stands at 2 million NEV buyers. This means every NEV buyer will receive a subsidy in 2022, even though the amount will be lower than before.
“As more Chinese consumers opt for greener cars, the cost of EV production will continue to fall, driven by large-scale production. It is predictable that China’s total EV sales will surge in 2022 and continue to maintain a leadership position in the world,” Cui said in a research report.
#2. The chip shortage may be relieved in the second half of 2022
In 2o21, the global automotive industry was hobbled by a global chip shortage that forced manufacturers to dial down production. Semiconductor suppliers around the globe are racing to build new fabrication facilities and increase their output, but it may be months before these production lines are ready.
Industry experts expect more chips to be available as early as the second half of 2022. “The root cause for last year’s chip shortage was that the growth of car sales became too steep. But in 2022, the growth rate of NEVs is expected to reduce from 160% to 47%. Meanwhile, semiconductor companies have already started to expand production capacity. It is expected that in the second half of 2022, the lack of chips will be fundamentally alleviated,” Zhang told KrASIA.
However, there is still a gap between the estimated EV sales and semiconductor production capacity. According to figures by the China Passenger Car Association (CPCA), global foundries can produce enough semiconductors, microcontroller units, and high-end chips for 4 million NEVs, leaving a shortfall of 1 million vehicles.
#3. Battery prices will surge
An annual survey covering battery prices from Bloomberg New Energy Finance (BNEF) found that there was a decrease in the global average cost of lithium-ion battery pack prices in 2021. The drop was 6%, taking prices from USD 140/kWh in 2020 to USD 132/kWh in 2021. Lower battery costs combined with improvements in battery technology led to new highs in EV sales in China last year.
However, in 2022, battery pack prices are slated to rise due to increased lithium prices. These bumps are explained by global supply chain constraints and heightened demand in China and Europe, according to Kwasi Ampofo, head of metals and mining at BNEF. This will in turn push the costs of EVs higher.
CATL, BYD, and China Aviation LB were the top three battery manufacturers in China for installed volumes between January and October 2021. Specifically, CATL is currently the world’s leading EV battery producer, with roughly 30% market share. CATL’s proprietary sodium-ion batteries give it an edge because it is a cheap and durable power source.
#4. China will allow foreign automakers to play solo
China is the world’s largest auto market, so it attracts top automakers from all over the world. In the past, foreign car companies in China had to operate as part of joint ventures with local firms and hold no more than a 50% stake. Also, they could only establish a maximum of two ventures in the country.
In December 2021, those restrictions were removed. Now, all foreign automakers can own 100% of their operations in China.
Zhang of the Automobile Industry Innovation Research Center believes that scrapping limits on foreign automakers will benefit the entire EV sector. “Foreign automakers’ enthusiasm for setting up production lines is rising because they can launch their own brands now,” said Zhang. “Legacy automakers, including Volkswagen and Ford, are poised to launch new models. Previously, Volkswagen went with Zotye for its joint venture, and Ford partnered with Chang’an to gain access to China’s passenger car market.”
Now, established EV domestic brands face competition from foreign legacy automakers. Consumers will benefit from the additional choices.
#5. Mass commercialization of self-driving cars will begin this year
For China’s robotaxi industry, 2021 was a year of change. It finally began to achieve commercialization.
As the leading name in this sector, Baidu hosted test runs for its robotaxi service, free of charge, in 2020. Then, in 2021, Beijing gave permission for Baidu and Pony.ai to charge fares for robotaxi rides within a 60 sq km area in Yizhuang, a suburb of Beijing.
That was the start of commercialized automated taxi rides, and it’s about to go further. Baidu will take this service to other cities, including Shanghai, Guangzhou, and Shenzhen.
Major tech companies may form partnerships with car companies and attempt to emulate the developments of Baidu and Pony.ai. Intel has already announced that it will use the Nio ES8 SUV as the robotaxi model for its subsidiary, Mobileye. We can expect to see even more tech firms making similar moves in 2022.
Brandon Lee contributed to this report.