The article is authorized to be reprinted from ChuxingyiKe (WeChat Official Account: carcaijing), created by the Transportation Industry Group of the magazine “Finance”, written by Zhao Cheng, edited by Wang Jingyi.
For new energy vehicles that have shifted from policy-driven to market-driven, the impact of subsidy reduction seems to be minimal.
Starting from January 1, 2022, the prices of a large number of new energy vehicles have risen accordingly.
“We have been implementing the new prices since January 1 of this year. The newly launched 2022 Guangqi Aion S Plus has a price range of 153,800 yuan to 179,800 yuan after subsidies, which is an increase of 7,000 yuan to 14,000 yuan compared to 2021; the price of the 2022 Aion Y has been raised by 5,000 yuan to 9,000 yuan; and the Aion LX has increased by 4,000 yuan.” The salesperson of Guangqi Aion told ChuxingyiKe (ID: carcaijing) that the prices are unified nationwide, without any discounts, and the delivery time in Beijing is about 3-4 months.
On December 31, 2021, the Ministry of Finance and other four departments jointly issued the “Notice on the 2022 Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles by the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology, and the National Development and Reform Commission”: the 2022 subsidy standard for new energy vehicles will be reduced by 30% based on 2021, and new energy vehicles registered after December 31, 2022 will no longer be eligible for national subsidies. The new policy will be implemented from January 1, 2022.
According to the new subsidy policy, for pure electric new energy vehicle models, those with NEDC range less than 300 kilometers will still not be eligible for subsidies; the subsidy cap for single vehicle with a range between 300 and 400 kilometers is 9,100 yuan; the subsidy cap for vehicles with a range of more than 400 kilometers is 12,600 yuan. As for plug-in hybrid vehicles, it requires NEDC pure electric range to be over 50 kilometers, and the subsidy amount for a single vehicle is 4,800 yuan.
For both of the above two types of new energy vehicle models, the selling price of a single vehicle is required to be below 300,000 yuan. However, “battery swapping” models such as NIO’s are not limited by the 300,000 yuan constraint.From 2009 to present, the national subsidy policy has been implemented for 11 years, especially in 2021, when faced with unfavorable factors such as chip shortage and persistent high prices of raw materials, China’s new energy vehicles have become a major bright spot. The annual production and sales in 2021 reached 3.545 million and 3.521 million respectively, an increase of 1.6 times year-on-year, with a market share of 13.4%, higher than 8% in 2020. Among them, the sales volume of new energy passenger vehicles was 3.334 million, an increase of 167.5% year-on-year.
As the subsidy policy enters its last year and the post-subsidy era is coming, various brands have raised prices to pass on costs. Will the more expensive new energy vehicles still be recognized by consumers and continue to sell well?
Multi-brand car models have raised prices, but there are exceptions
It’s not just GAC Aion that has raised prices.
In December 2021, FAW Volkswagen announced that the two pure electric models, ID.4CROZZ and ID.6CROZZ, will increase by RMB 5,400 on January 1, 2022.
Also in December, NIO released a price protection notice, stating that users who pay a deposit to buy the ES8, ES6 and EC6 SUV models before December 31, 2021 (inclusive), and take delivery before March 31, 2022, can purchase the vehicle at the national new energy vehicle subsidy standard in 2021, and the price difference will be borne by NIO. However, consumers who purchase after January 1, 2022 will no longer enjoy the above discount.
In addition, a Xpeng sales representative told Chu Xing Yi Ke (ID: carcaijing), “We adjusted the price system on January 11, where the entire Xpeng P7 series increased by RMB 4,300-5,900, and the entire Xpeng P5 and G3i series increased by RMB 4,800-5,400.”
Tesla’s price increase is even greater. “There are no models under RMB 300,000 in the entire product line of Model Y. The price of Model Y rear-wheel drive version has been increased by RMB 21,000 to RMB 301,800. The price of Model 3 rear-wheel drive version has only increased by RMB 10,000, and the current price is RMB 265,600,” a Tesla store salesperson told Chu Xing Yi Ke.
But the salesperson added, “The price increase of this model is actually not related to the subsidy decline. It is mainly due to the increase in the cost of power batteries. However, it is still quite suitable to buy a car now, after all, this year is the last year of the implementation of the new energy subsidy policy.”After the implementation of the new subsidy policy, many automakers responded promptly by raising their prices. In response, Cui Dongshu, Secretary-General of the China Passenger Car Association, said, “Some automakers raising prices is a normal market reaction, and there is not much possibility of more price increases in the future. China’s new energy vehicle development is fast, with an enormous volume of over 3 million units sold annually, and the comprehensive cost has correspondingly decreased. In this context, more car companies will adopt a more prudent attitude, ensuring that consumers enjoy reasonable prices by reducing costs and other measures.”
During the market survey, it was discovered that some brands were moving in the opposite direction.
At a Great Wall ORA 4S store, a salesperson told the surveyor (ID:carcaijing) that although they know the new subsidy policy is now active, the store has not yet received a notice of price increase. Furthermore, some models are still being offered at a discount.
“The price for the ORA Cat is RMB 135,000, and now there is a RMB 1,000 discount, as well as free insurance worth RMB 900, with a delivery period of around one and a half months,” said the salesperson.
Compared to Great Wall ORA, BAIC New Energy provides much more discounts.
“We now only have two series of models, the EU5 and the EX3, available to choose from, with limited stock of certain colors, and the showroom car has already been booked,” said the salesperson of BAIC New Energy 4S store.
The surveyor (ID: carcaijing) learned that the EX3 booked from the showroom was a mid-range model with a range of 400 kilometers, with a market guide price of RMB 143,800, now with a discount of RMB 60,000. If you trade in the car of the same brand and meet the conditions, there is an additional discount of RMB 20,000.
Compared to Great Wall ORA and BAIC New Energy, BYD did not offer any discounts, nor did it raise prices.
“None of our products have discounts, and we have not received any notices of price increases either. The Wangchao series models are still maintaining their prices from before the new year,” said a salesperson from the BYD 4S store to the surveyor (ID: carcaijing). “In fact, not raising prices can also be considered a form of discount.”Regarding the reason why the prices have not been raised, the relevant person in charge of BYD stated in an interview with “Car Caijing” (ID: carcaijing) that: “We will strive not to raise the price by leveraging our cost and price advantages, and force the expansion of sales channels through means such as integrating production capacity utilization, optimizing costs and scale operation, and strengthening marketing. BYD has prepared for the expected subsidy decline and response, and reduced costs through the commercial promotion of new energy vehicles and technological means, such as cost reduction of 20%-30% for annual sales of 1 million vehicles, which is offset by policy subsidies, but this also requires a time process.”
Subsidy rollback, can the new energy vehicle market still reach 6 million units this year?
The 11-year-old new energy vehicle subsidy policy will be completely terminated in 2022, and the Chinese new energy vehicle market will usher in a post-subsidy era. With the gradual increase in resident income levels, the Chinese automobile market is showing a clear trend of consumption upgrading.
Data released by the China Association of Automobile Manufacturers shows that in 2021, high-end brand passenger car sales reached 3.472 million units, a year-on-year increase of 20.7%, which is 14.2 percentage points higher than the passenger car growth rate, accounting for 16.2% of the total passenger car sales, which is 1.9 percentage points higher than last year.
As a result, the Chinese consumer market has changed its perception of new energy vehicles, and consumers’ acceptance of subsidy rollback is gradually increasing.
Fu Bingfeng, deputy secretary-general and executive vice president of the China Association of Automobile Manufacturers, stated that the new energy vehicle market maintained a “prosperous production and sales” development situation in 2021. Monthly sales exceeded 200,000 units since March, surpassed 300,000 units in August, exceeded 400,000 units in November, and exceeded 530,000 units in December. This is enough to illustrate that China’s new energy vehicles have shifted from policy-driven to market-driven new development stage.
Moreover, the China Association of Automobile Manufacturers predicts that in 2022, China’s new energy vehicle sales are expected to reach 5 million units, accounting for about 20% of the total automobile market sales. The China Passenger Car Association’s forecast is even more aggressive, believing that the normal scale level of the new energy vehicle market in 2022 will be around 5.2 million units, plus a small increase, and the scale of production and sales of new energy vehicles throughout the year is expected to reach 6 million units.
“With the significant increase in the scale of new energy vehicles driving the ability to reduce costs, the increase in new energy vehicle increment at the end of 2022 is very strong. It is expected that the sales of new energy vehicles in 2022 will exceed 6 million units, and the penetration rate will be around 22%.” Cui Dongshu stated that with the significant increase in domestic consumers’ recognition of the new energy market and the stability of policy subsidies, the total sales of new energy vehicles in China in 2022 will inevitably increase sharply, maintaining its leading position with a super strong share of over 50% of the world.Since December 2021, the new energy sector in the capital market has experienced a high-level pullback. Entering 2022, the continued decline of this sector has caused concern among many investors. Wind data shows that as of January 6th, in the three trading days, the “hot track” new energy sector of last year fell by 6.17%.
Shenwan Hongyuan Securities believes that two points in the 2022 new energy subsidy policy slightly exceeded expectations: first, the scale limit of 2 million subsidies per year has been opened up, increasing the overall subsidy scale; at the same time, the current subsidy technology requirements remain unchanged to ensure the continuity of product development and allow more new energy vehicles to benefit from subsidies. Now that the new energy vehicle market has shifted from policy-driven to market-driven, the launch of outstanding models is the main factor driving sales growth. It is expected that China’s new energy vehicle sales in 2022 will reach 5.28 million units.
Similarly, Haitong Securities believes that some car companies have adopted measures such as price increases and compensation to cope with the situation, leading to short-term fluctuations in terminal sales prices, but long-term stability. In addition, as there are not many changes in the subsidy for short-range vehicles, the performance of A00-A-level vehicles in the future may be more worthy of expectation. Among them, the A-level vehicle market is expected to contribute a considerable increment to the penetration rate of electric vehicles.
In addition, analysis points out that obtaining subsidies is no longer the main consideration for car buyers when purchasing vehicles, and models with high price-performance ratio and strong product power are more likely to be recognized. Therefore, as car companies launch more high-quality models, consumers’ attention to the driving experience and interior configuration of new energy vehicles will continue to strengthen the market-driven trend.
According to Gong Min, the director of the China automotive industry research department of UBS Securities, China has basically avoided relying on subsidies now. If calculated according to the latest electric vehicle subsidy, it is basically 12,600 yuan per car, which is roughly equivalent to 2,000 US dollars. Compared with the six or seven thousand euros subsidies in Europe and the Biden administration’s hope to increase the tax exemption from 7,500 to 12,500 US dollars, the degree of dependence on subsidies in China has rapidly declined.
“Gong Min believes that Chinese consumers are lucky to be able to have more product choices at cheaper prices, which is more confident for the long-term development of China’s new energy automotive industry. But the problem it brought is that with so many participants in the market, it is more difficult to find out who ultimately develops well.” Gong said in an interview with Carcaijing (ID:carcaijing).
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email email@example.com.