China’s Enchanting Love Affair with EVs: Surging Subsidies and Lucrative Tax Incentives

The EV sector in China has received a significant boost from government procurement. Cities all over the country have been purchasing fleets of locally produced electric buses and cars, providing a steady source of revenue for Chinese manufacturers. This government support, including subsidies and directives, has fueled the demand for EVs in public and state-controlled fleets, leading to significant growth, as highlighted in a report by the Center for Strategic and International Studies.

One of the major beneficiaries of these policies is BYD, which has the backing of Warren Buffett’s Berkshire Hathaway Inc. BYD produces both electric cars and buses, making it well-positioned to take advantage of the increased demand.

However, despite the infusion of subsidy money, a large portion of it may have been wasted, as it has been distributed among numerous companies, most of which are unlikely to ever turn a profit. According to Stephen Dyer, managing director at AlixPartners, the majority of the over 167 Chinese EV brands lack the sales volume necessary for profitability. Only 20 to 30 of these brands are expected to be financially viable in the long term. Among the five publicly listed Chinese EV makers, only two are currently operating above break-even.

The larger automakers that are already exporting have a higher likelihood of surviving in the market. Subsidies are just one factor contributing to their dominance. These companies have also invested in research and development, particularly in batteries, software, and car production, allowing them to compete on a global scale. Additionally, the economies of scale provided by China’s vast domestic market have further strengthened their position as global rivals.