Cadillac advertises for its electric car in Shanghai on May 23, 2023. A traffic police woman stands below.
Hugo Hu | Getty Images News | Getty Images
BEIJING — Subsidies for electric cars are not sufficient to stimulate growth in China’s slowing economy.
Documents released on Wednesday reveal that one of Beijing’s few detailed stimulus plans involves extending tax breaks for electric car purchases.
These incentives, originally set to expire this year, will now be in place until the end of 2027.
The government expects that this extension will result in an additional consumer savings of 520 billion yuan ($72.43 billion).
However, tax breaks alone cannot address the main reason behind the low adoption of electric cars in China: concerns over mileage.
Craig Zeng, CFO of the online car information and shopping site Autohome, stated that charging the car battery is still a “relatively troublesome” process. This is due to the limited availability of private parking spaces in China’s residential areas and the restrictions on the installation of chargers in communities.
Zeng was referring to the electric car market in general.
In China’s cities, most people live in apartment compounds with limited private parking spaces. In Beijing, having a designated parking spot without a battery charger can cost nearly $100 a month in addition to the rent.
According to Zeng, this charging problem will become more apparent as more people buy electric cars, and it will affect their future purchasing decisions.
Broader economic slowdown
The demand for electric cars is also hindered by tepid consumer spending in China.
Retail sales in China grew slower than expected in May compared to the previous year.
Auto sales, a major component of retail sales, experienced steady year-on-year growth but declined by 8% from the previous month. Many brands have reduced prices to boost sales.
The State Council, China’s top executive body, has acknowledged the economic challenges and called for further support, particularly for new energy vehicles. However, the announced measures and interest rate cuts have fallen short of market expectations for broader stimulus.
According to Nomura analysts, while Beijing may introduce policy measures to stabilize growth in the coming months, decision-making is now highly centralized with an emphasis on “security.”
Growing market penetration
Despite the challenges, analysts still anticipate growth for electric cars in China, which is the world’s largest auto market.
In China, electric cars are categorized under “new energy vehicles,” which include battery-only and hybrid-powered cars.
Figures from the China Passenger Car Association reveal that new energy vehicles account for about one-third of overall passenger car sales, surpassing the official target of at least 20% penetration by 2025.
Zeng predicts that new energy vehicle sales penetration will remain between 30% and 40% this year and reach 50% by 2025.
Over the past decade, Chinese authorities have supported the growth of the domestic new energy vehicle market with the aim of becoming a global player in the auto industry.
Cities like Beijing and Hangzhou have simplified the process of obtaining a license plate for an electric car compared to a traditional internal combustion engine vehicle.
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