Why Are Electric Cars Cheaper in China?

What's in this article?

Overview of Why EVs Are Cheaper in China
The Chinese Government's Role
Subsidies and tax breaks
"Dual credits" system
Maintaining the Low Cost of Parts and Components
Growing Market Share for Chinese Automakers Globally
Foreign competition
EV Monopoly

Chinese consumers have shown increased enthusiasm for electric vehicles due to government incentives and regulations to combat air pollution.

People might not be aware of this, but compared to similar automobiles offered elsewhere, electric cars in China cost far less.

We'll explore why electric cars are cheaper in China and what factors contribute to this cost difference.

From government subsidies to lower manufacturing costs, there are several reasons why electric cars are more affordable in China.

Overview of Why EVs Are Cheaper in China

Over recent years, electric vehicles have enjoyed steadily increasing market penetration, particularly within China. The country now ranks as a primary market for EVs.

One reason is the considerable cost savings Chinese automakers provide when producing electric vehicles compared to European and American manufacturers.

Lower labor costs: One of the main elements behind the decreased price of Chinese electric cars is labor costs. China has a massive workforce and a lower minimum wage than developed countries, resulting in more affordable labor costs for automakers.
Bigger market: An economy of scale also substantially drives manufacturing costs down, particularly within China's broad domestic market, where automakers enjoy access to an enormous customer base that allows them to achieve economies of scale impossible for European or American manufacturers.
Subsidies and incentives: Chinese government policies have also encouraged the production and use of electric vehicles by providing various subsidies and incentives for manufacturers and consumers of such cars, lowering component costs and ultimately driving down overall costs and prices for these EVs.
Consumer market: Chinese consumers tend to be more price sensitive when making vehicle selection decisions than European and American consumers. They place greater importance on affordability. This pressures Chinese automakers to price their electric vehicles competitively to make them accessible to more buyers.

Thanks to these factors, China has the largest electric vehicle market. European and American manufacturers are still unable to win in terms of affordability and market share.

The Chinese Government's Role

Government policies and subsidies have significantly influenced the rapid growth of China's electric vehicle industry in China. The government encourages its production and adoption in various ways, such as providing subsidies or grants.

Chinese consumers now find electric vehicles much more accessible due to reduced costs, making them more affordable.

Subsidies and tax breaks

China has experienced remarkable EV growth over recent years, becoming the world's biggest market.

One of the key reasons behind this is the Chinese government's financial incentives and procurement contracts given to domestic EV companies.

Incentives such as subsidies and tax breaks make EVs cheaper for consumers.

The Chinese government has provided a range of financial subsidies for the EV industry since 2010.

Purchase subsidy
Technology development subsidy
Charging infrastructure subsidy
Procurement contracts
Tax breaks
Dual credits system

These subsidies include a purchase subsidy paid to EV buyers, a technology development subsidy for domestic EV companies, and a charging infrastructure subsidy.

In addition to these subsidies, the government provides procurement contracts for EV manufacturers, guaranteeing a certain number of orders from government agencies annually.

The Ministry of Industry and Information Technology in China reported that EV sales in the first half of 2020 climbed by 17.4% annually.

Since 2010, sales have increased from 2,100 EVs sold across China to more than one million by year-end 2020.

Additionally, the Chinese government has provided tax incentives to encourage the production and sales of EVs. For instance, the central government waives the vehicle purchase tax on all EVs, as well as registering fees and license plate fees.

In addition, some local governments offer further tax exemptions such as reduced charges for charging or parking fees.

"Dual credits" system

Subsidies and tax breaks introduced several years ago helped establish a mass market for electric vehicles (EVs) in China by making them more accessible to buyers.

However, this subsidy policy was phased out at the end of 2020 and replaced by a new "dual credits" system that is more market-oriented.

The dual credits system requires automakers to produce a certain number of EVs or obtain credits from other manufacturers, which can be traded and accumulated.

This policy aims to promote the development of new energy vehicles and raise the automotive industry's fuel economy standards.

Financial subsidies, tax breaks, and procurement contracts have significantly made electric cars cheaper in China and turned it into the largest EV market.

While a more market-oriented approach has replaced the subsidy policy, these incentives were critical in creating today's mass market for EVs in China.

Maintaining the Low Cost of Parts and Components

Chinese electric car manufacturers have maintained the low cost of parts and components through a combination of strategies and tactics. Among the most crucial elements is sourcing materials.

Since China is one of the largest producers of raw materials, such as:

Lithium
Cobalt

Chinese EV manufacturers can source these materials at a lower cost than their competitors in other countries.

This has given them an outstanding advantage both financially and supply-chain-wise.

Partnerships have also played a key role in lowering costs for Chinese EV manufacturers.

They can share their resources, knowledge, and technologies by partnering with other companies. These partnerships also reduce the overall production cost.

For example, Chinese automaker BYD has joint venture partnerships with Toyota and Daimler AG. BYD can gain access to new technologies and expertise through these partnerships, helping them develop more advanced and affordable EVs.

Production processes are another important aspect that helps Chinese EV manufacturers to keep their costs low. The use of automation and robotics in production cut labor costs significantly. It also increases the production efficiency.

Chinese EV manufacturers also tend to use more standardized and simplified designs, reducing complexity and rendering the production process less expensive.

They have used this trend to invest in the most sophisticated technologies and expand production capacity, maintaining competitive advantages within their domestic market.

In recent years, Chinese automakers have gained a growing market share globally, particularly in the EV industry. Among the top Chinese automakers are BYD Auto, NIO, and XPeng, which have made impressive strides in the EV market.

One key strategy Chinese automakers have taken is increasing their market share in the EV industry. For example, BYD has introduced a base-price EV model in China for as low as $5,000, making EVs freely accessible to Chinese buyers.

NIO and XPeng have also introduced more affordable EV models that have received high demand from Chinese consumers.

Furthermore, domestic sales have contributed significantly to the market share of Chinese automakers. With the government's central role in promoting EVs and a broader range of choices offered by Chinese automakers, domestic Chinese buyers have been driving the meteoric rise of the Chinese EV industry.

This domestic growth has enabled Chinese automakers to develop better products while lowering production costs. This growth, in turn, has helped them expand into the global market.

Foreign competition

Meanwhile, foreign competitors have faced increased pressure when competing with Chinese companies in the EV market. One significant challenge is the Chinese government's protectionist policies, which have favored domestic companies and made foreign investment more difficult.

Additionally, Chinese automakers have unlimited access to license plates, while foreign automakers have been struggling with a limited supply of license plates, reducing their sales potential.

European regulators, for example, have been calling for equalizing access to license plates to make the market more competitive and fair.

Chinese automakers' growing market share globally can be attributed to their focus on producing affordable EVs and forming partnerships to expand beyond China.

Domestic sales have also been a crucial factor in their success, enabling them to develop better products and expand into the global market.

Despite facing challenges from foreign competitors, Chinese automakers' robust growth in the EV industry appears to be set for continued expansion.

EV Monopoly

Electric cars are cheaper in China mainly due to the government's contribution. The Chinese government subsidies and tax reduction help make EV prices in China more affordable.

Other reasons for low EV prices in China are the lower manufacturing cost and high domestic market demand.

China's commitment to reducing carbon emissions makes it no surprise that EVs are more accessible to the public. Chinese EV aficionados benefit from the country's efforts in promoting green transportation.

As other countries follow suit, we can expect to see a global shift toward sustainable transportation shortly.

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