At the end of 2020, an important milestone was reached when 4.92 million new energy vehicles (NEVs), including battery electric, plug-in hybrid, and fuel cell vehicles, were operating on China`s roads. These were 1.75% of the country`s total vehicle stock. Ten years ago, China had only deployed some 20,000 NEVs nationwide, and it was only eight years ago that China established a mid-term strategy for NEV development that aimed at a cumulative 5 million vehicles sold by the end of 2020. This means that in just a decade, China`s NEV population grew by about 250 fold!
Not only has the 5 million interim goal been met, but the country has cultivated the world`s largest plug-in electric vehicle (PEV) market. In 2020, nearly half of the world`s plug-in electric car production and 90% of heavy-duty electric vehicle production was in China.
Our comprehensive new report quantitatively analyzes many aspects of the PEV market and finds that China`s success is about much more than simply putting the largest PEV fleet on the road. And these things are important to understand, especially when considering the global context of the PEV market. For example, China produces about half of world`s PEV batteries and has developed a relatively complete, home-grown battery manufacturing supply chain. China has also built the world`s largest public charging network: For every 10 public electric vehicle chargers in the world, six are in China.
What`s more, some of the most successful electric car makers are Chinese auto groups. Four of them – BYD, BAIC, Geely, and SAIC – have reached a large economy of scale and have sold more than 200,000 electric cars globally. BYD sold more than 753,000 electric cars up to 2019 and ranked as the world`s second largest EV manufacturer, only after Tesla (900,000 cumulative sales). On technology research and development, China owns the most technology patents in fast charging and wireless charging as of 2019. Last but not least, many Chinese cities have become the world`s leading PEV markets. In 2020, 14 of the world`s [EV capitals" were in China.
How did China do it?
Our new report also reveals that China`s success has been built on a foundation that includes a clearly articulated vision, consistent planning, coordinated action, city-level innovation and leadership, policy implementation, and the continued adaptation of policy tools to meet the changing market. This policy architecture is illustrated in the figure below and we elaborate on these elements below it.
- Clear national strategies and plans: China`s Five-Year Plans are now world-famous for setting a top-down agenda for economic development and coordinated national ministry action, and these have been the backbone of strategy and policy continuity in China`s NEV development. The industrial plans contained within the Five-Year Plans set detailed development goals and targets for NEVs, including market size and technology penetration rates, and identified the policies and funding required to meet those goals. Policies like the [Ten Cities, Thousand Vehicles" pilot projects, as well as subsidy programs, tax breaks, and technical standards, all grew from these macro-level plans.
- Aligned policy goals: In the past decade, China faced multiple challenges regarding oil security, the bottlenecking of auto industry development, choking air pollution, and rising climate change threats. Because NEVs offer to address all, various ministries were motivated to coordinate and promote NEVs using their authorities. These concerted efforts led to a wide range of NEV-favored policies covering supply chain, production, sales, registration and licensing, ownership, fueling/utility, driving, parking, and charging stations.
- Multi-stakeholder partnerships: When it comes to turning plans and goals into action, China forms government-industry-academic-research partnerships to coordinate decision-making, financing, and implementation. This mechanism enabled a quick transformation from laboratory prototype models to real-world NEV products. In this partnership, the government dominates the R&D and steers the project, and also serves as a consumer of the final products; universities and research institutes provide technologies; and industry receives matching government funding to commercialize the vehicle technology. The mechanism was most effective in the early technology-demonstration stage, when private consumers were hesitant to try the new technologies and industrial motivation was, as a result, lacking.
- Focus on building a home-grown supply chain: From the beginning of its NEV strategy, China has focused on building its own, complete supply chain. This is not just the essence of China`s long-term industrial development vision – to make the nation`s auto industry big and strong – but also the key to motivating both upstream and downstream players along the value chain. Today, after decades of state investment, China has a wide lead over the United States and Europe in batteries and has built up a relatively complete and strong NEV supply chain.
- Innovative policies: China has crafted an innovative policy toolkit to help launch the largest PEV market in just one decade. This includes pilot programs, central and local NEV purchase subsidies, tax breaks, NEV production mandates, and a suite of measures tailored to local conditions. Such local measures include fiscal and nonfiscal measures like licensing, road access, parking, and charging incentives, and government-private partnerships for building electric taxi and ride-hailing fleets. This policy portfolio even expanded after the COVID-19 downturn, and in mid-2020, China launched an [NEVs going to the countryside" campaign geared toward mobilizing and incentivizing NEVs in rural markets. This policy has largely vitalized the smaller, more affordable NEVs and helped the nation`s overall NEV sales rebound in the second half of the year.
- Motivated cities: Local governments are where policy innovation and implementation occur. Leading markets like Beijing, Shanghai, and Shenzhen developed strong policies that initially provided a spark for industrial growth; these, in turn, spurred electric vehicle uptake several times higher than other markets and brought improved air quality. Shenzhen was able to accomplish world-leading electric bus and taxi fleet conversions, and this helped the city achieve world-class air quality. In the meantime, its regional economy also more than doubled. Smaller cities additionally developed their own distinct recipes for NEV success. Liuzhou is a role model for non-tier I cities to achieve 24% of NEV market penetration. Liuzhou achieved this in 2020 with its engaging consumer campaigns and strong efforts in securing and offering free parking spaces for the local EV brand, Baojun electric two-seaters.
