Both Production and Sales of New Energy Vehicles Grow Rapidly

By Joe Zhang

According to EVsales， a total of 3，124，800 new energy vehicles （NEVs） were sold worldwide in 2020， marking a year-on-year increase of 41%. Besides， battery electric vehicles （BEVs） have gradually become best-selling NEVs. According to the White Paper on the Development of Chinas New Energy Vehicle Industry （2021）， the sales of NEVs around the world are expected to grow to over 4.5 million in 2021， up by about 36% from a year ago.

Since 2015， China has led in both production and sales of NEVs globally for six consecutive years. Despite the COVID-19 pandemic， 1.37 million NEVs were sold in China in 2020， accounting for more than 40% of global sales. However， the booming industry in China was largely a result of favorable policies.

Booming NEV industry in China

In the NEV industry in China， there are three types of players， namely new vehicle-manufacturing enterprises， traditional automobile enterprises and cross-border vehicle manufacturers， with traditional automobile enterprises still holding major shares in the market.

In 2020， the NEV industrial chain in China attracted investment and financing of RMB 129.21 billion in total， increased by 159% from a year ago， meaning the amount of each investment and financing deal reached RMB 1.45 billion in average， making new records for both the total and the average amount.

Entering 2021， the NEV market in China is still growing quickly， in particular the production and sales volume. In the first five months from January to May， the production and sales of NEVs in China increased significantly by 228.08% and 228.47% year-on-year respectively， and the market penetration rate further grew to 8.74%， reflecting that the industry is enter- ing a new phase of accelerated development.

Stimulated by high subsidies and taking Tesla as a successful example， there were more than 300 new players at most， but in the end only a few newly established vehicle-manufacturers survived and have realized considerable sales， including NIO， Lixiang and XPeng Motors.

Obviously， new brands in NEV market have widely different performances. Tesla， NIO， Lixiang and XPeng Motors， the four leading new brands that are already publicly listed， contribute 80% of overall sales of new brands， while others account for only 20%. Meanwhile， most popular are those medium and high-end models from new brands. By now， such models are relatively more favored by the market.

From the perspective of market shares， new players are increasingly taking big shares of the market， and domestic brands have good chances to overtake. From 2018 to 2020， leading new brands contributed 6%， 9% and 15% of BEV sales respectively， which rose to 14%， 15%， 15% and 18% in the first four months from January to April 2021， growing steadily.

More than half of NEV owners are aged under 35， 10.4% more from a year ago， meaning that this group is getting younger quickly. Besides， the proportion of female owners increased by 2.9%. In one word， more NEV owners are highly educated， high-income and high-intelligence consumers mainly in first and second-tier cities. However， third-tier citiesconsumers are becoming more important too， meaning the market has a lot of potential to expand.

In May 2021， 217，000 NEVs were manufactured in China， up by 151.7% yearon-year， and the accumulated production came to 986，000 from January to May 2021， up by 224% from a year ago. According to CCAM （China Association of Automobile Manufacturers）， the NEV market in China in May continued to grow from the previous month， as expected.

By types of manufacturers， Tesla had the highest sales volume again， while domestic brands had outstanding performances. In May 2021， domestic brands sold 116，000 NEVs， up by 235% year-onyear， and 15，000 by joint venture brands， up by 28% with the same comparison， taking a market share of 8%. Tesla sold 34，000 vehicles in May （mostly contributed by Model Y）， up by 200% from last May， taking a market share of 17%.

By automobile manufacturers， the top three players by sales in May 2021 were the same as last month， namely Tesla China， SGMW （28，000 units， down by 9.3% month on month， taking a market share of 16.8%） and BYD（18，000 units， up by 16.1% MoM and by 124.6% YoY）， but their rankings were different.

Both carbon goals stimulate the NEV industry

Automotive carbon dioxide emis-sions are one of the main sources of carbon emissions in China， and reducing automotive emissions is crucial for China to achieve peak carbon dioxide emissions， since up to 94.46% of the carbon dioxide emissions are from gasoline vehicles， mainly due to higher carbon emissions from operation and production of such vehicles.

In terms of carbon emission sources， as automobile electrification improves， vehicles themselves have now become an increasingly important source， while the importance of another source， fuel， has been gradually decreasing， as the average carbon emissions per unit driving range are much lower. The average carbon emissions of NEVs are 26.4% and 45.5% lower than gasoline and diesel vehicles. Although NEVs do not emit carbon dioxide directly while on the road， they emit indirectly since they mainly rely on electricity from fossil energy， but such emissions will be reduced with the development of clean energy. Hydrogenfueled vehicles emit no carbon dioxide at all on the road， so NEVs have greater potential to conserve energy and reduce emissions， and can effectively reduce automobile carbon dioxide emissions.

Before 2020， a large number of preferential policies were carried out， in order to promote the sale of NEVs. However， as technology advances and the manufacturing cost of NEVs decreases， and to further accelerate the goals for energy conservation and emission reduction and for peak carbon dioxide emissions and carbon neutrality， the government took a lot of new measures in 2020， including updating emission standards， replacing outdated diesel trucks， facilitating the circulation of second-handed vehicles， promoting sales of NEVs， and formulating finance policies for auto consumption， etc.， to encourage the consumption and the upgrading of NEVs.

With these supporting policies， the NEV market in China hasbeen developing rapidly since 2014， especially in terms of sales. Later in 2016 and 2017， the market gradually slowed due to subsidy fraud and cuts. In recent years， the proportion of NEVs in total auto sales fluctuated up and down at around 4.5%.

In the first half of 2020， affected by the COVID-19 pandemic， the production of NEVs in China dropped significantly. However， after a quiet period， the NEV industry moved into a new era of growth from incubation， coupled with many favorable policies and the general trend of social transformation towards an energy-clean society. So in the third and fourth quarters of 2020， the production and sales of NEVs grew by 46.97% and 61.95% in average year-on-year， indicating a booming industry.

To secure the smooth development of the NEV industry， on November 2， 2020， the General Office of the State Council issued the Development Plan for New Energy Vehicle Industry （2021-2035）， which proposed to raise the proportion of NEVs to about 20% of total new vehicle sales by 2025， which was 5.3% in September 2020， meaning there is great potential and a goal of at least three times of current sales， without taking into consideration overall increases in vehicle sales.

There will be a wave of M&A for the NEV industry

The NEV market is still overheated， but the industry now is discrete， as there are too many small enterprises. Recently， the Minister of Industry and Information Technology， Xiao Yaqing， said at a press conference of the State Council Information Office， that the government encourages NEV enterprises to merge and reorganize， to further improve industry concentration.

In recent years， a large number of new players entered NEV market， including many giant science and technology companies through cooperation.

The NEV industry is developing rapidly in China， and there is a trend that the players in this industry are integrating resources to develop stronger competiveness. According to Qichacha， as of mid-September this year， there were 352，000 NEV-related enterprises in China， including 82，000 newly registered in 2020， up by 65.6% from a year ago.

From the perspective of industry development， the NEV industry in China kept expanding in the last decade. The data from Qichacha indicated that the number of registered NEV enterprises in China grew continuously. In 2014 when the industry entered a period of growth， the number of registered enterprises almost doubled （98.5%） from a year ago， more than 20，000 enterprises registered in 2016， and this number came to near 50，000 in 2018 and 2019. In 2020 the number reached a new high to 82，000， up by 65.6% year-on-year.

In the first eight months of 2021， according to Qichacha， there were 107，000 newly registered NEV enterprises in China， up by 137.8% year-onyear， and this number is expected to hit a record much higher this year.

Geographically， these NEV-related enterprises in China are mainly distributed in Shandong， Guangdong， Jiangsu and other provinces. Namely， most NEV enterprises （39，000） are located in Shandong Province， flowed by Guangdong Province （37，000）， Jiangsu Province（29，000）， Zhejiang Province， Sichuan Province， Henan Province， Shanghai and so on. Shanghai is the only municipality in this top 10 list， where there are 16，000 NEV-related enterprises.

In addition to market demand， support policies have contributed to rapid growth of the NEV industry， too. The Development Plan for the New Energy Vehicle Industry （2021-2035） proposed that by 2025 nearly one out of five new vehicles sold should be NEVs. According to CAAM， from January to August this year， the production and sales of new energy vehicles reached 1.813 million and 1.799 million respectively， both up by 1.9 times year-on-year.

However， a source in the industry also said although the NEV industry seems very over crowded now， it has established a basic pattern namely in the way of resource integration， and the industry is experiencing a wave of mergers and acquisitions. Under the long-term policy dividend of carbon neutralization， there have been blind investment projects and overcapacity in the NEV industry， while M & As will be helpful in putting this chaotic market into order.