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FEATURE: China’s NEV frenzy cools down, for now

Domestic production and sales of new-energy vehicles (NEVs) across China are showing signs of weakness, largely as a consequence of the central government’s move to reduce generous subsidies on NEVs that over the past few years had helped automakers to enjoy substantial growths in electric car sales.
Beijing’s reduced incentives, plus the higher prices that NEVs command amid the shrinking subsidies, the inconvenience of recharging and issues surrounding their safety have all led the market’s faith in the NEV industry’s glowing future to be undermined, Mysteel Global has learned.

Therefore, it has come as no surprise that China’s production and sales of NEVs declined for a third successive month in September, with manufacturing dropping by nearly 30% on year to 89,000 units and sales lower by a worrying 34.2% on year to 80,000 units, according to statistics from China Association of Automobile Manufacturers (CAAM).

Slashed subsidy adds a big headache for NEV makers to deal with 

A Shanghai-based market insider attributed the cooling of the NEV market to the weakness of China’s automobile industry in general as well as to the less monetary incentive to the consumers starting June this year. “The decline in the subsidy added considerably to the cost of the vehicles and these days, an expensive car is of no attraction to consumers,” he said. China’s automobile market, with hundreds of automakers including many being joint ventures with overseas auto manufacturers, has always been a battlefield and price is always a key weapon in fighting against rivals.

As for NEVs, take those that a single charge can run at least 400 kms as an example, China halved the subsidies to Yuan 25,000 ($3,536) starting June 26 2019, sending a signal to the manufacturers that the government encourages NEV manufacturers to improve the performance of their vehicles, but the rollback in the subsidies forced the car dealers to increase showroom prices, causing consumers to pause. 

An official from CAAM declared that the decline in NEV production and sales was more due to the reduction in subsidies rather than the softening of the auto industry, but he admitted that without high levels of subsidies, the soft spot of NEVs is more obviously exposed.

“Technically, there is little challenge for NEVs to improve its performance, but an NEV whose range on a single charge is 500km is much more expensive than low-mileage NEVs, and consumers will be scared away by the high prices,” he explained.

“Besides, the way NEVs operate is very different to that of a traditional car,” he declared, citing charging poles as an example. “The charging poles are not widely installed (around the country) but even if they were, the charging of the cars has to take some time,” he argued, indicating that the inconvenience could also make consumers think twice when buying a NEV.

As of late 2018, the number of state-owned charging poles nationwide totalled 290,000 units, with installation by state-owned operators averaging 5,086 units/month over December 2017-November 2018, according to CAAM.

Last but not the least, safety of NEVs has become a new worry among the Chinese consumers, given recent reports of them exploding and burning, according to the Shanghai-based market insider. 

In April 2019, a Tesla Model S car spontaneously combusted in a carpark in Shanghai, which the company later blamed on a battery short circuit. Soon after, a car made by Tesla’s Chinese rival Nio burst into flames in Xi’an, northwest of Shanghai, which was followed by an incident involving an electric SUV made by BYD which exploded in Wuhan, Central China. 

Fortunately, no one was hurt in these incidents, they served to heighten the consumers’ anxiety about NEV dependability, Mysteel Global notes, especially when Tesla NEVs are in the top notch with the starting price for Model X sport utility vehicle (SUV) at Yuan 809,900/unit.

Chinese consumers are cost-conscious especially for NEVs

China, with such a vast auto market and numerous choices of brands, models, has granted the domestic consumers the luxury of selecting a car that suits their needs the best, and NEVs, as late comers, need to having a winning point, when nothing stands out from its competitors, cost will be the first and foremost consumers will eye on.

A Beijing resident happily bought her first car, a NEV, a couple of years ago. “I have been given Yuan 70,000/unit subsidy, and I do not plan to drive far, as my company is quite near to where I stay,” she said, adding “even better, there are a couple of charging poles at the car park of my residential neighbourhood, so I do not have to worry about it dies on me,  I just need to remember to charge when alerted.”

“China-manufactured NEVs need to find room for their survival, so they can’t be too pricey especially when it is a new concept in China,” a London-based researcher on clean energy agreed. “But as durable batteries are not cheap, the compromise has been (the installation of) less ideal but affordable batteries, but the drawback is that drivers need to recharge them about every 200km, so for now it is a gambling.” 

A second Beijing resident expressed a similar comment. “Many people in Beijing live far from the office, so if they drive, the daily mileage could be quite a bit but charging poles for NEVs are not that readily available. Can you imagine if the engine just dies when you are in a traffic jam?” he asked, sharing his reservation on owning a NEV. 

The cool-down in NEV is not only happening in China, the UK-headquartered Dyson Ltd formally announced earlier this month it was scrapping its plan to build an NEV manufacturing plant in Singapore, even though the company had been studying the project since 2016.

Dyson retreats

“We are sad to announce a proposal to end our automotive project,” the company stated in its October 10 release. “The Dyson automotive team has developed a fantastic car, but unfortunately it is not commercially viable.” 

Dyson wanted to utilize its expertise in producing batteries and electric motors to develop electric cars, and in 2018, it announced the construction of a new plant for such cars in Singapore, with the vehicles to begin entering the market in 2021.  However, according to video report on China’s CCTV, in an E-mail to over 500 employees, James Dyson, the inventor of the giant, admitted defeat.  

"Though we have tried very hard throughout the development process, we simply can no longer see a way to make it commercially viable," Dyson said.

An industry source in Northeast China’s Liaoning province praised Dyson for making the hard decision. “Though it has advanced battery technology, Dyson’s step into the electric car market was a risk as the cost would be very high, and it is a wise move to call it off,” he told Mysteel Global, adding that the excitement formerly surrounding NEVs has also largely cooled down recently.

China’s auto sheet makers persist with quality upgrading

All the disheartening development in the NEV market, however, may not necessarily deter Chinese auto sheet producers from their endeavours to develop and mass produce lighter-weighted and high-strength steel for the innovation and evolution of the country’s auto industry as a whole, where China’s auto steel producers are facing the fierce competition from aluminum alloy makers such as Zhongwang Group.

Baoshan Iron & Steel Ltd (Baoshan Steel), China’s leading auto sheet maker with a 60% domestic market share for the very product, was the first one in the country to successfully produced the ultra-light-weighted car body sheet in 2015, with its performance and quality up to the international standard.

“Light-weighted car body is the definite future of the auto industry, and ultra-high- or high-strength steel is the core for the light weight, and Baoshan Steel will embrace the light-weight materials research and development to enable its commercialization,” Mei Jie from Baoshan Steel’s Automotive Steel Sales Department said at the 2019 Asia Steel Forum in Shanghai in late September.

Baosteel is also extending from steel to multiple light-weight materials such as aluminum-silicon alloys and magnesium alloys for the needs of different auto parts.

In 2018, Baosteel sold 12.4 million tonnes of auto sheet with 8.8 million tonnes being cold-rolled auto sheets from its four core production bases in Meishan, Baoshan, Qingshan and Dongshan in East, Central and South China, which more than doubled in the past ten years thanks to the rapid growth in China’s auto sales in general during the decade.

Written by Anna Wu, wub@mysteel.com and Hongmei Li, li.hongmei@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com