,58%,2023150。2023,905,626,279。,2019 247,500 500,000,2023 447,000 。
This blog post has been updated to incorporate newly identified data and information. We appreciate the feedback from readers of the original post issued on June 20, 2024.
Trustee Chair in Chinese Business and Economics > Trustee China Hand
The global war over electric vehicles (EV) has heated up in the past few weeks and threatens to get even hotter in the coming months. On June 12, 2024, the European Commission announced provisional penalty tariffs ranging from 17.4% to 38.1% against EVs imported from China. The European Union''s (EU) move to counter Chinese subsidies followed the Biden administration''s imposition of tariffs in mid-May against a range of high-tech products from China, including 100% tariffs on EVs and 25% on EV batteries.
This should come as no surprise to anyone. In our 2020 report, The Coming NEV War?,I speculated that the relative calm at that point – when China was exporting only a small number of cars which were mainly going to Bangladesh and India – could give way to greater tensions.
Whether from a foreign firm, joint ventures, or purely local firmsChina-based exports of NEVs will benefit from extensive government support. If such support translates into NEVs being sold at relatively low prices, they inevitably will invite complaints from other countries'' domestic automakers and action from regulators in the form of fair-trade remedies.
China''s trading partners argue that these tensions are the result of Chinese industrial policy and unfair trade practices. China argues that its growing exports reflect the country''s natural comparative advantage and the high quality of its companies'' products. The reality – and what makes this a difficult challenge – is that there is some truth in both perspectives. Chinese EVs have benefitted from massive industrial policy support, and their quality is improving, making them attractive to domestic and overseas consumers. An effective response by the U.S., Europe and others must take account of both facts.
Industrial Policy Support
China has used a wide range of tools to promote the EV sector. These include regulatory changes such as the "dual-credit system," which has pushed automakers to have a growing share of their fleets be electrified and to make license plates for EVs easier for consumers to obtain than for internal-combustion engine (ICE) vehicles. But these measures would be irrelevant without substantial financial backing. The Trustee Chair made estimates in 2018, 2020 and 2022 of Chinese industrial policy spending for the sector. Following this original methodology (but with some slight corrections), we have updated the data through the end of 2023 (see Figure 1).
Figure 1: Industrial Policy Spending for China''s EV Sector (US$, billions)
From 2009 to 2023, we calculate that Chinese government support cumulatively totaled $230.9 billion. Absolute funding annually was around $6.74 billion in the first 9 years of our analysis (2009-2017), as the sector was just getting off the ground. Spending roughly tripled during 2018-2020, and then has risen again sharply since 2021.
These estimates reflect the combination of five kinds of support: nationally approved buyer rebates, exemption from the 10% sales tax, government funding for infrastructure (primarily charging poles), R&D programs for EV makers, and government procurement of EVs. The buyer''s rebate and sales tax exemption have accounted for the vast majority of support for the industry (see Figure 2). That said, because of the high cost and desire to winnow the field of producers, the central government reduced the buyer''s rebate in 2022 and eliminated it beginning in 2023.
Figure 2: Composition of Chinese Industrial Policy Support (%)
Many parts of the data present challenges to researchers. Two stand out. One is about the data on annual sales of EVs, which is needed to make several of the estimates. We rely on the China Association of Automobile Manufacturers (CAAM) rather than the China Passenger Car Association (CPCA) because CAAM has consistent series of data on both passenger and commercial vehicles.
A second question concerns the sales tax exemption. The State Tax Administration (STA) reported that sales tax exemptions in 2022 wereRMB 87.9 billion ($13.0 billion) andRMB 121.8 billion ($17.2 billion) in 2023. This is lower than our estimates of $30.3 billion and $39.6 billion for 2022 and 2023, respectively.
Third, although there is not a national EV fund, as there is in semiconductors, it is likely that municipal and provincial governments have directly invested in the EV sector, either to create new producers or invest in existing ones. The most prominent example isNIO, which in 2020 received an RMB 5 billion injection from the Hefei municipal government in exchange for a 17% stake in the company''s core business. Hefei later cashed out most of its holdings in 2022.
Finally, our estimate does not include subsidies for other parts of the supply chain, including for miners and processors of raw materials, chemicals producers, and battery manufacturers. According to the annual reports of CATL, which in 2023 held a43.1% share of the Chinese marketand36.8% of the global market, its government subsidies have risen from$76.7 million in 2018to$809.2 million in 2023(see Figure 3). EVE Energy, whichranks 4th in China, pulled in$208.9 million in subsidies in 2023.
Figure 3: Government Subsidies to CATL (US$, millions)
These additional kinds of funding are cumulatively substantial, with low-cost credit and equity investment likely being the most impactful for EV makers. Growing subsidies to battery makers may mean an overall shift to greater relative support for them.
Although both perspectives have potential merit, I lean toward the former for three reasons. First is the cumulative effect of 15 years of state support and the likelihood that our data still do not account for other elements of industrial policy aid, which would translate into a higher subsidy rate as a proportion of overall sales and per vehicle.
The second is that even after all this time, there are 200 EV producers in China, who collectively have created far more capacity than the domestic market can bear. Not surprisingly, production has expanded rapidly, leading to growing inventories. As a result, firms have engaged in a bitter price war at home and expanded efforts to promote exports. According to the International Energy Agency (IEA), in 2023 "China used less than 40% of its maximum cell output,and cathode and anode active material installed manufacturing capacity was almost4 and 9 times greaterthan global EV cell demand in 2023."
And third, despite the extensive government support and expansion of sales, very few Chinese EV producers and battery makers are profitable. In a well-functioning market economy, firms would more carefully gauge their investment in new capacity, and the emergence of such a sharp gap between supply and demand would likely result in industry consolidation, with some mergers and acquisitions, and other poorly performing companies leaving the market entirely.
In this context, given Chinese EV makers'' scale and reach, it is difficult for other countries'' producers who face tighter budget constraints to effectively compete. My guess, though, is that the endurance of these subsidies is unlikely part of an intentional plot for global domination of this industry and instead a byproduct of China''s inefficient industrial policy system in which support typically extends too long and is spread overly widely, a pathology visible in both tradable and non-tradable industries.
If Chinese EVs were pieces of junk, then they would not be a serious challenge to the rest of the world''s automakers. For many years Chinese auto firms languished far behind the global trendsetters in Europe, East Asia and North America. But Chinese firms have narrowed the gap in autos in general and moved ahead in EVs.
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