EVs will account for 35 per cent of car sales in China next year as growing range of electric models lures motorists, says Fitch Ratings

New-energy vehicle (NEV) sales will maintain their strong growth in China next year as more motorists ditch their petrol cars in favour of an expanding range of electric options, Fitch Ratings predicts.

Electric cars will account for over 35 per cent of sales of passenger vehicles next year in mainland China, up from an estimated 27 per cent share this year and 15 per cent in 2021, according to the credit rating agency.

“2023 will be a year when the new-energy vehicle industry will continue to flourish in China,” said Yang Jing, director of Asia-Pacific corporate research during a webinar on Thursday. “With the entry of more new brands, next year will be a year of fierce competition.

“In the medium and long term, China’s auto market is accelerating its electrification progress. Consumers’ acceptance of new energy vehicles is increasing, and auto companies are constantly turning to produce new energy vehicles.”

Fitch predicted the growth of China’s overall passenger vehicle market might experience a slight dip in 2023 as sales of petrol cars drop sharply. Demand for traditional cars is likely to be subdued because the Chinese government’s move this year to cut taxes to rescue the industry from its Covid-19 slump means demand has been met in advance.

However, the passenger NEV market will maintain steady annual growth of over 30 per cent, Fitch forecasts, as the Ministry of Industry and Information Technology’s decision to end NEV subsidies by the end of this year will have a limited impact on demand.

Chinese consumers and carmakers are increasingly turning to electric vehicles in light of the country’s pledge to reach net-zero greenhouse gas emissions by 2060 to fight climate change.

China is the world’s largest EV market, with sales of battery-powered cars growing rapidly in recent years. According to the China Association of Automobile Manufacturers, China sold 26.3 million cars in 2021, a 3.8 per cent increase from the previous year. Among them, 3.5 million units, or 13.4 per cent, were EVs, almost double the sales a year earlier.

According to Fitch, the NEV market in China will experience structural shifts in the next year and become increasingly competitive, with more traditional automakers launching electric models to challenge the market position of start-up electric car brands such as Xpeng and Nio.

China’s top 10 carmakers, including BYD, SAIC, Great Wall Motor, Geely and FAW, have all invested in NEVs. BYD, the world’s largest electric car maker, announced in April it had stopped producing combustion engine vehicles and would only make electric and plug-in hybrid cars.

The price competition among NEV makers could also intensify, driven by Tesla’s high-profile price cuts this year, and the end of NEV subsidies, said Yang.

However, a chip shortage combined with battery price hikes could remain challenges for NEV manufacturers, according to Fitch. The limited leeway for profitability improvement could lead more automakers to shift towards plug-in hybrid vehicles, and prompt some brands to venture into the premium sector or foreign markets, it said.