Opinion: Enlightening Lessons From the Rise of China’s NEVs

China's automotive industry has recently achieved a significant milestone with the wholesale and retail penetration rates of new-energy passenger vehicles (NEVs) surpassing 50% for the first time in early April. This follows a notable achievement last year when Chinese car exports surpassed those of Japan, marking China as a leader in the global automotive market [para. 1].

The NEV sector is highly competitive, driven by both policy support and market forces. The competition is not only between traditional fossil-fuel-powered vehicles and NEVs but also among various domestic and international NEV manufacturers like BYD, Nio, XPeng, Li Auto, Tesla, BMW, Mercedes-Benz, Audi, China FAW Group Co., and Dongfeng Motor Group. This intense rivalry has led to price wars among domestic NEV makers since early 2023 [para. 2][para. 3].

Internationally, Chinese NEVs have become one of the country's "new three exports," alongside lithium batteries and solar cells. This development represents a significant growth point for China's economy and highlights its high-quality economic development and innovative capabilities [para. 4].

The rise of China's NEV industry can be attributed to minimal market access restrictions and non-discriminatory practices against different ownership forms when the industry was nascent. This allowed new players to enter the market fairly. Private enterprises in this sector are characterized by their entrepreneurial spirit, efficient decision-making mechanisms, flexible employment systems, strong technological innovation capacities, and willingness to take risks despite potential initial losses [para. 5].

Government support has been crucial in fostering the growth of the NEV industry. Initiatives began as early as 2001 with planning for NEVs followed by subsidies starting in 2009 initially for public transportation vehicles in demonstration cities before expanding to privately owned cars in 2010. Sales tax exemptions for NEVs introduced in 2014 have been extended until 2027 [para. 6].

These supportive policies have enabled some manufacturers to thrive while others with larger manufacturing bases or more extensive R&D teams have missed opportunities due to hesitation or unfavorable financial conditions. In late 2019, China began phasing out financial subsidies for NEVs which were completely removed by end-2022; this move further intensified market competition [para. 7].

Concerns about overcapacity are present within China’s NEV industry; however, such phenomena are typical in a market economy. The expansion of China’s NEV sector overseas demonstrates an upgrade in its industrial capabilities despite concerns from Western countries about overcapacity which they often address through protectionist measures like anti-subsidy investigations [para. 8].

Looking ahead towards 2025-2026, it is expected that NEVs will constitute over 50% of new car sales globally becoming mainstream consumer choices although challenges remain especially from Western manufacturers who excel in intelligentization technologies which could affect global competitive dynamics [para. 9].

To maintain competitiveness on the global stage and ensure sustainable development within its industries including that of NEVs', it is essential for China to foster a fair competitive environment free from undue governmental influence on technological paths or enterprise selection ensuring that various ownership enterprises can demonstrate their capabilities effectively [para. 10].