Will China’s $72 billion tax credit for EV manufacturers hurt Tesla’s China aspirations?
The Chinese Government announced a mega tax credit of $72 billion, according to Reuters, to support its local electric vehicle manufacturers, which marks as the highest ever tax incentive laid out by China to support its growing EV industry.
Li Auto, BYD, NIO Holdings, XPeng are among the top China-based EV manufacturers based on market capitalization, who also have their shares listed on US exchanges, barring BYD.
China over the past couple of years has been strongly advocating the wider adoption of electric vehicles, which has been enforced by a series of tax credits, subsidies and incentives.
According to industry experts quoted by Reuters, the generous tax incentives are expected to have a substantial impact on China's electric vehicle (EV) sales and play a crucial role in the ongoing expansion of the EV market.
Analysts anticipate a 30% growth in EV sales in 2024, surpassing previous estimates of a 15% growth.
Latest data from The China Passenger Car Association - the official source for vehicle sales data in China - demonstrated a near 11% rise in new EV sales in May 2023 compared to the previous month, with an impressive surge of 61% compared to the corresponding period last year.
EVs in China: Understanding EV demand
- Li Auto - The leader?
Li Auto’s total vehicle sales amounted to 52,584 vehicles during the first quarter (Jan-March 2023), a staggering 65% increase compared to the 31,716 vehicles it sold during the same period last year.
For the month of May 2023, the company delivered 28,277 cars, up by about 146% versus last year.
Li has been benefiting from a strong uptake of its vehicles, which sport electric drivetrains along with a gasoline-powered range extender generator that reduces range anxiety.
Li Auto clearly seems to be the winner as it surpasses its peers Nio which delivered about 6,155 vehicles and Xpeng which delivered 7,506 vehicles in May 2023.
- How is Tesla’s China vehicle sales doing?
According to data from the China Passenger Car Association (CPCA), Tesla delivered 77,695 electric vehicles (EVs) in China in May, representing a 2.4% month-on-month increase and 142% jump on a year-over-year basis.
However, this could be on account of a low base effect as production capacities and deliveries were impacted due to the Covid-19 crisis in Shanghai, which happens to host one of Tesla’s largest factories.
In the same period, Chinese EV leader BYD reported sales of 239,092 vehicles in May, as per the CPCA data. This figure represents a 14% increase compared to April.
Will Tesla’s dominance be challenged?
Tesla as shown above is the second largest seller of electric vehicles in China after market leader BYD, based on May’s vehicle sales numbers.
However, with taxation benefits being provided to local EV players, Tesla’s position in the market can be challenged by Li Auto which comes at a close third. Remember, Tesla sold 77,695 vehicles in May 2023, followed by Li Auto at 28,277 cars.
By looks of it Li Auto is still quite far away to touch Tesla’s sales, but with tax incentives, production and deliveries can be sped up to act as a tough competition to Tesla.
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