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Electric Car Sales Sag in China but Remain a Government Priority

The Wall Street Journal, May 27, 2020

Government struggles to spark interest as consumers turn more to traditional vehicles

By Trefor Moss

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 27, 2020).

SHANGHAI — China’s leaders are looking for new ways to draw consumers to electric vehicles as interest in them slumps.

April was the first month in which Chinese EV sales declined while the overall auto market grew. Gasoline-car sales in April rose 6% from a year earlier, snapping a 21-month streak of declines, but EVs were down 27% — a sharp reversal for a segment that had outperformed the overall market until this year.

The demand slump is a headache for China’s political leaders, who have championed EVs in hope of turning the country into a world power in next-generation transport. It is also a challenge for Tesla Inc. and other auto makers that have been plowing investment into EV production in anticipation of Chinese buyers flocking to the vehicles.

The Covid-19 pandemic has made matters worse, EV dealers say. “After the epidemic, [consumers] need a sense of security — a car they can trust,” said Ma Qiang, a dealer in the southern city of Shenzhen. That means falling back on familiar brands and the doughty internal combustion engine, said Mr. Ma, who sells EVs produced by BYD Co. and BAIC Motor Corp., the two largest Chinese producers of the vehicles.

The government had set a sales goal of two million electric vehicles this year, but analysts expect only around 1.1 million vehicles to find buyers, down about 10% from last year.

Officials aren’t giving up. While that goal for 2020 looks well out of reach, another target for EVs has been raised: instead of accounting for 20% of Chinese vehicle sales in 2025, the prospective share is now 25%. And top leaders have repeated their determination to bring EVs into the mainstream.

Premier Li Keqiang said in a speech Friday at the annual meeting of the National People’s Congress that the government would promote EV uptake and build more charging stations — which are now largely confined to infrastructure clusters in a handful of megacities. Miao Wei, the minister of industry and information technology, told reporters on Monday that the state would introduce new perks for buyers trading in gasoline cars for EVs and encourage local authorities to electrify public fleets.

However, moves to promote EVs risk being lost amid broader efforts to revive China’s overall auto market, in the doldrums since mid-2018 and recently hammered by the pandemic.

Shanghai and other cities had been discouraging gasoline-car sales to fight pollution and traffic congestion, but have now eased their restrictions to help auto makers sell more cars. Meanwhile, car companies are offering bargains on older gasoline vehicles, with dealers selling many models at a loss to move inventory left over from the virus-hit first quarter.

This year’s collapse of global oil prices has further weakened the case for electrics as the cost of gasoline for Chinese drivers has fallen by a third.

China was an early leader in mass EV adoption, but in 2019 sales in the country declined 4% while increasing 10% world-wide.

The slump was set in motion in June when Beijing slashed subsidies for EV customers. The government has since promised to extend subsidies through 2022, rather than ending them this year. Even so, incentives to buy EVs will likely continue to shrink, reducing their influence on consumer choices.

Subsidies in 2018 could knock about $13,000 off an EV’s price tag, but the amounts now available are much lower. Tesla recently announced plans to cut the price of its locally built Model 3 to under 300,000 yuan (roughly $42,000) to qualify for subsidies that at this year’s rates would trim $2,800 from the vehicle’s retail price.

Officials and auto makers are up against a fundamental lack of demand among ordinary Chinese buyers for electric vehicles, said Robin Zhu, a Hong Kong-based analyst at Sanford C. Bernstein. “Consumers just aren’t that interested,” he said.

Car dealers agree that China’s EV sales have long been padded by purchases for commercial fleets. In Shenzhen, where the city’s taxi fleet is fully electric, only a tenth of EVs are bought by individuals, Mr. Ma estimated. And even fleet sales started to dry up after last year’s subsidy cut, he said.

With a budget of around $25,000, first-time car buyer Li Zhekun said he wouldn’t consider going electric since Tesla — the only EV brand he admires — is out of his price range. “People here once rushed to buy EVs,” said the 27-year-old Beijing resident, but “I would rather choose a traditional car where everyone knows how it’s going to perform.”

Consumer indifference is a huge problem for auto makers, which are all now ramping up EV production to comply with a Chinese government order requiring them to build the vehicles irrespective of customer demand. General Motors Co., Toyota Motor Corp. and Volkswagen AG are among those that have outlined aggressive plans to roll out dozens of electric models this year and beyond in the Chinese market.

Tesla, which started production at its new Shanghai plant in December, is aiming to build 4,000 Model 3 compact sedans a week at the facility by mid-2020, while also expanding capacity to begin producing Model Y compact sport-utility vehicles next year.

It’s unclear whether Chinese demand will recover quickly enough to absorb so many electric cars.

“Tesla’s entry may help to expand the retail market, creating a better product image among consumers and increasing overall acceptance of EVs,” said Bill Russo, founder of Shanghai-based consulting firm Automobility. “But in the short term EV sales will suffer.”

–Raffaele Huang contributed to this article.

Write to Trefor Moss at Trefor.Moss@wsj.com

Click here to read this article at wsj.com

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