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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Foreign Carmakers Fight Uphill Battle Against Chinese EV Giants

With China’s notoriety as the world’s largest electric-vehicle market, it’s hardly any wonder that all international carmakers are vying for a piece of the EV pie that is only going to grow bigger there thanks to new government policies. So far, however, they have been falling behind the local market leaders.

At the Auto Shanghai show this week, giants such as Volkswagen, GM, and Nissan will showcase their latest and most attractive products in the EV segment in hopes to gain market share in China. Dozens of models will be revealed at the show to compete with Chinese BAIC Group and BYD. Their chances of success, however, are limited.

For starters, BAIC, BYD, and their smaller sector players have been making EVs for ten years now, while the international giants only recently began to realize the potential of this segment, not least because of Tesla’s literally disruptive entrance into the auto making industry.

Right now, Big Car is budgeting billions for electric vehicles, many of them to be sold in China. Yet BYD and BAIC account for half of all EV sales in the world and the majority of the sales in China. They have an established presence in the field, to put it mildly, especially in the affordable EV segment, which is particularly important for China. Related: Scientists Find Oil-Eating Superbacteria On Bottom Of The Ocean

What’s more, there is the issue of the Beijing-instituted EV credits that every carmaker active in the Chinese market needs to collect--the so-called new energy credits. Here’s how Bloomberg explained the nature of the credits in an analysis from last November:

“Vehicles are awarded credit scores depending on their green credentials, such as how far they go without needing a charge. The least eco-friendly NEV will receive a credit score of two, while the greenest will get a maximum credit of six. So, to meet the 2019 credit target of 10 percent, a carmaker producing 100,000 gasoline-based vehicles would need 10,000 credits. Those could be earned by manufacturing 2,000 cars with an NEV score each of five. If the automaker produced more than 2,000, it could sell the extra credits; fewer than 2,000, and it would need to buy credits.”

Again, Chinese carmakers are ahead in the credit game. Bloomberg’s Anjani Trivedi reported this week the industry average for the credits is 17.5 per 100 cars. This means Chinese carmakers are manufacturing 17.5 EVs per every 100 ICE vehicles, which is more than the required 10 per 100 for this year.

This may not be a lot, but put in context it is significant. According to Trivedi, one of the top Chinese carmakers, SAIC Motor Corp., has accumulated over 300,000 new energy credits, which amounts to about 50 percent of its total production. Its joint ventures with Volkswagen and GM, however, have only generated 20,000-30,000 new energy credits, which amounts to about 1 percent of their total production.

Finally, in addition to the need to amass new energy credits to continue making and selling cars in China, there is the issue of subsidies. These are to be phased out by 2021 as the financial burden for the government is getting increasingly heavy as more EVs are being made. What this means is that foreign carmakers with little experience in affordable EV manufacturing are facing an uphill struggle to conquer the Chinese market or at least win a small piece of it.

By Irina Slav for Oilprice.com

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