China, the EV Champion.

China, the EV Champion.

December 28 2020

China is driving to become the global leader in fully electric and hybrid vehicles to achieve three important national goals: cutting deadly domestic air pollution, reducing dependence on imported oil, and dominating the burgeoning global electric vehicle industry. China already has the largest automobile fleet in the world with one of the highest percentages of EVs. At the end of 2019 in China, 3.1 million of the 224 million (1.4%) vehicles on the road were EVs.  In Europe, 1.8 million out of 276 million (0.7%) vehicles are EVs. In the U.S. 1.3 million of 201 million (0.6%) are EVs. These seem like small numbers but China wants to have over  80 million EVs on the road by 2030, a 25-fold increase from current levels in nine years. California and the U.K. plan to ban sales of fossil fuel vehicles by 2035 and 2030. The writing is on the wall.

Subsidy Boom. China has put $100 billion worth of subsidies into its domestic EV industry in the last 10 years and subsidies currently account for one-third of an EV’s sales price. Other policies include sales mandates as well as exemptions from traffic restrictions and dedicated parking spots in China’s traffic clogged cities. However, declining subsidies over the next 3 years and an increase in the minimum vehicle range to qualify for a subsidy from 150 kilometers (93 miles) to 250 kilometers (186 miles) could slow the growth of the Chinese EV market. Nevertheless, with 120 EV manufacturers in China this year, the budding industry is here to stay.

High-Flying Upstarts. Three Nasdaq-listed Chinese EV upstarts, NIO Inc. [NIO], Li Auto [LI], and Xpeng [XPEV], have taken US public equity markets by storm in 2020. LI and XPEV are up 100% after their IPOs this summer and NIO, which went public in 2018, is up a whopping 1000% year-to-date. NIO, the leader of the pack, has delivered 36,721 vehicles in 2020 and sells its EVs with a battery lease plan that cuts down the initial price tag by around $10,000. The lease plan allows NIO vehicle owners to exchange their batteries at battery swap stations in as little as three minutes rather than waiting for the battery to charge. Li Auto focuses on electric SUVs and has delivered 26,498 vehicles year-to-date. Its Li One model features an extended range system, which consists of a gas engine and electric generator in addition to the vehicle’s battery pack. Xpeng has delivered 21,341 vehicles in 2020 and has two vehicles on the market, the G3 (SUV) and P7 (Luxury Sedan). The P7 recently won 2021 Car of the Year at the Xuanyan Awards, the most prestigious award for a Chinese car.

Developed Players. Chinese automakers BYD (US ticker: BYDDF] and SAIC-GM-Wuling Automobile Co. are the leading sellers of EVs in China, focusing on delivering low range, more affordable EVs to middle class Chinese consumers. Founded in 1995 as a battery company, BYD started selling EVs in 2002 and is now the leading seller in China. Warren Buffett’s Berkshire Hathaway owns a 25% stake in the company, and its stock is up over 300% year-to-date. SAIC-GM-Wuling Automobile Co. is a joint venture between SAIC (China’s leading automobile producer), General Motors, and Guanxi Automobile Group (formerly Wuling Motors). Its Wuling Mini, a $4,200-vehicle with a range of only 125 miles, has been the best-selling electric vehicle for much of 2020, edging out Tesla’s Model 3. Tesla is the third largest player in Chinese EV market, selling 94,000 Model 3s made in its Shanghai Gigafactory through October 2020 and has a Model Y production facility under construction.

China has a long way to go on climate with two-thirds of its electricity still coming from coal electric and it is still building more coal fired power plants. Nevertheless, on EVs it has a lot going for it: strong national policies, access to EV battery materials, a strong manufacturing backbone and a skilled, inexpensive labor force.

Seasons Greetings to all our readers and subscribers. We hope you have a joyful, successful and healthy 2021.

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