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August 24, 2021

Government Policies Help China Produce The Most Affordable EVs

China has taken a clear lead when it comes to producing affordable electric vehicles compared to both the US and Europe. This was revealed in a study done by JATO Dynamics, a global supplier of automotive business intelligence.

JATO looked at EV’s so-called “pricing challenge” as it compiled pricing in China, US, and Europe over the past decade alongside the impact of government incentives on the growth of these markets.

While governments and policy makers have undoubtedly become increasingly influenced by environmental issues and the “green” agenda in recent years, the analysis finds that not enough is being done to produce affordable EVs across several markets.

The pricing of EVs in China - the world’s largest market for EVs – has significantly fallen by almost half (47 percent) since 2011, US and European markets have seen EV prices rise over the same time period, by 38 percent and 28 percent respectively.

China’s success in producing affordable EVs comes down to a number of factors, including its government’s decision to invest heavily in the domestic market from as early as 2009. Today, consumers in China can buy a brand-new EV for as little as P 218,000. In stark contrast, the average retail price for an EV in the US continues to rise faster than any other major global market and now stands at P 2.13 million, up from P 1.54 million in 2011.

Average retail prices today are highest in Europe. In May 2021, EVs were on average 52 percent more expensive than ICE cars in the UK, and 54 percent more expensive in the Netherlands. In Germany, the average retail price of an EV is P 2.34 million compared to P 2.17 million for combustion engine vehicles. Norway is the only exception—the average retail price for EVs is P 2.62 million compared to P 3.12 million for gasoline- and diesel-fed cars.

To date, JATO finds that government-led incentives have been a vital factor supporting the automotive industry to offset the price gap between traditional cars and EVs. China’s commitment to the development of affordable EVs has strengthened the market to such an extent that its government is now in the process of phasing out incentives, while OEMs in Europe and the US continue to rely on such schemes to boost their sales.

In the US, tax credits have accelerated the growth of the premium EV market, failing to help lower income buyers purchase EVs with OEMs yet to develop a truly affordable EV offering. Prioritizing environmental action in recent years, European governments have developed a range of incentivization schemes including tax exemptions and purchase grants with varying success across the continent. For both the US and Europe, it remains to be seen if rolling back these incentives will stimulate manufacturers to take action or see them fall behind competitors in China.

Unless OEMs in Europe and the US find avenues to create more affordable EV offerings, they run the risk of losing their home market advantage to Chinese competitors. As the popularity of SUVs has continued to grow in Western markets, the segment looks set to be an important battleground for manufacturers seeking to establish themselves as leaders within the EV market. In the short term at least, government subsidies and incentives will continue to support EV sales, but for how long remains a crucial question for the industry.

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