In 2016, almost 95 million cars were made and sold globally, nearly all powered by an internal combustion engine (ICE). Many believe that the $2 trillion global car industry is about to undergo a significant transformation as all-electric vehicles (EVs) begin to replace petrol and diesel power.

While electric vehicles and plug-in hybrid electric vehicles (PHEVs) currently account for less than 1% of the cars produced annually, many believe that we are at the start of an “Electric Revolution”. In its recent comprehensive and authoritative report on the subject, Bernstein, a prominent Wall Street research firm, predicted that EVs could represent 40% of car sales in 20 years. Likewise, UBS, believes that a growing global electric vehicle fleet will be disruptive to oil demand by 2031.

In terms of the development of electric vehicles and of the broader industry, China has now pulled ahead of other countries, a leadership position which it is unlikely to relinquish.

China surpassed the United States in both annual and cumulative plug-in electric vehicle (PEV) sales in 2015 when sales jumped to about 331,000 vehicles (three times the number sold in the U.S). This dramatic increase suggests that the national goal of 5 million PEVs on road by 2020 is achievable. The rapid market uptake catapulted Chinese car BYD to No. 1 PEV producer in the world, edging out Tesla and Nissan, with another six Chinese car makers also ranking in the top 20 PEV automakers in the world.

Growth in Chinese Electric Car Sales

It was China’s surge that prompted Bloomberg in 2016 to project that PEV sales will account for 35% of the new global vehicle market in 2035, with an average annual growth rate of 30%. The Chinese government believes that PEVs are one of the best strategies to reduce air pollution, oil imports, and greenhouse gas emissions, as well as leapfrogging international automotive companies.

All change

Just a couple of years ago, many where writing about “China’s EV frustrations” — how plug-in sales were stagnating, despite massive subsidies and incentives. What happened in such a short time?

Chinese Electric car Sales
Chinese Electric Car Sales

First, monetary incentives by both central and local governments were boosted still higher. Second, several megacities, in particular Beijing, Shanghai, and Shenzhen adopted aggressive non-monetary policies in 2014 and 2015 to boost PEV sales and to reduce local pollution— with the result that PEV sales in the three cities accounted for 37% of total PEV sales in the entire country, even though those cities accounted for only 4% of the population. Third, local car markers greatly expanded the supply of new PEV models, providing 832 approved models as of June 2016 (compared with 28 PEV models available in California). Fourth, Chinese entrepreneurs started to experiment with innovative PEV deployment and infrastructure business models.

Top gear for the electric car

China’s mix of government policies has been successful in increasing electric vehicle sales but, the scale and magnitude of monetary and non-monetary support is unsustainable and more cost-effective policies are needed. China is particularly well positioned to adopt innovative performance-based policies that are based on actual usage of PEVs– utilising onboard data monitoring and analytics to incentise greater use of electric vehicles and more efficient use of subsidies. With a new set of policies that reign in local protectionism, curb cheating, and incentivise both consumers and automakers to embrace electric cars, China would remain on its trajectory toward 5 million PEVs by 2020, with annual sales of 2 million. The benefits would be global, greatly reducing the cost of PEVs worldwide and contributing to accelerated adoption of clean vehicle technology.

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