Insight: why demand from China is spurring growth of electric car sales

However, the real driver behind the development is what’s happening in China, and the huge potential there for sales of electrified hybrids and pure-electric cars. It’s not just about good business, either; established car makers that ignore China’s drive towards EVs also fear they could be left behind in a technology battle that, should they lose, could  leave their grip on other markets vulnerable to attack.

Why is China pushing so hard for EVs? Apparently motivated by a need to reduce its heavy industry-driven pollution, Chinese officials are in fact determined to break out of the dependence on imported oil, a natural resource the country is famously short of. At the same time, the aim is to take advantage of a once-in- 100-year powertrain shift in order to leapfrog established car makers. By encouraging its home car makers, such as SAIC, Geely and Trumpchi, to focus on electric powertrain technology, China sees an opportunity to build a thriving domestic car industry with the ability to sell credible Chinesemade cars internationally. It is a plan that was born more than a decade ago but which is only now coming to fruition.

This was confirmed last month when China’s Ministry of Industry and Information Technology (MIIT) released a road map for future transport. Last year over 28 million cars were sold in China, marking another year of double-digit growth and leaving the US’s sales of 17.5m in its wake. By 2025 MIIT is predicting that China’s sales will hit 35m, and crucially it has suggested that it wants 20% of that total to be made up of so-called New Energy Vehicles (NEVs). That equates to sales of around 7m electric cars, which represents quite a shift given that fewer than 2m are estimated to have been sold globally last year (the vagaries of reporting between markets make exact figures hard to determine).

That 20% figure also suggests that MITT wants most of China’s new car sales growth until 2025 to be in EVs, and history has shown that Chinese government ministries tend to get what they want.

Such a shift would be pivotal for the take-up of EVs and underlines why so many established car makers have been content to let disruptors such as Tesla lead up until this point, before launching a raft of their own products as opportunity knocks.

In parallel, China has been getting the health of its domestic car makers in order, amalgamating some of the weaker firms with larger ones, pushing improved product offerings and driving knowledge-sharing by forcing joint ventures with Western brands. Chinese makers have a healthy 45% share of the vast home market today, albeit focused on the lower end of the price scale. Even so, in a country so vast, that’s enough to generate the profits needed to invest in R&D and consider the global expansion that has long eluded its car makers despite a number of launches in the US and Europe.

The impact of these policies for established global brands is double-edged. There’s an opportunity to sell vast numbers of EVs in China, but the country’s rules on joint ventures mean any success is tempered by the threat of the profits generated and the expertise gained by a Chinese partner in the process. This could in turn give the country’s car makers an opportunity to develop better EVs, be it with a longer range or for lower prices, for a global market. How seriously this threat is being taken is highlighted by Toyota and Honda’s announcement that they will, after all, make pure-electric cars.

As recently as 2013 Toyota spoke openly about the limits of electric cars, reasoning that hybrid technology was the only practical and cost-effective bridge to the adoption of hydrogen powertrains. At Honda, it was a similar story. Yet fast-forward four years and both manufacturers have EVs in the pipeline, with Toyota’s division led by CEO Akio Toyoda. The reason is China’s anticipated plan to declassify hybrids as NEVs, which would leave both Japanese brands lagging in the world’s biggest car market — and that’s a risk simply too great to contemplate.

How this plays out will be fascinating to watch and should inform our understanding of why the established car makers are moving so fast towards electrification. Never before has it been so important to view the machinations of the car industry from a global rather than regional perspective. In this context, Volkswagen’s post-Dieselgate goal of selling 1m electric cars a year by 2025 doesn’t sound so crazy, and neither does Jaguar’s decision to launch the I-Pace despite insiders admitting that sales targets could initially be limited to just a few tens of thousands.