After year-on-year growth of over 90% in 2022, China's EV sales growth fell back to a more modest 21% in the first two months of 2023. Has the falling away of domestic EV subsidies and continued weak consumer confidence extinguished the flame of EV growth in the market responsible for 65% of all EV sales in 2022? 

According to the China Association of Automobile Manufacturers (CAMM), China sold 933,000 battery and plug-in hybrid EVs in the first two months of 2023, with post-lunar new year EV sales in February the lowest for 9 months. Total automobile sales in China were down 15% year-on-year for the first two months of 2023, with inventory levels up 35% compared with the same period last year.

Tesla and BYD, the world’s two largest EV manufacturers, recently launched price discounts for key models in China, which has led to widespread discounting across the market – including western car makers BMW, Mercedes-Benz and Citroen. In response to weak domestic demand, the share prices of major Chinese car makers have also fallen back through February and March – BYD fell 20% and SAIC fell 6%.

Chinese EV tax incentives and subsidies, which have ranged between 10% and 30% over the past three years, came to an end at the end of 2022, with some suggesting that early 2023 sales have been impacted by EV sales being pulled forward to the end of 2022 before subsidies fell away. However, EV sales data for the last three months of 2022 does not show any noticeable uptick towards the end of the period with December EV sales of 814,000 just 100,000 up compared to October EV sales.

Despite a stuttering start to Chinese EV sales in 2023, Project Blue continues to be largely positive about the outlook for the remainder of the year. We see overall GDP growth of 5.5% - higher than the 5% target announced by Beijing – and see early indications of improving consumer confidence. Preliminary retail sales numbers show a slight rebound in January (+0.4% m-o-m) after three consecutive months of decline. With the lunar new year landing early in January this year, we believe that future EV sales growth will now begin to accelerate through the remainder of the first half of 2023 as the Chinese market adjusts to prices supported by manufacturer discounts rather than government-granted subsidies.