China's EV Market to Experience Slower Growth in 2023, Remaining Ahead of the Curve.

China's electric-vehicle industry is expected to slow down a bit in 2023, but it will still be by far the largest global market. This gives it a significant advantage in the race to become the world's leading supplier of EVs.

Sales of new-energy vehicles in China, including plug-in hybrids, more than doubled in the first 11 months of 2022, reaching more than 6 million units, according to the China Association of Automobile Manufacturers. Around a quarter of all cars sold in China are now EVs, making the country the undisputed EV leader. In 2022, China accounted for more than half of all EVs sold globally.

EV pioneer Tesla is doing well in China, but many domestic brands have also delivered solid performances—particularly BYD. Wuling Hongguang Mini EV, a small car that starts at around $5,000, has been a surprise winner thanks to its affordable price tag. It is made by a joint venture of General Motors, Liuzhou Wuling Motors and the state-owned SAIC Motor. On the higher end, local upstarts such as Nio Inc. and Li Auto have rolled out new models that have outcompeted the offerings of many foreign auto makers, which were late to the EV market. Restrictions on issuing new license plates in China’s major cities have also helped boost EV sales because EVs are exempted.

EV sales have slowed down in recent months due to strict "zero-Covid" policies in many countries. To attract customers, some auto manufacturers including Tesla have cut prices. However, sales have picked up again slightly in December after a sudden change in China's pandemic policies.

Although the end of subsidies may lead to a decrease in sales, China's EV market is still expected to grow in the coming years. Intensifying competition has led to worries about the rapid cash burn of Chinese EV makers, but the market is still expected to grow. Share prices have plunged in 2022, but the market is still expected to grow in the coming years.

Exports have been a bright spot for China's auto industry, with new-energy vehicle exports more than doubling year-over-year in the first 11 months of 2022, according to CAAM data collected by Wind. That includes foreign car makers exporting made-in-China EVs to Europe and other parts of the world. Tesla has begun shipping Model 3s and Model Ys to Europe from its Shanghai factory. BMW and Renault are also making some EV models in China for export. And Chinese brands are also making some inroads in the export market—especially because many legacy car makers seem to be struggling to make affordable EVs.

Tesla's Germany plant, which opened in March, might start to meet more demand in Europe. However, China's early lead in the EV market gives it an advantage as the world starts to electrify its auto sector. The country dominates the supply chain for battery materials, and its vast market gives EV makers a more viable path to success.

Although China's EV market is expected to slow down in 2023, it is still far ahead of its competitors.