China’s EV growth forecast is starting to look fragile By Bloomberg

©Bloomberg. An almost empty highway during Shanghai’s lockdown. Source: Qilai Shen/Bloomberg

(Bloomberg) – Optimism that would be a banner year for the world’s biggest electric car market is beginning to wane. After all, who wants to spend a lot of money on a vehicle right now in China?

The grueling two-month lockdown in Shanghai and jaw-dropping restrictions in cities from Beijing to Tianjin have had a damaging effect on consumer confidence and left the economy reeling. In fact, not a single car was purchased in Shanghai in April – not surprising given that no one could leave their homes and dealerships were closed.

At the start of the year, the China Passenger Car Association predicted that 5.5 million electric vehicles would be sold this year, up from 3.3 million last year. That could be under threat – even as demand rebounds quickly, automakers are struggling to operate at full capacity given Covid-19 restrictions on labor and supply chain constraints.

Just look at recent sales numbers from Xpeng (NYSE:) and Li Auto to see how badly the auto industry has been hit. Xpeng deliveries fell 42% in April from March to just over 9,000. Li Auto shipped just 4,167 vehicles in April, and earlier this month it said that it forecast deliveries of 21,000 to 24,000 vehicles in the second quarter, well below analysts’ expectations for 29,750.

Even Tesla (NASDAQ:) was no exception, shipping just 1,512 vehicles from its Shanghai factory in April, when it was closed for three weeks. Production has now resumed, with the electric vehicle pioneer making extreme efforts to return to capacity of around 2,100 cars a day.

Shanghai’s easing of the lockdown and the central government’s recently announced measures to revive the economy and boost auto sales might not be much help for EV makers either.

A 60 billion yuan ($9 billion) tax cut on new car sales will mainly help fossil-fuel automobiles, according to Fitch Ratings, given that electric vehicles are currently exempt from the purchase tax of 10% (a grant that is expected to expire at the end of this year). This year-end cliff edge for electric vehicle subsidies is a timely reminder of what more expensive battery cars could get without additional government support, especially given the recent pressure on battery prices. .

It’s not all bad news on the subsidy front, however, with regional governments stepping up to help EV makers. Shandong provides subsidies for fossil fuel and electric vehicles, while Shenzhen and Guangzhou offer 10,000 yuan subsidies for electric vehicles and increase license plate quotas for gasoline and diesel cars. Over the weekend, Shanghai increased the quota for car ownership by 40,000 this year and offered subsidies to buyers of electric vehicles.

Even so, Fitch China auto analyst Jing Yang says the company’s forecast for 50% growth in EV shipments this year may need to be ‘revisited’ once the effect is felt. of all government measures will become clearer. “Demand could be negatively affected by lower value for money than internal combustion engine cars after subsidies and new tax breaks, especially amid soaring battery costs,” Yang said.

According to independent economist Hao Hong, annual vehicle sales are already high and car ownership among those who can afford it is “rapidly” reaching saturation point.

“Unless the brutal management of the lockdown goes away, it will be difficult for car sales to normalize,” Hong said. “People don’t spend when they’re discouraged. Shanghai’s lack of car sales in April is the epitome of lockdown destruction. »

©2022 Bloomberg LP

About William G.

Check Also

Following Prosafe SE’s (OB:PRS) latest kr302m market cap drop, institutional owners may be forced to take tough action

To get an idea of ​​who actually controls Prosafe SE (OB:PRS), it is important to …