As an analyst following the day to day happenings in green transportation, I often feel that the industry blindly accepts that the majority of the future economic opportunity for EVs is in China. Many articles often rehash the usual drivers of near double digit GDP growth, powerful government edicts, and poor urban air quality to support their statements. It certainly makes a strong case.
However, whilst the potential market for EVs in China is obviously HUGE, it is important to dig deeper in order to specifically assess the suitability of EVs as a solution to Chinese consumers rather than get overly excited every time the “C-word” is dropped into the equation. What will make Chinese buy electric vehicles over traditional ICE vehicles? Simply saying the economy is growing fast and air quality is poor, in my book, is not enough.
When taken from this standpoint, the opportunity for EVs in China looks less rosy for at least three reasons:
- Price Sensitive Consumers: It is important to recognize that EVs will, at least for a number of years, command a significant ($10-15k) price premium over traditional ICE vehicles. And even though China’s economy is growing fast, the lion’s share of car buyers in China are having their first taste of “middle-class” life and are likely to be more concerned with price and functionality over the vehicle power source.
- Consumers Need Longer Vehicle Range: China is geographically vast, and anecdotal evidence suggests that there is a significant amount of inter-city driving. Therefore having range and rapid refuelling becomes of paramount importance which exactly what EVs cannot yet offer. This dynamic goes some way to explaining why many of the initial EV roll-outs have been constrained to urban areas with little inter-city commuting and countries that are geographically small such as Israel and Denmark.
- Fuel Isn’t Expensive: One main advantage of EVs compared to ICE vehicles is lower operational costs. Charging vehicles with electrons is much cheaper than gasoline; maintaining an electric motor with fewer moving parts compared to an ICE engine is simpler and more convenient. In countries like Israel and Denmark where fuel costs are high, the operational benefits of owning an EV are also high. However, those benefits become much more limited in China which ranks 115th lowest in the world in terms of gasoline prices.
Therefore, in my opinion, the strongest initial markets for EVs are still likely to be the more affluent, inner city dwellers in the West where the EV is often a “second car” and used for predictable travel such as commuting, as well as the light duty fleet category which often take predetermined routes and are managed in central locations. For the Chinese consumer market, EVs simply aren’t quite ready yet.
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