Based on a new study from the US think tank Center for Strategic and International Studies (CSIS), the Chinese government has provided at least $230 billion in government support to electric car manufacturers such as BYD over the past decade, with subsidies accounting for approximately 18.8% of the sales price.
Over the past ten years, government subsidies have been a core pillar for China to become a powerhouse in the electric vehicle industry.
This government funding has played a crucial role in promoting the development of China’s electric vehicle industry and has been cited as a reason for the European Union’s imposition of anti-subsidy measures against the influx of cheap Chinese electric cars. Last week, the EU announced tariffs of up to 38% on imported electric vehicles from China.
Following an investigation, the EU concluded that Chinese companies benefited from unfair government subsidies, enabling them to sell cars at prices far below those of their European competitors.
Last month, the United States announced a tariff increase to 100% on imported Chinese electric vehicles.
CSIS data shows that government support for the Chinese electric vehicle market has roughly doubled from 2017 to 2020, reaching a staggering $45 billion in both 2022 and 2023.
Chinese electric vehicle manufacturers can receive government support through various channels, including infrastructure subsidies, tax exemptions, and buyer rebates.
According to CSIS, their estimate of $230 billion in subsidies from the Chinese government to the electric vehicle industry since 2009 may be underestimated, as it does not include support from local governments, many of which have made significant investments in local electric vehicle companies. It also excludes subsidies for other parts of the electric vehicle supply chain, such as battery manufacturing.
Based on CSIS estimates, Chinese battery giant CATL received $809 million in Chinese government subsidies in 2023, double the figure from 2022.
According to data from the International Energy Agency, China is now the world’s largest electric vehicle market, with Chinese electric vehicle production accounting for 60% of global electric vehicle sales in 2023—significantly higher than competitors like the US and Japan.
CSIS China Business and Political Economy Program Director Scott Kennedy stated that Chinese government subsidies accounted for approximately 18.8% of total electric vehicle sales revenue in China from 2009 to 2023.
He noted that the proportion of government subsidies to total sales revenue had dropped from over 40% in 2017 to over 11% in 2023.
Kennedy estimated that in 2023, the average subsidy per electric vehicle buyer in China was $4,600, lower than the $13,860 in 2018.
He pointed out that Beijing’s support for electric vehicles includes non-monetary policies that favor domestic automakers over foreign ones.
Kennedy highlighted that despite strong government support and market growth for Chinese electric vehicle companies, profit margins have not significantly improved.
The extensive government support has led to cutthroat competition among numerous Chinese electric vehicle companies, resulting in price reductions. BYD’s “Tang” is one of the best-selling electric cars, priced at less than $10,000 in China.
“In a well-functioning market economy,” he said, “companies would be more cautious in investing in new capacity, and such a huge gap between supply and demand could lead to industry consolidation.”
According to first-quarter analysis by Lyon Securities, BYD’s net profit per vehicle has dropped to $739 in the last 12 months. Data shows that top US electric car manufacturer Tesla’s net profit has fallen to $2,919.
In 2023, the electric vehicle industry faced intense price wars, with car companies either lowering prices or introducing lower-priced product lines.
Chinese electric vehicle startup NIO stated in May that approximately 10 car manufacturers are expected to exit the Chinese market in the near future, leaving only 20 to 30 companies.
Four years ago, Kennedy warned Western governments in a report on how Chinese electric vehicles could trigger trade tensions and proposed seven policy measures.
He stated that four years later, overall, Western car manufacturers and governments are still hesitant and not proactive enough in addressing the challenges posed by Chinese electric vehicles.
“Independent car analysts and Western car manufacturers I have interviewed all believe that Chinese electric vehicle manufacturers and battery producers have made significant progress that (the West) must take seriously,” Kennedy said.