Electric vehicles have surged to make up over 65% of new car sales in China, hitting an all-time high. This swift shift is largely due to rising fuel prices, exacerbated by the ongoing Iran war, which are steering consumers away from traditional petrol-powered cars.
This trend is in line with Beijing's strategic five-year automotive industry plan, which aims to bolster the domestic market and foster innovation while keeping capacity in check. Foreign carmakers are reacting to this competitive market by slashing prices on their petrol models.
The heated market has brought mixed results for electric vehicle manufacturers. BYD and Leapmotor reported significant sales boosts in August. BYD saw a 17.8% increase from the previous year, while Leapmotor experienced an impressive 80.7% rise. BYD also reported a hefty US$1.2 billion profit in the second quarter, surpassing market expectations, thanks to booming exports that helped counter a domestic market slump.
Meanwhile, Tesla has reintroduced price cuts in China to tackle declining deliveries, amid analyst warnings of intensifying price wars in the EV sector. Xiaomi, a local competitor, has seen its net profits fall for three straight quarters, even as it ramps up spending on AI research and development.
Technological progress remains a central focus for the industry. A Chinese team recently made a breakthrough by quadrupling fuel-cell power. Chery, a Chinese automaker, plans to invest US$1.49 billion in solid-state battery technology over the next two years, with testing slated to start next year. The leading global producer of lithium-ion batteries, CATL, has committed over 17 billion yuan to investments beyond batteries, searching for new growth opportunities. However, uncertainty over the reopening of CATL's lithium mine could cause price fluctuations in the fourth quarter.
Autonomous driving and robotics are also progressing rapidly. Robotics shares supply chain synergy with smart EV production, using similar components like cameras, radar, and software. In China, self-driving cars can handle complex city traffic, change lanes, and even park themselves. Chinese robotaxi companies, including Pony AI, report fewer regulatory challenges in Europe as they expand their fleets there. Momenta and Pony.ai are broadening their partnerships in European cities, with Deutsche Bank increasing its price target for Momenta.
Tesla plans to showcase its Cybercab robotaxi in China, though the company insists this does not indicate plans to sell it there. Observers think the tour could still enhance the brand's image. However, geopolitical tensions between Beijing and Washington could create a hurdle if Elon Musk tries to merge his leading companies.
Regulations are also shaping the market. Beijing has issued guidelines for Chinese carmakers to curb overseas discount wars, aiming for sustainable growth in global markets. Authorities have urged automakers to focus on quality over technological offerings, warning that new technologies not meeting stricter approval processes will be barred. A new traffic safety law is poised to clarify liability standards for fully automated cars, potentially making way for next-gen vehicles. China has also banned retractable door handles over safety concerns, resulting in a massive recall of 3 million Tesla cars and 400,000 Xiaomi vehicles.
The market is evolving, with younger, more diverse Chinese buyers increasingly choosing local premium EV brands. These consumers are attracted to the technology and features once only found in foreign brands. Automakers are competing to turn vehicles into digital entertainment hubs, offering amenities like film projectors and virtual reality capabilities.
