Hurt by price wars, Chinese automakers now question if China has gone too deep into BEVs

Several Chinese carmakers recently expressed a rare pushback on their government’s battery EV (BEV) promotion policy. Speaking against a backdrop of slowing demand and intense price wars eating into their already-thin profits, leaders of Geely, GAC, and Changan called for moderation to ensure sustainability of China’s automotive industry.

The comments were made in the weeks prior to the National People’s Congress – one of the most important events in China’s political calendar. The fact that state-owned companies like GAC and Changan – which usually toe the line given by their central government owners – raised some eyebrows.

Feng Xingya, President of GAC Group, which owns the BEV-only Aion brand, and counts Toyota and Honda as its partner for combustion engine vehicles, presented a counterproposal to the government, saying that it is risky for China to bet everything on BEVs, and that combustion engine vehicles will remain mainstream for a very long time.

He also said that is risky for a country to be overly reliant on a single energy path, adding that energy-efficient combustion engine vehicles are still an important foundation for China’s automotive industry.

Feng urged Chinese policymakers to recognize the benefits of hybrids by easing sales restrictions of such vehicles.

Many Chinese cities impose a monthly quota on registration of non-plug-in charging-capable vehicles. A customer can buy whatever car he / she wants, but issuance of number plates are capped to a certain amount (depending on city), via balloting. Plug-in hybrid (PHEVs) and BEV models are exempt from this rule and are given a green number plate.

Meanwhile, Changan’s Chairman Zhu Huarong said China’s BEV growth is still heavily reliant on incentives and warned Chinese carmakers to not be complacent with their success with BEVs at home.

Zhu explained that the main reason foreign manufacturers are not as enthusiastic about BEVs as the Chinese is because they know that sustaining profits for BEVs (without incentives) is extremely difficult.

“They (foreign car makers) are still watching and waiting for the best opportunity. Once they take action, they can quickly rise (in BEVs) by tapping their global resources and footprints,” said Zhu.

Changan owns the BEV-only Avatr brand, and E-REV brand Deepal. E-REVs, or extended range electric vehicles, are similar to PHEVs, except that the combustion engine is used solely as a generator. Avatr and Deepal have partnerships with Huawei and CATL to develop electrified vehicles.

Changan is also the local partner for Ford and Mazda.

Meanwhile, the privately-owned Geely said it will not give up on combustion engines.

“We won’t easily stop producing traditional vehicles,” said Chairman Li Shufu in an interview with a local media. Geely maintains a multi-pronged approach to its powertrain strategy, with a mix of plug-in hybrids, battery EVs, while also developing alternatives like methanol-burning engines. Geely recently took over the money-losing BEV-only Polestar brand from Volvo, also a Geely-owned brand.

Volvo is still keeping to its 100% BEV by 2030 goal, but the company is now tempering expectations, saying that it will “refresh its plug-in hybrid cars, which are an important bridge towards full electrification.”

Li added that Geely will continue to “do a good job” with combustion engine vehicles, adding that traditional cars are crucial in providing Geely with the stability it needs while developing the next generation vehicles.

Geely is also planning to list the BEV-only brand Zeekr on the New York Stock Exchange.

BEVs make up about 30 percent of China’s total new car sales. Including PHEVs and extended range electric vehicles (E-REVs, plug-in hybrids with a small engine used exclusively as an on-board generator), the figure rises to around 40 percent. China lumps BEVs, PHEVs, and E-REVs together as electric vehicles (EVs), grouping them as New Energy Vehicles (NEVs).

PHEVs (including E-REV), which still use combustion engines, are the fastest growing segments in China, rising 83 percent last year, versus 21% for BEVs.

PHEVs also face less intense price pressure (generally speaking, until BYD slashed prices of its DM-i models) and more manufacturers are seeing it as a necessary hedge to maintain stability in their business.

BYD relies on PHEVs for nearly half of its sales in China.