UBS: China's electric passenger car market to gain traction

China's electric passenger car market is expected to see total production and sales of 6 million vehicles this year, according to an UBS analysis.

Looking into the automobile industry in China, UBS on Wednesday alluded to the resumption of work and production as well as the recent policy support, which will give a boost to the passenger car market.

Although the bigger bottleneck should be on the demand side, the multinational investment bank added.

On May 31, 2022, China announced a 5 percent purchase tax reduction from 10 percent for passenger vehicles purchased between June 1, 2022, to December 31, 2022.

The tax reduction will apply for passenger vehicles with displacement of 2.0L or below, and ex-VAT price tag below 300,000 yuan (US$44,400). This covers not only mass-market models, but also some entry-level premium models, which is wider than previous stimuli.

"We estimate the stimulus policy will cover 7.5 million internal combustion engine cars sold in the next seven months (from June to December), and may boost sales by an extra 700,000 to 800,000 vehicles, assuming the 5 percent tax cut brings 10 percent extra sales volume," said Gong Min, head of automotive research at UBS China.

The growth of the electric vehicle market, meanwhile, was and will remain robust in China, UBS stated, forecasting an EV penetration at 25 percent in 2022, with upside risks.

Limited crowding out effect on EV demand is expected, supported by existing EV subsidy and local incentive policies.

Among key incentive policies on new electric vehicles at the provincial level, Shanghai offers a 10,000-yuan subsidy to each individual who replaces ICE vehicles with EVs by December 31.

In Beijing, the subsidy is at most 10,000 yuan. Shenzhen, meanwhile, gives subsidies of 5,000 to 10,000 yuan for EVs priced between 100,000 and 200,000 yuan, and 10,000 to 20,000 yuan of subsidies for those priced over 200,000 yuan, also valid until the end of this year.

In 2023, the EV penetration may slow down a bit due to the expiration of such supportive policies, while China is still expected to contribute over a half of the global production and sales of EVs, Gong pointed out.

UBS expects China's electric passenger car market to post a total production and sales of 6 million vehicles this year and 7.3 million for 2023.