China’s $4,230 Electric Cars Tap Huge Market Tesla Can’t Reach

China Tesla electro car

No-frills models bring green transportation to the masses.

Chinese factory worker Weng Changqing knew he wanted an electric car before he even had his driver’s license. Living in a small town in eastern China and looking to start a family, he figured the savings on gas and maintenance would allow him to afford to buy his first ride.

He wasn’t in the market for a Tesla Model 3, which starts at about $38,000 in China. Instead, the 37-year-old bought a 66,900-yuan ($10,000) crossover from local electric-vehicle maker Hozon Auto. It’s one of a growing number of vehicles that run on batteries and electric motors gaining popularity in lower-income parts of the country because of their modest prices and lower running costs. (EVs don’t need oil changes, spark plugs, or the various belts that have to be replaced periodically on gasoline cars.)

Cheap, reliable EVs like Changqing’s have the potential to open car ownership—and the increased mobility that brings—to a whole class of people who previously couldn’t afford to have their own wheels. Changqing estimates the cost of electricity to charge his car for an entire year to be less than $400, which would buy only 377 liters (100 gallons) of gasoline in China—enough to drive about 6,300 kilometers (3,915 miles) in a 2020 Trumpchi GS3 crossover from Guangzhou Automobile Group Co.

“These ultracheap EVs are reaching a new customer in China, as they likely will in other markets as prices come down,” says BloombergNEF analyst Siyi Mi. EV prices are on track to reach parity with fossil fuel-powered cars in the next four to six years, at which point annual sales will start to skyrocket, reaching 25 million in 2030, up from about 2 million a year currently, according to BNEF.

This shift could have far-reaching social effects, especially for people living outside city centers and in rural areas where access to public transport is limited, says Selika Talbott, a professorial lecturer at American University in Washington and founding partner of an automotive consulting firm.

Over the past decade, car prices have far outpaced wage growth in the U.S., leaving the lowest-earning fifth of the population spending as much as 30% of their income on transportation costs. “Taking into account people’s access to transportation, it’s very important to see a greater diversity of models like EVs being offered on the lower end of the price range,” Talbott says.

In China, Hozon Auto’s Neta N01 is one of a slew of low-cost EVs, including the $8,950 e1 minicar from Warren Buffett-backed BYD Co. There’s also the SAIC Motor Corp.General Motors Co. joint venture’s Hongguang Mini, which entered the market last year at a base price of just $4,230 and quickly became a hit. In the first half of 2020 the average retail price of an EV, excluding incentives, was $55,233 in the U.S., compared with $29,895 in China, according to automotive research firm Jato Dynamics.

Automakers are able to churn out the mainland’s budget EVs by keeping frills to a minimum in the interior and under the hood. The cars are often only capable of traveling at low speeds. And Changqing’s electric crossover gets about 187 miles per charge—about half the distance of a Tesla Model 3 Long Range.

The low prices allow an increasing number of people—often young, lower-income, and living outside major cities—to buy their first car. These EVs are especially popular in more rural parts of China, where more than 500 million people live but fewer than 1 in 5 have until recently owned a car. Some models are flying off lots at a pace industry executives say they’ve never seen before.

In the month after the Hongguang Mini EV made its debut in July it was the top-selling new-energy vehicle in China, with 15,000 units sold. In September its sales hit more than 20,000, almost double that of Tesla Inc.’s Model 3 that month.

Still, a number of obstacles stand in the way of an EV-led democratization of the car market spreading outside regional areas of China. The nation’s low-cost EV industry has benefited from government subsidies and other incentives such as low-interest loans in villages, towns, and smaller cities.

China is also the world’s biggest battery manufacturer, so its EV makers benefit from access to a low-cost supply of the most expensive part of a plug-in vehicle. With automakers and parts suppliers in other countries unable to manufacture at such low costs, they may not be able to offer such affordably priced EVs for some time, BNEF analysts say.

And for the rollout of electric vehicles to be equitable, there needs to be widespread access to charging facilities, Talbott says. Today, charging stations often end up concentrated in affluent metropolitan areas, and some apartment dwellers without off-street parking don’t have access to at-home charging.

Nonetheless, low-cost EVs have already started to gain traction in many markets over the past five years. A recent studyfrom the Massachusetts Institute of Technology, mapping more than 1,000 cars available in the U.S. on the basis of their total lifetime costs (which include upfront, maintenance, and fueling expenses), shows that Nissan Motor Co.’s electric Leaf—starting at less than $25,000 for a 2021 model after tax subsidies in the U.S.—is one of the cheapest cars available today.

The study’s head, MIT professor Jessika Trancik, says that in the years since her team began evaluating vehicles in 2016, she’s seen more electric cars, with longer range, falling below the average cost of vehicle lifetime ownership in the U.S. “There are already EVs on the market that can save consumers money,” she says. “That’s something that’s important for people to know.”

Changqing mostly uses his EV for his daily commute to work. In his bachelor days he got by with a motorbike—a low-cost option popular in many parts of developing Asia. But about a year ago he found a new need for the car: His wife was pregnant with their first child and had to be driven to her regular checkups.

“The reality is it’s a necessity for each family to have a car, regardless of their economic condition,” Changqing says. “You may have a luxury car, or you may only be able to afford a cheap one, but it’s a must.” —With Chunying Zhang

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