China leading affordable EV market amid global transition challenges: S&P report

China is at the forefront of providing affordable electric vehicles, supported by government backing and a wide range of low-cost options, according to a new study.

Despite a global slowdown in the transition to EVs, a report by S&P Global Ratings and S&P Global Mobility highlighted the effectiveness of the Asian country’s efforts, pointing to several key factors.

China’s competitive edge in this market is largely attributed to the near price parity between battery-EVs and internal combustion engine vehicles.

In the first quarter of 2024, China saw a BEV penetration rate of 25 percent, showcasing rapid adoption driven by low manufacturing costs and strong government incentives.

In contrast, Western markets face hurdles due to higher costs and diminished subsidies. In Europe and the US, BEVs are still significantly more expensive than their ICE counterparts, with Europe experiencing a 24 percent manufacturer’s suggested retail price premium and the US facing a 37 percent difference.

Additionally, concerns over range, charging infrastructure, and technological obsolescence further dampen consumer enthusiasm, the report added.

While Western automakers are developing more affordable models, such as the VW ID2 and Renault Twingo, these vehicles are not expected to hit the market until 2025-2026 and will only represent a small portion of available options, according to S&P.

The high cost of battery packs, which make up around 40 percent of an EV’s price, remains a significant barrier to affordability.

Despite these challenges, regulatory changes and environmental policies are expected to drive long-term growth in the BEV market.

The EU and China have set ambitious targets for emission reductions and EV adoption, with Beijing aiming for 50 percent “new-energy” vehicle sales in key regions by 2030.

As the global market adapts, the automotive supply chain is undergoing a transformation, with battery technology and production becoming central to the industry.

While China currently dominates this sector, the report stated that efforts in Europe and the US to localize production and develop alternative battery technologies are underway.

The Middle East is also seeing a focus on growing the EV sector, with Saudi Arabia looking to lead the region in this regard.

In 2022, Crown Prince Mohammed bin Salman launched Ceer, the Kingdom’s first automotive brand, to produce and sell EVs, aiming to attract investments, create jobs, and boost gross domestic product in line with Vision 2030.

Saudi Arabia’s Public Investment Fund is also the major shareholder in EV manufacturer Lucid, which opened its first plant outside the US in the Kingdom in September 2023, with an initial capacity to produce 5,000 vehicles a year.

This came as the Kingdom’s government pledged to buy up to 100,000 EVs from the company over 10 years.

Saudi Arabia has set a goal to transition 30 percent of all vehicles in Riyadh to electric by 2030. This target is part of a larger strategy to reduce emissions in the capital city by 50 percent, aligning with the Kingdom’s objective of achieving carbon neutrality by 2060.