China’s passenger car sales took a hard hit in January, with a 38% slump reversing the 2.4% gain from the previous month. As it turns out, the demand for vehicles has weakened after a tax cut on combustion engine cars and subsidies on electric vehicles (EVs) expired. And, to make matters worse, the sales of new energy cars, including pure battery EVs and plug-in hybrids, also fell 6.3% in January following a blazing 90% growth in 2022.
According to the China Passenger Car Association (CPCA), “New energy car sales in January didn’t meet our expectations, with a rare year-on-year decline in single month sales.” The Secretary General of CPCA, Cui Dongshu, pointed out that the Lunar New Year and the end of EV subsidies were among the factors contributing to this decline. After all, the Chinese people celebrated a full week of the Lunar New Year holiday, making January a quieter month compared to previous years.
Despite signs of easing demand, the central government of China didn’t extend a 50% purchase tax cut on combustion engine vehicles when it expired at the end of December, and also decided to end a national subsidy for EV purchases that had been in place for over a decade. This has forced automakers, including Tesla, to offer deeper discounts to maintain their market shares.
However, China’s auto market remains reliant on incentives from local governments to encourage purchases. For example, Shanghai extended a 10,000-yuan ($1,470) rebate for those exchanging their oil cars for electric ones, and cities like Zhengzhou, Wuxi, Shenyang, and Beijing issued coupons for auto consumption.
Despite the challenges, Tesla still sold 66,951 China-made EVs in January, a 10% increase from a year earlier and 18% higher than December. The company’s market share in China’s battery electric car sector rose to 12.5% in January, up from 9% in December, according to Reuters calculations. Interestingly, Tesla was the second-best-selling EV maker in China last month, with BYD Co Ltd taking the top spot by shipping 150,164 cars.
The CPCA data showed that new energy vehicles accounted for a quarter of the 1.3 million car sales in the month, a sharp drop from 35% in November 2022.