Can Electric Cars Power China’s Growth?

China’s aggressive policies to develop its battery-powered electric vehicle (BEV) industry have been successful in making the country the dominant producer of these vehicles worldwide. Going forward, BEVs will likely claim a growing share of global motor vehicle sales, helped along by subsides and mandates implemented in the United States, Europe, and elsewhere. Nevertheless, China’s success in selling BEVs may not contribute much to its GDP growth, owing both to the maturity of its motor vehicle sector and the strong tendency for countries to protect this high-profile industry.

China’s BEV Industry

The International Energy Agency’s (IEA) EV Outlook documents the policies that fostered China’s BEV industry. It notes that the government introduced incentives to purchase BEVs (subsidies to consumers, tax exemptions), implemented industrial policies (mandates to produce new energy vehicles, subsidies to producers), and undertook infrastructure investments in public charging stations. Justifications for this expensive push include advancing the country’s design and manufacturing skills, cutting oil imports, reducing urban air pollution, and addressing climate change.  

Domestic production responded. Output of BEVs increased from around 1 million vehicles in 2020 to just over 6 million in 2023, with domestic BEV sales accounting for 23 percent of the passenger car market last year.        

China’s BEV Production Has Increased Dramatically