China’s NEV sector improves in May but still down annually

China’s output and sales of new energy vehicles (NEVs) continued to increase month on month in May but figures are still down on an annual comparison, reflecting the sharply reduced subsidies.

China produced 84,000 NEVs in May, including pure electric vehicles (PEVs) and plug-in hybrids. This was up by 5% from April, but down by 25.8% from May 2019, according to data released by the China Association of Automobile Manufacturers (CAAM).

In May, Chinese automakers produced 55,000 PEVs, up by 12.2% from April, but down by 35% from the corresponding month last year. Plug-in hybrids made up 21,000 units, down by 4.5% month on month, while up by 13.8% year on year.

Sales of NEVs totaled 82,000 units in May, up 13.9% month on month, while down by 23.5% year on year. PEV sales rose by 32.6% month on month to 57,000 units, but fell by 25% year on year. Sales of plug-in hybrids were down by 15% month on month to 17,000 units, and down 19.1% from a year earlier.

Over January-May 2020, a total of 295,000 NEVs were produced, down by 39.7% from the corresponding months a year earlier, while total sales also fell to 289,000 units over the same period, down by 38.7% year on year.

In the same five-month comparison, output of PEVs fell by 44.7% to 195,000 units and output of plug-in hybrids decreased by 27.9% to 70,000 units. Sales of PEVs were down by 41.3% to 195,000 units, and sales of plug-in hybrids totaled 65,000 units, down by 35.3%.

CAAM said China’s NEV market has not shown significant recovery since the sharp decline on government subsidies in 2019, and this emphasized the existing contradiction between the production cost of NEVs and acceptable prices among consumers.

CAMM also pointed to the gap in charging infrastructure and said it did not expect “explosive growth” in the NEV market this year.

“Although it is encouraging the EV sales in China are slowly recovering on a month on month basis, the fact they are still down heavily on a year on year basis is a big disappointment, especially when total vehicle sales in China were up 7% in May, year on year,” head of base metals and battery research at Fastmarkets William Adams said.

“While the subsidy cuts from last year have no doubt made EVs relatively more expensive than petrol/diesel vehicles, I would have thought the ability to get a licence plate quickly for an EV would have proved a big incentive in Tier-1 cities outside Beijing. But perhaps congestion in Tier 1 cities means most of the new vehicles sales are being made where the waiting time for licence plates is not so great,” Adams added.

Raw material demand
The price of lithium and cobalt, two key raw materials widely used in batteries for NEVs, have remained under pressure this quarter due to weak downstream demand.

Cobalt prices had gained some upward momentum in May due to supply disruptions for cobalt hydroxide when South Africa implemented a lockdown to contain the Covid-19 virus, but this petered out in early June when spot buying interest thinned.

Fastmarkets’ assessment for cobalt sulfate 20.5% Co basis, exw China was 46,000-47,000 yuan ($6,508-6,650) per tonne on Wednesday June 10, unchanged week on week.

Meanwhile, lithium prices have continued the downturn since the start of 2020 caused by weaker demand from cathode makers and ample material on the spot market. In response to these bearish fundamentals, producers have continuously lowered prices to boost sales and cashflow.

Fastmarkets’ weekly price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range exw domestic China was 40,000-43,000 yuan per tonne on Thursday, unchanged from the previous week, but down by 1,000 yuan per tonne from 41,000-44,000 yuan per tonne on May 28, and a decrease of 13.5% from 45,000-51,000 yuan per tonne on February 27, when a downtrend started.

“The combination of a relatively slow recovery in EV demand in China and a likely low pace of spending on large-ticket items, such as vehicles, in other countries that are starting to recover from Covid-19 restrictions means demand for EVs and lithium-ion batteries is likely to remain sluggish for longer. We do, however, see this as a temporary setback, we are in no doubt that the EV evolution will gain momentum again once we emerge from the Covid-19 crisis, especially as many governments are targeting incentives for the adoption of EVs,” Adams said.

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