Electric cars drive China's move up RE value chain

A move by China to halve the 10pc purchase tax on small cars, defined as engines no larger than 1.6 litre, on 1 October is expected to lend further impetus to the country's growing electric and hybrid car sector.

The new tax policy, effective until the end of next year, follows three months of contracting car sales in China — the world's largest automaker since 2009. When purchase tax on cars was last lowered in 2009, China pushed past the US in terms of automobile production, as Chinese car sales surged by 53pc on the year.

As part of the new directive on lower purchase tax on small cars, the government is also prohibiting local governments from restricting the purchase and operation of electric vehicles and has announced its support for promoting new energy (electric and hybrid) vehicles and battery development.

As the world's largest producer of rare earths, responsible for an estimated 80pc of global supply, which is forecast at 200,000t this year, China is well placed to support its plans to increase the usage and production of electric and hybrid cars. A typical sedan requires 0.44kg of rare earths centred on magnets, batteries and catalytic converters, while a typical full hybrid electric vehicle requires 4.5kg of rare earths if it features a NiMH battery or 1.5kg of rare earths with a Li-on battery, according to US car maker Ford Motor's sustainability report for 2013-14.

China has been gradually moving up the rare-earth value chain over the years, after starting out as a producer of low-value rare earth materials. It has since become a key international supplier of high-performance rare earth magnets and a wide range of glass, ceramic, electronic and renewable energy products that are produced from domestically mined rare earths. This year Chinese consumers are expected to account for 65-67pc of global rare earth demand, which is forecast at 145,000-148,000t, based on industry estimates.

In 2014, Chinese exports of rare earth permanent magnets increased by 15pc to 21,554t. Key growth areas of electric and hybrid vehicles and renewable energy are expected to drive demand for rare earths in the next few years. More projects aimed at developing high-performance permanent magnets have emerged in China in recent years to cater to the growing need. Demand for rare earth magnets could grow by 8-10pc/yr over the next decade, according to industry estimates.

Despite a period of weakness in car sales from June to August this year, Chinese hybrid and electric car sales rose.

Total production of electric and hybrid automobiles in China reached 144,284 units in January-September, twice the number a year earlier, according to China's automobile manufacturers' association. This figure comprised 93,032 battery electric vehicles double the production in 2014 and almost double the production of plug-in hybrid vehicles on the year to 51,252.

The sale of new energy vehicles in China is still a fraction of total automobile car sales, at 17.04mn units from January to September, but electric car sales are expected to continue growing alongside sales of Chinese-brand cars, particularly following Beijing's efforts to reduce the value of the yuan against major currencies this summer. The market share of Chinese-brand cars in the domestic market was on the decline in 2013-14, but sales of Chinese-brand cars have improved this year — excluding a 0.13pc decline in June. Following yuan devaluation in August, the sale of Chinese-brand cars rose by 39.1pc on the year to account for 39.4pc of the 1.42mn total car sales that month. Chinese-brand cars have accounted for 38-44pc of total car sales in China so far this year.

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