China’s new electric cars cost more to insure than fuel-powered cars

BEIJING — As Chinese companies scrap new electric cars, local insurers believe they are more expensive to cover.

In general, the insurance premium for new energy cars ̵[ads1]1; which includes electric cars – is about 20% higher than it would be for comparable traditional fuel-powered cars, said Wenwen Chen, director at S&P Global Ratings, who heads the firm’s China insurance research.

Many factors come into play to determine the price. But Chen said insurers find that the loss ratio — a measure of costs to insurers — tends to be higher for new energy vehicles than for combustion engine cars.

One of the main reasons she cited for a higher loss ratio is more accidents, especially more expensive ones – since new energy vehicles often use parts that haven’t been mass-produced yet.

In the US, insurance for electric cars also tends to be about 15% more expensive than for cars with an internal combustion engine — primarily because electric cars in the US tend to be luxury cars, according to Chase Gardner of Insurify, which compares car insurance prices in the US. USA

But repair costs are another reason for higher insurance rates, since “fewer places have the capacity to service electric cars in the United States,” Gardner said. “In general, people who drive electric cars end up paying lower maintenance costs over time. Again, the big question is, do you get into an accident?”

In the US, Insurify’s analysis of the US market found that there was no difference in accident rates between electric cars, hybrids and cars with a combustion engine.

But according to official Chinese statistics, new energy vehicles in the country are more prone to fire than traditional fuel-powered ones. In the first quarter, 640 new energy vehicles reported fires, 32% more than a year ago, according to the Ministry of Emergency Situations’ fire and rescue department.

This increase was far more than the 8.8% increase in transport vehicle fires overall, the ministry said. More recent figures were not available. The ministry did not respond to a CNBC request for comment.

For the whole of 2021, the ministry reported at least 3,000 new energy car fires. It said the fire risk was generally higher for such cars than for traditional vehicles, without disclosing specific figures.

The rising number of fires comes as the number of new energy vehicles has increased in China.

From January to August, 3.26 million new energy cars were sold – more than double the same period last year and about 25% of all cars sold in the country, according to the China Passenger Car Association. That proportion was around 15% last year.

In contrast, new energy vehicles remain a far smaller part of the US car market.

Hybrid, plug-in hybrid and electric vehicles accounted for 11% of US light vehicle sales in the fourth quarter of 2021, the US Energy Information Administration said, citing data from Wards Intelligence. A more recent report was not available. Light vehicles also include pick-up trucks and vans.

China, home to the world’s largest car market, has supported the growth of new energy vehicles with policies that make it easier to get license plates, as well as subsidize purchases.

For the first seven months of this year, tax exemptions for the purchase of new energy vehicles totaled 40.68 billion yuan ($5.9 billion) — and the equivalent of more than $1 billion in July alone, according to official figures. The tax authority said both amounts were more than double what they were from a year ago.

Many Chinese companies have rushed to launch new energy vehicles, although it is unclear what their specific accident risks are.

New energy vehicles tend to be simpler, especially in design, than combustion vehicles, said Cui Dongshu, secretary general of the China Passenger Car Association.

Electric cars are based on a platform system, and certification of safety can be faster, he said, noting the potential use of virtual test scenarios, or the ability to test individual parts.

In less than a year, Chinese telecommunications and smartphone giant Huawei partnered with car manufacturer Seres to launch three new energy vehicles under the Aito brand. The cars are the first to use Huawei’s HarmonyOS operating system.

At a launch event in July, Huawei Consumer Business Group CEO Richard Yu boasted how quickly his team and Seres were able to conduct many vehicle safety tests in such a short time, to develop and launch two models in just over a year.

“In the hundred years of the auto industry, there is no record of anyone doing it this quickly before,” Yu said in Mandarin, as translated by CNBC.

Two of the three cars have already reached consumers. Shipments of the first model topped 10,000 units in just 87 days – an industry record for a new car brand, Huawei claimed in August.

Usually, it takes three to four years for the production and development of a car, said Helen Chai, consulting director of China Insights Consultancy. She said if the car is based on an existing one, a new model will only take two to three years.

She said the steps to develop and certify a new energy vehicle and an internal combustion engine car are generally the same.

Other local players are rapidly launching new models, although Tesla in particular has not done so.

For example, in the past 12 months, Nio began deliveries of its first electric sedan, launched a second sedan – and launched and delivered a new SUV.

Last year, Baidu and Geely announced the launch of their joint electric car project, Jidu. Next year, the first Jidu car will begin customer deliveries.

Huawei had no comment. Nio and Jidu did not respond to a CNBC request for comment.