The mixed picture comes as the industry prepares for slower growth as it enters its first year without generous government subsidies that have nurtured it into the world’s largest NEV market, and helped its companies become globally competitive.

China’s NEV shipments totalled 6.5 million units in 2022, up 96.3% from the previous year, according to data from the China Passenger Car Association (CPCA) released on Tuesday.

Meanwhile, nationwide retail sales of NEVs, which include purely electric cars and hybrids, jumped 90% to 5.67 million, according to the association. Warren Buffett-backed BYD, which sold 1.87 million vehicles, accounted for almost 30% of China’s NEV sales in 2022, following minicar maker SAIC-GM-Wuling Automobile and Tesla.

In 2022, NEVs accounted for 27.6% of all vehicles shipped to dealerships, nearly double the share in 2021, CPCA data showed.

The figure means the sector has already beaten an official target for NEV sales to make up one-fifth of overall vehicle sales by 2025, though it came on the back of a slump last year in growth of traditional auto sales.

Projections of NEV sales growth this year put the figure in the 30% to 40% range. An enviable rate for many industries, it would be a considerable slowdown from 2022. The CPCA forecast that China’s NEV sales will rise 31% in 2023 to 8.5 million vehicles, accounting for 36% of all vehicle sales.

Zhang Yongwei, vice chairman of China EV 100, a state-backed industry group, predicted on Thursday that NEV sales will hit 10 million units this year. Gong Min, head of China auto research at UBS (China), put the figure at a more conservative 8.8 million.

China’s auto sales plunged in April and May 2022 when Covid outbreaks hit major cities including Shanghai, and strict control measures confined millions of people at home.

The market revived in the following months but slowed again in October and November amid new waves of nationwide flare-ups. Sales picked up in December as Beijing abandoned its zero-Covid strategy and as buyers rushed to OEMsmake purchases before the end of state subsidies for NEVs and tax cuts for low-emission gasoline cars.

According to CPCA data released on Wednesday, half of China’s top 15 electric-car makers by deliveries saw growth of those deliveries double last year. But overall fewer cars were delivered than expected. The companies that did hit their goals include BYD Auto, Guangzhou Automobile Group’s Aion, Hozon New Energy Automobile and Zhejiang Geely Holding Group’s Zeekr.

BYD, which is backed by Warren Buffett’s Berkshire Hathaway, took the lead with deliveries of 1.87 million units last year, representing 152.5% growth over 2021, according to a news release on its official WeChat account on Jan. 2. That figure beat the annual target of 1.5 million units set earlier last year.

In December, BYD’s deliveries soared 137.3% year on year to 235,197 units, including 11,320 exported, the statement said. Pure electricity-powered models accounted for 48.8%, according to the statement. The company is China’s largest in terms of deliveries, according to the CPCA.

BYD “took the place of Toyota as being the most operationally efficient automotive company in the world”, Tu Le, managing director at Sino Auto Insights told Caixin. He added the company had entered 35 markets over the last couple of years, which is “impressive”.

Despite the strong performance last year, the company’s outlook for 2023 remains unclear. BYD has opted not to reveal a sales target, telling Caixin on Wednesday last week that it “cannot make a judgment” because the impact of Covid on supply chains and consumer demand had complicated the picture. However, according to several media reports, the company has slashed its internal target to 4 million from 5 million for the year.

Other automakers such as Nio, XPeng and Li Auto also posted annual sales growth but missed their targets by up to 52%, with curbs on movement and repeated widespread lockdowns last year hitting EV production hard, especially for manufacturers in the automaking hub of Shanghai and neighbouring regions.

Nio suspended production for a short period in April, with the Shanghai-headquartered EV-maker experiencing disruptions to manufacturing, logistics and deliveries, resulting in it missing its delivery target, according to Bloomberg News.

Nio delivered 122,486 units last year, representing 34% growth, but missed its target of 150,000 units. For December, it recorded a 50.8% yearly growth with deliveries of 15,815 units, which helped the company hit the recently adjusted delivery target for the fourth quarter of 2022.

XPeng posted a 23% increase in deliveries at 120,757 units, less than half its annual target of 250,000 units, according to a news release on Jan. 1. But conditions picked up in December and the company rounded off the year with deliveries of 11,292 units, representing a 29.4% decrease year on year. Its G9 model saw sales surge 160% in the same month.

Sales of Nasdaq-listed Li Auto rose 47.2% to 133,246 units last year, according to a statement on its website, missing the 200,000-unit target. However, its monthly deliveries reached 21,233 vehicles in December, a 50.7% yearly growth.

Meanwhile, Tesla China saw a 37.1% growth in sales to over 439,770 units for 2022, CPCA data showed. Along with plants outside China, Tesla announced 40.3% growth in sales of its four primary models to 1.3 million vehicles, according to news releases, missing an annual target of 50% growth.

There was speculation Tesla could be facing demand issues after shutting down its Shanghai factory for more than a week at the end of 2022 for what it said was maintenance. The company last week cut prices on its China models for the second time in less than three months in efforts to shore up sales, prompting an angry response from some who had already purchased the vehicles at higher prices.

Last year’s retail sales growth across the Chinese NEV market contrasted strongly with stagnant growth of overall auto sales, which were up just 1.9% in 2022 to 20.54 million units compared with 4.4% growth to 20.15 million units in 2021, according to CPCA data. NEV retail sales growth also slowed from 129.2% in January to 35.2% in December year on year according to the CPCA. Around 640,000 NEVs were sold in the final month of the year.

Covid curbs had a major impact on Chinese vehicle manufacturing, forcing some vendors to suspend production. A shortage of components from suppliers and weakening demand in the Chinese NEV market worsened the situation.

XPeng CEO He Xiaopeng warned in May last year there could be industrial-scale breaks in the supply chain.

From the supply side, a shortage of critical components like chips also contributed to production slowdowns. Zeng Qinghong, CEO of Guangzhou Automobile Group, stated on June 25 that the company had a production decline for the first half of 2022 due to a chip shortage and Covid.

“Supply chains run efficiently when there is predictability in lead times and pricing of components and the availability of those parts, along with the workers to assemble them. Covid took away all of that predictability from the original equipment manufacturers and suppliers,” Sino Auto Insights’ Tu Le said.

“There were impacts from both demand and supply due to Covid-19 restrictions in China. Automakers had to wrestle with supply bottlenecks and fluctuating costs.”

Founder and CEO of Nio, William Li, told Bloomberg on Dec 25 that the company would face challenges in the first half of 2023 due to the government subsidies cut and a market slowdown in China. It would take some time for supply chains and consumer confidence to recover from the pandemic, with a full recovery expected in May or June, Li said.

The CPCA held a positive attitude on the exit of the subsidy policy for NEVs in China, stating it can help companies focus more on the market if the subsidies’ income did not match an ideal outcome. They added that it could also cool market expectations, leading to a lowering of prices for upstream raw materials like lithium used in most electric vehicle batteries.

Prices of both industrial and battery-level lithium carbonate rose about 50% in 2022 in China, according to Chinese industry-material data platform Oilchem.

“The subsidies toward the second half of the year weren’t specifically targeting EV purchases so eliminating those subsidies might not have that much negative effect,” Tu Le told Caixin. “But because automotive manufacturing and vehicle sales are such a large part of China’s economy, it could make a slowdown in the market even slower.”

“Subsidies worked by driving both EV supply and demand in China, which is especially important as the market is transitioning to electric. The rate of electrification of vehicles has reached a point where it will accelerate and continue to grow,” Canalys’ Low said.

He believed that “it is now the time to put the industry to the test, especially to see how the market can grow organically, backed by competition from [original equipment manufacturers] to further drive technology advancements, including ADAS, digital cockpits and others.”