Flood of new electric cars in China cost 20% more to insure than gasoline cars

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

In general, the insurance premium for new energy cars – including electric ones – is about 20% higher than it would be for comparable traditional gasoline cars, said Wenwen Chen, director of S&P Global Ratings. , who leads the company’s insurance research in China. .

Many factors go into determining the price. But Chen said insurance companies find that the loss rate – a measure of cost to insurers – tends to be higher for new energy vehicles than for internal combustion engine cars.

One of the main reasons she cited for a higher loss rate is the higher number of accidents, especially the more expensive ones, because new energy vehicles often use parts that are not yet produced in series.

In the United States, electric car insurance also tends to be around 15% more expensive than combustion engine cars – mainly because electric cars in the United States tend to be luxury vehicles, according to Chase Gardner at Insurify, which compares car insurance rates in the United States

But repair costs are another reason for higher insurance prices, as “fewer places have the capacity to service electric cars in the United States,” Gardner said. “Typically, people who drive electric vehicles end up paying lower maintenance costs over time. Again, the big question is, do you have 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 combustion engine cars.

But according to official Chinese statistics, new energy vehicles in the country are more prone to fires than traditional gasoline vehicles. In the first quarter, 640 new-energy vehicles reported fires, up 32% from a year ago, according to the Department of Emergency Management’s fire and rescue department.

This increase was well above the 8.8% increase in transport vehicle fires in general, the ministry said. More recent figures were not available. The department did not respond to a CNBC request for comment.

For all of 2021, the ministry reported at least 3,000 new energy vehicle fires. He said the fire risk was generally higher for these 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 passenger cars were sold, more than double the same period last year and about 25 percent of all passenger cars sold in the country, according to the China Association. private cars. This share was around 15% last year.

In contrast, new energy vehicles remain a much smaller share of the US auto market.

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

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

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

Many Chinese companies have been rushing to launch new energy vehicles, though it’s unclear what their specific crash risk is.

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

Electric cars are based on a platform system and safety certification 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 telecom and smartphone giant Huawei has teamed up with automaker 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 bragged about how quickly his team and Seres were able to complete numerous 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 automotive industry, there’s no record of anyone doing it this fast before,” Yu said in Mandarin, translated by CNBC.

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

Typically, it takes three to four years to manufacture and develop a car, said Helen Chai, consulting director at China Insights Consultancy. She said that if the car is based on an existing car, a new model would only take two to three years.

She said the development and certification steps for a new energy vehicle and an internal combustion engine car are generally the same.

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

For example, over the past 12 months, Nio has started 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 is expected to begin deliveries to customers.

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