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

China's new electric cars cost more to insure than gasoline-powered cars
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In China, new energy vehicles are usually given green license plates – which are often easier for residents to apply for compared to the blue license plate of a traditional fuel-powered car.

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BEIJING — As Chinese companies build new electric cars, local insurance companies find them more expensive to cover.

In general, the insurance premium for new energy cars — including electric ones — is about 20 percent higher than it would be for comparable traditional fuel-powered cars, said Wenwen Chen, director of S&P Global Ratings, who led the firm’s study of China insurance.

Many factors go into determining the price. But Chen said insurance companies are finding that the loss ratio — a measure of costs for insurers — tends to be higher for new energy vehicles than for cars with an internal combustion engine.

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

In the US, insurance for electric cars is also about 15% more expensive than for cars with an internal combustion engine — mainly because electric cars in the US tend to be luxury vehicles, according to Chase Gardner of Insurify, which compares insurance rates on cars in the United States

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

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In the US, Insurify’s analysis of the US market found that there are no difference in accident rate among electric cars, hybrids and cars with an internal combustion engine.

But according to official Chinese statistics, the country’s new energy vehicles are more prone to fires than traditional fuel-powered ones. According to The Fire and Rescue Service of the Ministry of Emergency Situations.

That increase was much more than the 8.8 percent increase in vehicle fires overall, the ministry said. More recent data was not available. The ministry did not respond to CNBC’s request for comment.

For all of 2021, the ministry reported at least 3,000 new energy vehicle fires. He said the risk of fire is 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 in China rises.

From January to August 3.26 million new energy passenger cars were sold — more than double from the same period last year and about 25% of all passenger cars sold in the country, according to the China Automobile Association. This share was around 15% last year.

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

Hybrids, plug-in hybrids and electric vehicles accounted for 11% of US light-duty vehicle sales in the fourth quarter of 2021. reported the US Energy Information Administration, citing Wards Intelligence data. A more recent report was not available. Light duty vehicles also include pickup trucks and vans.

A flood of new cars

China, home to the world’s largest auto market, has supported the growth of new energy vehicles with policies that make it easier to obtain 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) – or the equivalent of more than $1 billion in July alone, according to official figures. The IRS said both amounts were more than that twice as much as a year ago.

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

New energy vehicles are generally simpler, especially in design, than internal combustion vehicles, said Cui Dongshu, secretary general of the China Automobile Association.

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

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In less than a year, Chinese telecommunications and smartphone giant Huawei has partnered with automaker Seres to launch three new energy vehicles under the Aito brand. 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 period of time to develop and launch two models in a short time more than a year.

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

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

It usually takes three to four years to produce and develop a car, said Helen Chai, consulting director at China Insights Consultancy. She said if the car was based on an existing one, a new model would only take two to three years.

She said the steps for developing and certifying a new energy vehicle and an internal combustion engine vehicle are generally the same.

Other domestic players are rapidly releasing new models, although notably, Tesla is not

For example, in the last 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 is the first Jidu car ready to start deliveries to customers.

Huawei has no comment. Nio and Jidu did not respond to CNBC’s request for comment.

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