BEIJING (Reuters)

Half of all vehicles sold in China in July were new pure electric vehicles (EV) or plug-in hybrids, marking a significant milestone in the world’s largest auto market’s shift towards EV adoption.

Sales of new energy vehicles (NEVs) surged by 37% compared to the same month last year, accounting for a record 50.7% of total car sales, according to data from the China Passenger Car Association (CPCA).

Three years ago, NEVs made up just 7% of vehicle sales in China, but heavy investments in the EV supply chain have driven growth, making it challenging for established foreign brands to keep pace.

In contrast, sales of electric and hybrid vehicles in the United States reached 18% in the first quarter of the year, per the U.S. Energy Information Administration.

The growth in NEV sales in China has increased from a 28.6% rise in June, with pure electric vehicle sales rising by 14.3% in July, up from 9.9% growth in June.

Solid growth in NEV sales helped local brands like BYD and Li Auto set new monthly sales records.

However, overall domestic car sales dipped 3.1%, marking the fourth consecutive month of decline amid weak consumer confidence and a struggling economy, particularly due to a prolonged housing market crisis.

In response to automotive market weakness, China’s state planning agency announced in late July that cash subsidies for vehicle purchases would be doubled to 20,000 yuan ($2,785) retroactively effective from April.

Certain cities have also relaxed car purchase restrictions; for instance, Beijing announced it would expand its NEV license quota by 20,000 in a first easing of limits since 2011.

A price war among domestic brands competing on newer, cheaper models is easing, with automakers looking to protect profit margins. The CPCA’s secretary general Cui Dongshu anticipates further stabilization in August and September.

BYD, China’s leading EV manufacturer, continued offering discounts in July but at a reduced intensity compared to the first half of the year. It provided discounts of up to 17.3% on the hybrid SUV BAO 5 under its Fangchengbao lineup at the end of July.

Additionally, vehicle exports in July increased by 20% year on year, showing a decrease from the 28% rise in June as China-made EVs prepare for provisional EU tariffs.

($1 = 7.1838 Chinese yuan)