Used EVs from China will reshape Africa

From the newsletter

China opened its first used EV inspection point for export in Shanghai last week. This comes as the country aims to capitalise on the growing demand for used vehicles, particularly electric cars, in developing countries. The new inspection point is expected to reduce transportation costs and risks and improve efficiency.

• China wants to significantly increase used car exports in the coming years, with a goal of exporting one million used EVs within two to three years.

• The inspection point offers one-stop services for used EV exporters, including vehicle registration and port logistics, and cuts export time by about 10 days.

More details

• China has been leading the world in EV production. In 2022, 6.64 million new energy vehicles (NEVs) were produced in China, and production is projected to reach 10 million EVs in 2024. The Chinese population has also been leading in EV adoption, with EVs accounting for roughly 50% of all vehicle sales in the country.

• This high adoption rate has quickly given rise to a used EV market. However, China's market was initially restricted to domestic sales. This began to change in 2019 when China started opening up its used EV market. The establishment of the new inspection point aims to streamline the entire process.

• Africa mainly relies on the importation of second-hand cars, importing at least 1 million used vehicles annually from developed countries. The United Nations Environment Programme (UNEP) estimates that more than 60% of the vehicles added to Africa's fleet annually are used vehicles, with some being as old as 15 years.

• EVs are still expensive, so the option of buying used EVs could provide a cheaper alternative. In 2023, China exported 275,000 used EVs with an export value of $6.88 billion, or roughly $25,000 per car. However, there is a challenge: Used vehicles need to be exported to countries that match the driving orientation (left-hand drive or right-hand drive).

• China drives on the right-hand side of the road, which is the most common globally, with about two-thirds of the world driving on the right. This makes many African countries potential target markets for used car exports, including most of West, North, and Central Africa. However, some key African markets, such as South Africa, Kenya and Tanzania, drive on the left-hand side of the road, making them unsuitable for direct import of right-hand drive vehicles from China.

• Interestingly, key markets like Ethiopia, which recently banned the importation of fuel vehicles, could be a big target for China. Chinese EV makers like BYD have already made inroads in Ethiopia by signing partnerships with local players like Inchcape for the distribution of their EV brands.

• In West Africa, Nigeria could be one of the largest markets to target. It is populous and imports the most second-hand fuel vehicles on the continent. Its transition to EVs is picking up, and second-hand Chinese EVs could make adoption even more attractive.

Our take

• The high cost of EVs has been the main obstacle to their adoption in Africa. Many people lack the finance for upfront purchases, and the availability of cheap, second-hand fuel vehicles makes them reluctant to switch to EVs.

• However, a potential solution is emerging from China. As one of the earliest and largest adopters of EVs, Chinese consumers will likely replace their old EVs and seek affordable upgrades. This will create a supply of used EVs that could be exported to Africa at more affordable prices, making EVs a better option.

• Despite the opportunity, many African countries lack proper policies and regulations on the importation of used EVs. For example, Kenya has implemented regulations requiring imported used EVs to have a battery life of at least 80%. Without such safeguards, there is a risk that the continent could become a dumping ground for EVs with degraded batteries that would require costly replacements soon after purchase. Africa needs to move quickly to formulate policies that address this issue.