| Key Parameter | Value | Source |
|---|---|---|
The number of households in China as of 2021 | 1 | |
The share of single households as of 2018 | 2 | |
Distribution of disposable income of single households |
| |
Distribution of disposable income of non-single households |
| |
Saving rate in China | 4 | |
Mean annual per capita income is for single-person households |
| |
Mean annual per capita income is for non-single-person households |
| |
The price of the BYD Seagull, the cheapest BYD car | 5 | |
Monthly operational cost for a BYD Seagull |
|
The cheapest BYD electric vehicle is the BYD Seagull, starting at 69,800 CNY[5]. A household will afford a car through a combination of income and savings.
Historically, a large share of cars were paid with cash. The share of cars financed through loans may have reached 50% [7]. Leasing is very uncommon in China[8]. Financing a car through a loan usually requires a 20-30% downpayment[9], although there also exist 0% downpayment options[10].
The lower bound for the required income is determined by the recurring operational expenses for the car. An upper bound for the income is determined by the amount required to finance a car without any prior savings.
Conventional wisdom suggests that the cost of a car should not exceed 20% of disposable monthly income.
Lower bound
Assuming monthly operational expenses of CNY[
1.2], this implies a necessary annual disposable income of
Upper bound
We can calculate monthly payment for an installment loan can be using the standard formula for an amortizing loan.
Assumung a price of , an annual interest rate of about 6%[11] and a loan duration of 60 months, we obtain monthly payments of around 1349.
Based on the 20% rule, this implies a required annual dispoable income of around 80940 CNY.
A realistic scenario is a household saving up money over time. We assume that a car is affordable if a household can save up enough money over the course of 10 years (which also ensures it can cover operational expenses). We estimate that a single-person household requires an income of 70000 CNY to do that.
To simplify calculations, we're ignoring interest rates, inflation and changes in income over time. Instead we take the current income as the basis of the calculation and ask what income would be necessary to save enough to purchase the car over the span of 10 years.
This is described by the following equation:
solving for , we obtain
Plugging in the values, we obtain a required income of around CNY.
For a non-single household, the required per-capita income is lower as household members can pool resources. We estimate that for non-single households, the required per-capita income is 35000 CNY.
There were 474M households in 2021[1]. In recent years, the number of households grew by about 1% year, implying a number of 488M households in 2024.
With around 19% single households (assuming an increase from 17% in 2017[2]) and an overall population around 1.4bn, there are 1.308bn people not living in 392M non-single-person households. This implies 3.33 people per household on average.
Higher income households can save more than lower-income households. Dividing the per-income necessary to afford a car by the number of household members would therefore likely be an overestimate. We conservatively estimate that the per-capita income required to finance a car in a 3.33 people household is 50% of that required for a single-person household (i.e. 70000/2 = 35000 CNY).
We estimate that around 25.4% of single-person households and 49.5% of non-single-person households are able to afford a BYD Seagull.
We assume that income in China follows a log normal distribution. Under that assumption, the percentage of Chinese with an income above the threshold is one minus the cumulative distribution function evaluated at that threshold[1.1].
Overall, this implies that 194M non-single-person households and 23M single-person households can afford a BYD Seagull, or 45.6% of all households.
1.1]1.2]