The increasing replacement sales of buses in China is resulting in the rising demand for electric buses. About one-third of the few million buses/coaches in China, accumulated over the last decade, are more than five years old. These conventional buses are predicted to be replaced by new electric buses in the coming years. In addition to this, the government of the country is increasingly focusing on increasing the number of electric buses in the transportation system. The penetration of electric buses is expected to be faster than that of other electric vehicles, such as cars, as persuading hundreds of bus operators to choose for the new technology is easier than convincing millions of car buyers to do the same.

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According to a report by P&S Intelligence, in 2017, the electric bus sales in China were 104.3 thousand units, which is expected to reach 176.4 thousand units by 2025, growing at an 8.6% CAGR during the forecast period (2018–2025). The three type of electric buses are hybrid electric bus, battery electric bus, and plug-in electric bus. Out of these, the largest demand was created for battery electric buses during 2015–2017 and the situation is projected to remain the same in the coming years as well, which is attributed to the increased government support for these buses. The fastest growth in demand is expected to be witnessed by the plug-in electric buses during the forecast period.

The two major battery types utilized in electric buses are lithium nickel manganese cobalt oxide (NMC) and lithium-iron-phosphate (LFP). Between these two, the largest demand was created for LFP during 2013–2017 and the situation is projected to remain the same in the coming years as well. The fastest growth in demand is expected to registered by the NMC battery type during the forecast period. This is attributed to the inclusion of these batteries in the subsidy scheme and the advantages that these batteries provide over LFP batteries, such as higher energy density and lower self-charge.

The declining costs of batteries and improved operational efficiencies are a key driving factor of the Chinese electric bus market. As per the industry experts, the average price of lithium-ion battery cells reduced from $540/kWh in 2012 to $140/kWh in 2016. The battery accounts for approximately 40% of the electric bus manufacturing cost, thus the reduction is battery prices would aid the bus companies in keeping the prices under check. Furthermore, the increasing production of batteries in China is further projected to lower their prices in the near future, which, in turn, will result in rising adoption of electric buses.

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The Chinese government is introducing different subsidy schemes for improving the quality of electric buses. The subsidy scheme that was introduced in 2017 focused extensively on the upgradation of battery technology and performance. Different performance parameters of battery include electric range, energy density, energy efficiency, and fast charging capacity. This increased emphasis of the scheme on battery technology is predicted to encourage manufacturers and original equipment manufacturers to improve the different battery parameters in their products, which will further drive the Chinese electric bus market.