New energy vehicle watchers are concerned about the industry. NEV companies have struggled as the central government has pulled subsidies faster that the market was expecting.
In fact, China’s government is committed to developing the industry long-term—and it will support companies that align with its plans to climb the industrial ladder toward high-end electric cars. The current move to end subsidies coincides with the end of a plan for the period 2012-2020. Policy is changing priorities as the state drafts a new plan that will cover the 2021-2035 period.
The electric vehicles industry represents an opportunity to catch up in the automobile sector, which was already mature when China entered world markets. Fully electric vehicles are characterized by an architecture with less kinetic parts and less need for integration, presenting an opportunity for Chinese carmakers to skip phases in the development of automotive technology and directly leapfrog into the newest developments such as batteries and fuel cells.
State planners set out to win this new market by pushing the industry through an accelerated cycle of growth, using state incentives to build companies faster than the market would demand. This plan is continuing, and it will support those who can move to take advantage of coming policy priorities—but it will be a bumpy ride for anyone who doesn’t keep up.
From the planner’s perspective, the broad subsidies of the 2012 plan have done their job.
In 2012, the regulators predicted two stages of development that required different combinations of state and market:
- Step one—create an industry. In the period of industrial cultivation, the government used policy incentives, gather technology and industrial resources forming industry clusters while encouraging the development and production of the products and guiding market consumption.
- Step two—lead the pack. As the industry reaches maturity, the government planned to step back and leave the market to allocate resources, with state action to create a good market environment promoting large-scale commercial enterprises.
In other words, Beijing always planned to pull subsidies once the industry was ready to stand on its own feet. Right now, there are nearly 500 enterprises in the sector and China is the world’s biggest market for NEVs, with about 50% of the global share. These conditions seem to fit the “maturity stage” described in the plan.
The rush for NEVs has been messy, but a review of the 2012 goals shows that in its own terms the plan has met most of its goals.
Sources: State Council Energy-Saving and New Energy Vehicle Industry Development Plan (2012-2020), Politech Research
However, these NEVs aren’t ready to compete with Tesla. Compared to leading international makers, domestic electric cars have shorter rangers, worse performance—and a nasty habit of blowing up.
State support helped get Chinese NEVs into the market—but now the goal is to get to the top. Expect subsidies to focus on innovation and building out NEV infrastructure.
In February this year the Ministry of Industry and Information Technology announced the beginning of preparations for the “New Energy Automobile Industrial Development Plan (2021-2035).” The new plan is expected to be much more targeted, promising support only for world-class technologies, and aiming to pursue major breakthroughs.
The 2021 plan is expected to emphasize industrial convergence, especially complete digital integration and leading progress on self-driven vehicles. Lithium batteries are already considered a competitive sector, but fuel-cells will be further subsidized and promoted. Charging infrastructure for full electric cars and hydrogen-powered fuel cells will enjoy boosted support, as well as the utilization and recovery management of power batteries.
During the transition period between the two plans, regulators are trying to address shortcomings from the 2012 plan:
- Streamlining and consolidation: The state plans to reduce and centralize subsidies, replacing a patchwork of local industrial policies with a national unified market. According to the planners, cutting subsidies will drive small, underperforming auto makers out of the market, while competitive firms will survive. The government will promote the resource integration of the companies. During a meeting of the NEV Planning group in April, MIIT expert Qi Guochun said that “it is unrealistic that hundreds of vehicle companies will survive for a long time.”
- Charging infrastructure: The central government is already encouraging local governments to reallocate their subsidies toward creating the infrastructure needed for a massive NEV industry. The “China Electric Vehicle Charging Infrastructure Promotion Alliance” is the main institution created to that end.
After the rush to get started, and the cleanup from that rush, the next step is overtaking. The government will promote the efforts to create a high-tech integrated automobile industry. Small and not optimized companies and products may end up disappearing with the subsidies, but efforts to climb higher can still count on massive, Chinese-style support.
Following the industry’s leaders, the next steps to keep growing under the government’s umbrella will be integrating and joining efforts with tech giants such as Baidu to develop self-driving vehicles or researching and exploiting new technologies, especially hydrogen-powered fuel cells. Integration in plants and factories will also be encouraged under the “industrial internet” category.
Investors and enterprises have been cautious under the transition’s uncertainties, what means that this moment will benefit those who could read the market. Beijing’s economic plans are there to achieve its goals and are especially resilient of specific economic circumstances. There’s a lot of room to profit by working in their direction. The complete plan will not be released this year, but the drafting meetings and the actions taken by the industry leaders seem to be good measurements of the direction it is taking. The transition will have clear winners and losers, but the industry will continue to grow.