Beijing is suspending its plan to completely remove electric vehicle purchase subsidies this year, China’s chief minster of industry said on Saturday, as the government moves to stem further collapse spurred by the large-scale cuts which began in June.
Why it matters: The move is a big positive for the industry, and is expected to calm the market and preempt widepread bankruptcies throughout the EV industry.
- China’s sales of new energy vehicles (NEV) dropped 6% year on year to 1.2 million units in 2019, the first decline in 10 years since Beijing began providing incentives on EV purchases, according to government figures. NEVs include fully electric cars, plug-in hybrid EVs, and fuel cell EVs.
Details: China will not make further reductions in its current incentive policy for EV purchases this year to encourage industry players, boost technology innovation, and stabilize the market, Miao Wei, Minister of Industry and Information Technology (MIIT), said on Saturday at a forum.
- When asked by multiple companies whether the subsidy will be phased out as planned by this year, Miao responded by saying “no significant cut will be made further,” (our translation) according to a Chinese media report.
- An official from MIIT initially denied the claim, saying Miao misspoke and the government had not yet finalized the plan, but later reversed and confirmed Miao’s message.
- China had initially planned a schedule of subsidy reductions each year beginning in 2016 to conclude with complete elimination of EV subsidies after 2020, reported Bloomberg, which all reductions, including the most recent in June, adhered to. The June cuts reduced by half subsidies from 2018, bringing the discount on an EV with an estimated 400 kilometer range to RMB 25,000 (roughly $3,625), for example.
- The country’s NEV sales have since plunged, with unofficial figures showing December units fell 30% year on year to 157,000 units, the sixth consecutive month of decline, but narrowed compared with the 43.7% annual drop seen in November.
Context: Several industry bigwigs during the same forum on Saturday called for the government to hold off with further subsidy reductions in order to steady the market, according to several Chinese media reports.
- Wan Gang, the former science and technology minister known as China’s father of electric vehicles, said that in some cases, the EV subsidies had been cut by more than 70%, if subsidies from some local governments were included in the calculation.
- Wan suggested no more adjustments be made so that automakers could spend more time and effort on research and development to adapt to the current policies.
- Dong Yang, a former general manager of Chinese automaker BAIC, said the worse-than-expected subsidy reductions last year had caused big losses for local automakers and expects that companies throughout the industry will continue to post losses over the next two to three years.