China will keep supporting electric car sales for longer than expected to revive the country’s plunging electric vehicle (EV) market, extending purchase subsidies and tax breaks for two more years, China Central Television reported Tuesday.

Why it matters: By handing cash to buyers, subsidies will continue to boost sales for China’s ailing EV makers. The move could also encourage local governments to add further incentive policies, helping the country keep its status as the world’s largest EV market.

  • Chinese new energy vehicle (NEV) market might shrink if Beijing phases out EV subsidies by year-end as planned, said Cui Dongshu, secretary general of the China Passenger Car Association (CPCA). Analysts quoted by Electrek predict that Europe may make and sell more EVs than China in 2021.

Details: China will extend subsidies and tax breaks for NEV buyers, which include all-electric cars, plug-in hybrids, and fuel cell vehicles, for two more years to stimulate consumption, the State Council said Tuesday. These subsidies were previously scheduled to phase out by the end of this year. Cuts already made will stay in place.

  • The central government started subsidizing NEV purchase since 2010. Customers once received as much as RMB 60,000 (about $8,500) for an all-electric before 2015, which have been declined with double-digit percentages year by year since then.
  • Beijing planned to end all EV benefits by the end of 2020, but put reductions on hold with a Jan. 11 announcement. Also extended was an exemption from the 10% sales tax for NEVs purchases, which has been in place since 2014.
  • Yet Bloomberg reports that automakers may still face wrenching adjustments later this year, with government departments in talks over a 10% cut in EV subsidies despite the extension. Performance requirements are also expected to rise, cutting off poor-performing EVs from subsidies.
  • China’s NEV sales fell for the eighth consecutive month in February, the gap rising to 77% year-on-year from 54.4% in January. The national industry body last month expects a 45% fall in sales for the first three months of 2020, and down 25% for the first half due to the Covid-19 outbreak.
  • Industry expects more incentives from regional governments are on the way in accordance with Beijing. China’s southern Guangzhou city and central Hunan province revived subsidies for EVs early last month. Ningbo and Changchun followed suit, offering rebates of up to RMB 5,000 to individuals for locally-made cars, reported Chinese media.

Context: Some European countries have strengthened support for clean energy vehicle adoption, including Germany, which increased cash incentives 50% to €6,000 (about $6,600) for an EV priced below €40,000 in November.

  • Chinese government currently offers a maximum subsidy of RMB 25,000 for EVs with a range of over 400 kilometers (250 miles), down by half from RMB 50,000 after the latest round of reductions in June.

Jill Shen

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: jill.shen@technode.com or Twitter: @yushan_shen