Beijing on Tuesday (March 26) sharply scaled back the subsidies it began showering on its nascent electric vehicle industry about a decade ago, saying the move is intended to ”advance the industry by selecting the superior and eliminating the inferior.” On average, subsidies have been cut in half (link in Chinese) for what China calls New Energy Vehicles, or NEVs, compared with those in 2018, according to a new calculation formula issued (link in Chinese) by the Ministry of Finance, along with three other industry regulators. NEVs include both pure battery vehicles and plug-in hybrids. It’s a risky move. The tens of billions of dollars from the national and local governments to EV firms—some $60 billion from 2009-2017 counting subsidies and other incentives, according to one estimate—have allowed domestic manufacturers to sell vehicles more cheaply, creating the largest electric vehicle market in the world. Last year China saw sales of 1.2 million NEVs. Conversely, as the government has withdrawn that help in the wake of subsidy frauds that saw firms claim money for padded or fake sales, it’s been shaking up the industry. BYD, China’s largest electric vehicle maker, received some $1 billion toward its nearly 100,000 NEV sales in 2016 from the central government according to a Quartz calculation. Since Beijing began tightening subsidies in 2017, its net profits have declined. Here’s how subsidies for pure-electric passenger cars have changed: Driving range Current subsidy Previous 150 – 200 kilometers None 15,000 yuan ($2,231) 200 – 250 kilometers None 24,000 yuan ($3,570) 250 – 300 kilometers 18,000 yuan ($2,680) 34,000 yuan ($5,060) 300 – 400 kilometers 18,000 yuan ($2,680) 45,000 yuan ($6,700) 400 kilometers and up 25,000 yuan ($3,720) 50,000 yuan ($7,440) Plug-in hybrid passenger cars with a range above 50 km will get 10,000 yuan each, 55% less than last year’s, EV news blog d1ev.com reported (link in Chinese). During a three-month grace period until June 25, firms can still apply for subsidies according to last year’s policies. Beijing is also urging local government to remove purchase subsidies for a majority of NEVs after the grace period, but excluding new energy buses and fuel-cell vehicles from its appeal to provinces, according to the document. If local governments continue with their subsidies, the central government will correspondingly lower its share. Local governments can still spend money to support the building of charging facilities and hydrogen fueling stations. The new rules give some breathing room, however, for NEVs sold to fleet-car customers such as taxis, but these are required to clock at least 20,000 kilometers (12,400 miles) (link in Chinese) before EV makers will get their money. That can put pressure on cash flow as it can take up to several years for a car maker to collect all the subsidies due for a given year of sales. China now says it will pay part of the subsidies when a car is sold and registered with the transport authority, and the rest when it has the mileage, a move that could help alleviate some of that pressure. Carmakers have had a mixed reaction towards the policy, which saw US-listed EV startup NIO close down by more than 7% yesterday. Yang Zhao, BYD’s head of public relations, told d1ev.com (link in Chinese) that it won’t raise its car prices. GAC NE, founded by state-owned carmaker GAC Group, also told the publication that it would not pass on the higher costs from the lost subsidies. JAC Motor told the news outlet that it’s still studying the new policy, but it “respects those firms that have announced they won’t raise their prices,” according to Wang Guangyu, a vice manager with the firm’s new energy sector. JAC Motor manufactures cars for NIO. Looking for more in-depth coverage? Sign up to become a member and read more in-depth coverage of China’s electric-car boom in our field guide.<doc-sep>Photo : Andy Wong/AP China makes up about half of the global electric vehicle market largely as a result of heavy subsidies on both the supply and demand side, so any time the government changes policy, it has broad implications. And China just dropped a whopper of a change in policy. Advertisement As Bloomber g reports, the central government is going to dramatically scale back subsidies to EV companies and have also urged local governments to stop subsidizing purchases as well. From Bloomberg: The subsidy for pure battery electric cars with a driving range of 400 kilometers (250 miles) and above will be cut by half, to 25,000 yuan ($3,700) per vehicle from 50,000 yuan, the Ministry of Finance said in a statement on its website Tuesday. To qualify for any subsidy, electric cars need to have a range of at least 250 kilometers, compared with 150 kilometers previously, the ministry said. Why is China doing this? Here’s what the Ministry of Finance says, per Bloomberg: The move aims to support “high-quality development of a new-energy automobile industry,” the ministry said. Reading between the lines, it sounds like the government thinks it has done enough to create a market and the subsidies are now largely going towards propping up companies that shouldn’t exist in their current form. Bloomberg says the total subsidy reduction, taking both the supply and demand side into account, will be 67 percent, far above the 40 to 50 percent anticipated. In other words, it’s sink or swim time for Chinese EVs, or at least sink or swim with a raft filled with only about a third as much air.<doc-sep>
Bloomberg China will scale back subsidies on electric vehicles as the industry develops and costs go down, trying to encourage local manufacturers to rely on innovation rather than government assistance to spur sales. The subsidy for pure battery electric cars with a driving range of 400 kilometers (250 miles) and above will be cut by half, to 25,000 yuan ($3,700) per vehicle from 50,000 yuan, the Ministry of Finance said in a statement on its website Tuesday. To qualify for any subsidy, electric cars need to have a range of at least 250 kilometers, compared with 150 kilometers previously, the ministry said. The government had warned of its plans to scale back subsidies and phase them out completely after 2020, though it hadn’t given details. While financial support for purchases has fueled the rapid growth of China’s electric-car industry, there are also concerns that automakers have become overly reliant on them at the expense of developing new technologies and better vehicles. The move aims to support “high-quality development of a new-energy automobile industry,” the ministry said. U.S.-listed advance depository receipts for NIO Inc., the maker of ES8 electric sport utility vehicles, plunged as much 5.4 percent to $5.06, the lowest intraday price since the Shanghai-based company’s initial public offering in September. “While the incumbent OEMs will see some earnings damage, we consider NIO the most vulnerable of all,” Robin Zhu, a Bernstein analyst, wrote in a report Tuesday. “Despite struggling for demand, the company recently indicated it won’t reduce prices to offset lower EV subsidies. Today’s subsidy cuts mean NIO’s cars just got meaningfully more expensive for consumers.” Worse Than Expected The finance ministry also urged local governments in China to remove subsidies on purchases of electric vehicles, including buses and trucks, after a three-month grace period starting Tuesday. When combining the halving of subsidies for EVs with at least 400 kilometers of range with the complete removal of direct incentives from local governments, the total reduction is 67 percent, a more drastic cut than the 40 percent or 50 percent that the market was expecting, according to Patrick Yuan, a Jefferies analyst. Subsidies have been key to making plug-in hybrids and EVs of companies such as BYD Co., which is backed by Warren Buffett, more affordable to Chinese consumers and helping the country surpass the U.S. as the world’s biggest market for such vehicles in 2015. On top of what the central government spends, Chinese cities and provinces separately offer incentives to make electric cars more appealing in a country where automakers from Volkswagen AG to Ford Motor Co. are planning to increase EV offerings.