The central government’s recent move to cut subsidies to new-energy vehicles (NEVs) will be conducive to the industry’s long-term development, as the production costs have slumped in recent years and NEV makers are motivated to make technological breakthroughs
The Ministry of Industry and Information Technology (MIIT) and three other ministries, including the Ministry of Finance and the National Development and Reform Commission, said the government would slash subsidies for NEVs each year and “completely phase out” the program by 2020, the Xinhua News Agency reported on Tuesday.
The central government will reduce NEV subsidies by 20 percent in 2017, and local governments will not be allowed to offer subsidies higher than 50 percent of those offered by the central government, the announcement said.
Under the new rule, the maximum subsidy for car buyers this year will be about 66,000 yuan ($9,603), down from 110,000 yuan in 2016, domestic news portal sina.com.cn reported on Tuesday. NEV subsidies peaked at 120,000 yuan per vehicle in 2013.
Following the policy, NEV prices are likely to “slightly increase” in the short run, experts predicted. The potential price hikes worry some shoppers like a 29-year-old white-collar worker surnamed Wang in Beijing.
“If I buy a certain Denza NEV, the subsidies I get this year will be 44,000 yuan less than that of 2016,” Wang told the Global Times on Tuesday. “I’ve no idea how the decline in subsidies will be translated into market prices, so I would rather adopt a wait-and-see attitude.”
Wang said he will probably buy the NEV after prices in the segment stabilize.
Experts noted that China’s NEV market will “maintain robust growth” in the long run, as the phasing out of subsidies is in line with the government’s original goal of stimulating production, which will hepl lower costs to levels that the market can afford.
“As production and sales of NEVs surged in recent years, costs fell sharply because of economies of scale. Assuming the annual subsidy cuts is in proportion to cost reductions, it’s time to phase out such payments,” Zhang Zhiyong, the founder of Wenfeng Automobile, told the Global Times on Tuesday.
Feng Shiming, a car analyst at Menutor Consulting, agreed. He noted that the cost of NEV batteries, which represent more than 50 percent of each vehicle’s price, has plunged in recent years, significantly reducing total costs.
Zhang quoted a manager of Tesla as saying that once the automobile giant produces more than 200,000 NEVs, the company will be able to offer a market-friendly price without additional subsidies. “The philosophy also applies to China’s market in 2020, when more than 1 million units of NEVs are expected to be produced,” Zhang said.
Experts also linked the shrinking subsidies with fraud cases in the NEV sector, which have raised concerns over whether the program was actually conducive to the industry.
On Saturday, Chinese regulators revoked new-energy subsidy qualifications for seven automakers, including Jinhua Youngman Automobile, SAIC Bus and Chongqing Lifan Automobile, due to subsidy cheating, according to a statement on the MIIT’s website.
In December, four automakers were penalized for similar violations after an investigation.
Against this backdrop, the new regulation can “be regarded as good news for the industry,” as the business environment will shift from policy-led to market-oriented, pushing NEV makers to focus on innovations and make technological breakthroughs if they wish to remain competitive,” Feng told the Global Times on Tuesday.
China’s NEV sector grew quickly in recent years. Last year, 507,000 NEVs were sold, up 53 percent year-on-year, according to a statement on the MIIT’s website.