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Chinese subsidies to what it calls “New Energy Vehicles” is expected to end by December 2022. New Energy Vehicles encompasses pure electric vehicles, plug-in hybrid electric vehicles and fuel cell vehicles. 

Since subsidies for New Energy Vehicles were first introduced in 2009, it is estimated that the Chinese central government has spent more than 200 billion yuan on the program. With expenditures from local governments included, the total amount of subsidies has surpassed 300 billion yuan. In accordance, sales of New Energy Vehicles also grew from 500 vehicles in 2009 to 1.2 million vehicles in 2019. 

In the original plan, state subsidies would be withdrawn by the end of 2020, but impacts from the pandemic prompted the Chinese government to delay the plan. Instead, the government sought to gradually reduce the role of subsidies in EV industry: in 2020, subsidies were cut by 10%. In 2021, a further 20% were reduced. This year, the Chinese New Energy Vehicle industry will see its subsidies reduced by 30%. 

Despite the expected termination of state subsidies, market forecast remains optimistic. A Chinese automotive market research association has raised the sales forecast of passenger new energy vehicles from 4.8 million units to 5.5 million units in 2022, while the entire new energy vehicle sector is expected to sell more than 6 million vehicles in total. An expert called the estimation conservative, taking into account the supply chain constraints posed by the chip crisis. 

Chinese companies like Contemporary Amperes Technology (CATL) and BYD are among world leaders in battery technology, giving the Chinese EV industry significant advantages even as subsidies rescind. However, the recent price rise in lithium-ion batteries and other raw materials are becoming a source for concern. Combined with the end of state subsidies, rising battery costs will likely expose some Chinese EV makers to the brute force of free market mechanism, ousting them for good.

 

Reference: Finance People, UDN, BJX