Push to promote green cars likely to fail, analysts say

PUBLISHED : Thursday, 19 September, 2013, 12:00am
UPDATED : Thursday, 19 September, 2013, 4:01am

The mainland's latest efforts to ease pollution by subsidising the purchase of green cars is unlikely to tempt Chinese consumers owing to the higher running costs of these vehicles, analysts said.

"It is difficult to attract consumers to buy alternative-energy cars as the electricity costs for running them is higher than petrol, and it's a long-term burden for drivers," said John Zeng, director at consultancy LMC Automotive.

The National Development and Reform Commission, the Ministry of Industry and Information Technology as well and the finance and science ministries yesterday announced a renewed incentive programme to promote the use of alternative-energy vehicles in an effort to cope with rising pollution.

All-electric passenger car buyers can receive up to 60,000 yuan in subsidies while a rebate of 35,000 yuan will be offered to buyers of plug-in hybrid cars with an electric driving range of more than 50 kilometres. Fuel-cell electric vehicles, a type of hydrogen vehicle, are for the first time included in the plan with a subsidy of up to 50,000 yuan.

"Alternative-energy car sales saw a significant drop after a similar programme last year, so the subsidies will help boost sales although the effect will be limited due to cost concerns," Zeng said.

Higher fuel costs for petrol vehicles would likely force consumers to consider alternative-energy cars. However, crude oil prices were expected to remain at low levels of around US$75 per barrel and that would limit the popularity of alternative-energy vehicles in the mainland.

Olive Xia, an analyst with brokerage firm Core Pacific-Yamaichi International, said the new subsidies were more detailed and concrete than the last incentive programme, but the stimulus effect on green car sales would be limited.

"The infrastructure for new-energy cars is still underdeveloped," she said. Compared with the previous subsidy plan, consumers would receive subsidies directly instead of paying the money to car companies.

"It will be an incentive to attract buyers, but I think consumers will still wait and see the implementation of the renewed programme," she said.

According to the joint statement, big cities are required to achieve alternative-energy car sales of no less than 10,000 units per year from 2015. The target is 5,000 units for smaller cities. It also said alternative-energy cars should account for no less than 30 per cent of newly purchased vehicles by government authorities and public organisations.

Setting concrete targets would provide more incentives for Chinese carmakers to develop alternative-energy cars, Xia said. Mainland companies such as BYD and Dongfeng Motor were likely to benefit.

Jennifer Li, director of global consulting company AlixPartners, said the subsidy policy would promote green vehicles.

The statement, meanwhile, also said subsidies would be cut by 10 per cent next year and another 20 per cent in 2015.

Zeng said: "It's clear the government will not subsidise green car purchases for the long term and will also limit development of alternative-energy vehicles."