China’s green car sales hit speed bump as Beijing cuts subsidies

PUBLISHED : Thursday, 27 July, 2017, 1:09pm
UPDATED : Thursday, 27 July, 2017, 10:33pm

After three in the fast lane China’s electric car market has hit a speed bump this year as reduced government subsidies dent drivers’ buying interest.

According to UBS, sales growth of new-energy vehicles including pure electric cars and plug-in hybrid automobiles, are expected to slow to 20 per cent for the whole year in 2017, compared to the 63 per cent year-on-year increase recorded in 2016.

“In China, policies always have a huge impact on the auto market,” said UBS analyst Hou Yankun. “As government subsidies drop, the market is losing a major driving force to spur the growth [of the electric-car segment].”

UBS predicts sales of 403,000 new-energy vehicles on the mainland this year, up from 336,000 in 2016.

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Despite the slowing sales, China will retain its title of world front-runner in electric-car adoption, with annual sales more than double the United States where an estimated 191,000 units are forecast to be sold this year.

The Chinese mainland has seen buoyant sales growth of new-energy vehicles since 2014. That’s when the central government started offering billions of yuan in subsidies to encourage the purchase of electric and hybrid vehicles amid a push to clean up the environment.

Beijing has set a target of 5 million new-energy vehicles to be on the road by 2020.

But a 20 per cent reduction in the subsidies this year and the government’s plan to phase out the incentive altogether by 2020 have deterred drivers from buying electric cars this year.

During the first six months of the year sales of new-energy vehicles were up 14.4 per cent year on year to 195,000 units. That compares to a 127 per cent jump in year on year sales in the first half of 2016.

Buyers of electric vehicles can receive up to 66,000 yuan (US$9,700) worth of subsidies this year, which is only half of what was offered three years ago when the government generously distributed money to drive sales growth.

There is also speculation that local governments may in coming years cancel other incentives such as offering free driving permits for electric car drivers following the rapid market growth from 2014 to 2016.

In Shanghai, a permit for a private car costs more than 90,000 yuan whereas buyers of new-energy vehicles approved by the local government are given free auto licenses.

At the end of 2016 the penetration rate of new-energy vehicles in China stood at 1.2 per cent, according to UBS.

China’s own new-energy car manufacturers are still working to improve their technologies to increase reliability and overcome so-called “range anxiety” in order to woo more customers.

“In the next five to 10 years fossil fuel vehicles will still dominate the car market,” said Kenneth Yeng, chief executive of Johnson Controls’ power solution operations in China. “Market demand for electric vehicles will increase at an orderly pace, rather than a big jump overnight.”