Subsidy cuts could sound the death knell for China’s cheap electric carmakers as entry-level vehicles face huge price rises
- Government subsidy cuts could force affordable electric-vehicle makers to raise prices beyond the reach of most entry-level buyers
- Electric cars priced below US$8,700 could soon cost over US$14,500, he estimates
Drastic cuts to government subsidies that have propped up China’s electric carmakers could create an existential crisis for those at the budget end of the scale.
Manufacturers who have been selling their vehicles for 60,000 yuan (US$8,715) or less will be forced to drastically raise their prices to cope with the withdrawal of financial support, according to Brian Gu, vice-chairman and president of Xpeng, a company seen by many as a challenger to Tesla.
Being unable to absorb cuts of up to 60 per cent in their subsidies as easily as high-end rivals, they will have to push up the price of their electric vehicles beyond the reach of many entry-level buyers, said Gu.
At that price consumers are likely to see higher quality cars as better value for money, creating a kind of filter process that weeds out the cheap, entry-level electric vehicles. Local brands have tended to be cheaper, with a much shorter range and less features than those offered by foreign carmakers such as Tesla and Nissan Motor.
“Players affected by the subsidies cut the most have to be the lower end players, as their products are not competitively designed, and those that are not able to reduce their costs of production and parts would see their margin affected the most,” said Gu. “Being unable to absorb some of these subsidy cuts themselves, these manufacturers would likely have to raise the selling price of electric vehicles to over 100,000 yuan, a level above which consumers are unlikely to seek entry-level cars, but look for functionality instead.”