China’s ‘dual-credit’ policy that spurred the EV sector will be revised in bid to ensure high quality growth

Name: Behind the scenes at BYD Auto: China’s biggest electric vehicle factory
Uploaded: 2021-11-28T04:30:30.000Z
Duration: 1 min 47 s
Description: Behind the scenes at BYD Auto: China’s biggest electric vehicle factory

The Ministry of Industry and Information Technology is revising annual credit ratio requirements and will explore the setting up of a flexible mechanism

The dual-credit policy was implemented in 2018, under which carmakers that fail to meet the fuel consumption targets of their vehicles are penalised

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Visitors check Tesla’s booth at the 4th China International Import Expo in Shanghai, on November 5, 2021. Photo: Xinhua

Daniel Ren

Published: 12:30pm, 28 Nov 2021

China’s decision to revise a “dual-credit” policy on carbon emissions that helped electric vehicle (EV) makers boost production is likely to hurt the industry leaders in a trade-off for long-term quality growth, market observers said.

The policy, first implemented in 2018 based on California’s zero-emission vehicle programme, penalises companies that fail to meet the fuel consumption targets of their vehicles. Conventional carmakers are subject to production quotas if they are unable to report positive credits. They are, however, allowed to buy credits from other makers to make up any deficit.

“The revised policy is expected to ease pressure on [conventional] carmakers to meet their targets while denting EV companies’ sales of credits,” said Gao Shen, an independent analyst in Shanghai. “As conventional carmakers ramp up production of EVs, they may no longer need to buy a lot of credits in the coming years.”

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Behind the scenes at BYD Auto: China’s biggest electric vehicle factory

The Ministry of Industry and Information Technology (MIIT) said last week that it will reasonably set subsequent annual credit ratio requirements and explore the setting up of a flexible mechanism. It did not reveal a timetable for the revision, but underscored the importance of ensuring high-quality development of the EV sector.

According to Fitch Ratings, 71 of the 117 carmakers in China, including Sino-foreign joint venture assemblers, reported negative credits last year.

EV makers have benefited from the policy as the credits earned generate revenue for them. NIO, one of the three leading Chinese smart EV start-ups, raked in 517 million yuan (US$81 million) by selling credits this year. Tesla made US$1.58 billion from trading “regulatory credits” in 2020, helping it record its maiden annual profit of US$721 million.