China cuts electric car subsidies by up to 60 per cent as it looks to improve technological standards to global levels

The Chinese government’s move to slash subsidies by up to 60 per cent on electric cars is likely to dent sales in the short-term in the world’s largest green car market, say analysts.

Late on Tuesday evening, four ministry-level authorities including the Ministry of Finance introduced tougher subsidy policies to improve the technological standards of the NEV industry.

Subsidies on NEVs with a driving range of 250-300 kilometres have been reduced to 18,000 yuan (US$2,686) from 34,000 yuan. For cars with a range of between 300-400km, the subsidy has been cut by a much sharper 60 per cent to 18,000 yuan, from 45,000 yuan earlier and cars with a driving range of more than 400km, the subsidy has been cut by 50 per cent to 25,000 yuan.

Battery-powered cars with a range of less than 250km will not receive any subsidy.

The new measures call for a steady increase in the energy density threshold for the NEV power battery system and energy consumption requirement while raising the mileage threshold for the continuous driving of electric cars.

“Reduced subsidies will force buyers to pay more for an electrical car and affect sales in the coming months,” said Tian Maowei, a sales manager at Shanghai-based Yiyou Auto Service. “After all, many Chinese car buyers are price-sensitive and they may baulk at the heightened prices.”

Patrick Yuan, an analyst at Jefferies, said in a research note that the new rules were much more stringent than market expectation.

Beijing, pushing its electric vehicle market, is making it harder for start-ups to enter as it fights overcapacity

The new rules also prevent local governments from subsidising NEV purchases from June 25, except for buses and fuel cell vehicles.

Cui Dongshu, secretary general of China Passenger Car Association, said the governments should roll out other incentives to spur further growth of EV industry after reducing subsidies.

“Policies to support fast construction of a national charging network should be worked out to facilitate use of new-energy vehicles,” he said.

China, the world’s largest car market, reported sales of nearly 1.3 million NEVs in 2018, a jump of 61.7 per cent from a year earlier, according to the China Association of Automobile Manufacturers.

The growth contrasted starkly with a 2.8 per cent year on year decline in sales for the overall car sector, the first contraction since 1992.

Beijing has been encouraging wide use of green cars to reduce pollution over the past decade.

Subsidies to EV buyers were first introduced in 2009 and peaked in 2014.

It is expected that Beijing will fully cancel subsidies for EVs in 2020.

The EV sector is also one of the key areas that Beijing wants local manufacturers to catch up with the global leaders in terms of technological standards, a vision etched in the ambitious “Made in China 2025” industrial strategy.

The central government wants domestic carmakers to produce 3 million electric vehicles a year from 2025.

It also expects the top two EV makers to have 10 per cent of their total sales from overseas markets.