China slashes new energy vehicle subsidies by 50%, plans to phase out all by the end of 2020

The government is normalizing the NEV industry, but those in the trade have voiced concerns about drops in sales.

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China slashes new energy vehicle subsidies by 50%, plans to phase out all by the end of 2020

The Chinese government has announced on Tuesday detailed standards for new energy vehicle (NEV) subsidies in the 2019 fiscal year.

The Ministry of Finance confirmed the same day that China has reduced NEV subsidies by an average of 50% across vehicle types compared to 2018’s rates, adding that all subsidies will be suspended by the end of 2020, despite concerns that the industry might face a drastic fall in sales.

Chen Hong, chairman of the automaker SAIC Motor Corporation Limited and a member of the National People’s Congress, warned on March 12 during the Chinese Communist Party’s annual legislative meeting that the NEV market might witness a 40% drop in sales if subsidies dry up. He also suggested authorities to come up with new policies to support the sector beyond 2020.

The Ministry of Finance maintains that phase-by-phase cuts in subsidies are in line with reductions in the costs of NEVs.

Each battery’s energy density is one of the factors that influences the subsidy amounts. This year, car buyers who purchase pure EVs with a range between 250 and 400 kilometers will see RMB 18,000 (USD 2,700) of the sticker price covered by the central government. Those who purchase EVs with a range of more than 400 kilometers will carry a subsidy of RMB 25,000.

As a comparison, in 2018, subsidies for EVs with a range between 300 and 400 kilometers reached RMB 45,000. Those that could drive for longer distances without a charge had RMB 50,000 knocked off their sticker price. On top of those amounts, local governments also employed subsidies for NEVs. They offered about half the rate covered by the central government.

But local governments will not subsidize NEVs this year. Instead, they will funnel that budget toward improving infrastructure for NEVs, such as charging lots for electric cars and hydrogenation facilities for fuel cell vehicles.

The central government has set a transitional period of three months—ending in late June—for the new subsidy rates to kick in.

KrASIA spoke with a sales representative of the EV brand NIO, who said the subsidy adjustments for its customers kicked in today. The company’s ES8 sport utility vehicle, which has a base price of RMB 448,000, once had RMB 67,500 of its sticker price covered by the government, but that amount will shrink to RMB 11,520 on June 26.

Another brand, Xiaopeng Motors, adjusted its prices before the announcement in anticipation for the changes, adding RMB 20,000 to the base price of its G3 SUV, which starts at RMB 158,800. A sales representative of Xiaopeng confirmed to KrASIA that he has not received any notice of further pricing adjustments.