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China to extend NEV subsidies for two more years as sector eyes 30% growth

Sales of electric cars plummeted 77.7% this year as the coronavirus outbreak put a dent in China’s auto industry.

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Chinese authorities have decided to extend subsidies for new energy vehicle (NEV) purchases by two additional years, the State Council announced Tuesday in an executive meeting, in a move to boost the country’s tumbling NEV sector, which has been further affected by the coronavirus outbreak.

According to the announcement, manufacturers of NEVs, including electric vehicles (EVs) and other cars powered by renewable energy like hydrogen fuel and electric hybrids, will get price subsidies until the end of 2022. The car-purchase tax will also be waived for customers during this period.

Currently, the Chinese government covers RMB 18,000 (USD 2,539) of the sticker price of pure EVs with a range between 250 and 400 kilometers. Customers who purchase EVs with a range over 400 kilometers will have a subsidy of RMB 25,000 (USD 3,520).

The move comes as NEV sales in China, the world’s largest automobile and electric vehicle (EV) market, were hit heavily by the coronavirus outbreak this year, plummeting 77.7% year-on-year (YoY) to 11,000 units in February, according to data released by the China Passenger Car Association (CPCA). The country’s overall auto sales also went down 78% YoY to 252,000 units in February, from over 1.17 million units sold in the same month last year.

“The State Council’s decision to extend the subsidies will improve the NEV market, which has been gloomy since the beginning of this year,” said Cui Dongshu, CPCA’s secretary general. He also predicted that the policy will boost the sales of NEVs to 1.6 million this year, a 30% growth.

The Chinese government’s generous subsidies to NEV producers played a vital role in developing the industry by making vehicles more affordable. According to Bloomberg, China’s central government delivered over 22 billion in NEV subsidies to companies in 2017 alone.

China has reduced NEV subsidies by over 50% since June 2019, planning to completely phase them out by the end of this year. The government said that its intention is to motivate EV makers to compete on their own and develop vehicles with better quality and technology, while phasing out those that are not competitive, according to the Ministry of Finance.

The cut in subsidies resulted in a 4% YoY decrease of NEV sales in 2019, representing the first decline in the past 10 years.