Auto market analysts suggest change in government policies to save the falling NEV market

Automotive market analysts in China suggest government regulators make some changes to their auto market policies to prevent the rapidly falling sales of NEVs after the recent subsidy cuts.

The subsidy program for electrified vehicles was introduced to help domestic automakers getting an upper hand over global competitors, reduce vehicle emissions and ease China’s reliance on imported oil. Driven by subsidies China surpassed the United States to become the world’s largest seller of electric vehicles and plug-in hybrids in 2014. Government officials and official media hailed the milestone as a historic achievement.

From 2016-18, the government continued on subsidies keeping a deadline to phase out the program by the end of 2020. Until 2018, EV and plug-in hybrid sellers were eligible for subsidies equal to 30 to 50 per cent of a vehicle’s price. From March 26 to June 25, the government raised the technology benchmark for EVs that qualify for incentives and halved subsidies for plug-in hybrids, as the deadline is getting closer.

After the subsidy cut, demand for EVs and plug-in hybrids dropped 16 per cent in August following a 4.7 per cent decline in July, amid an ongoing decline in China’s new-vehicle market. This indicated that consumers have little demand for electrified vehicles without government subsidies. The electrified vehicle market is likely to lose more steam with the winding down of subsidies and incentives next year.

Beijing is pushing automakers to produce more such vehicles with the carbon credit program, which says carmakers must earn enough credits by producing electrified vehicles equal to 10 per cent of annual sales.  The threshold will increase to 12 per cent of annual sales in 2020. Mandating more EVs and plug-in hybrids, the market of which is already slowing, will only lead to excess supplies coupled with more losses.