3 Jan 22

China to eliminate EV subsidies in 2022

China will cut subsidies to new-energy vehicles (NEVs), a category that includes electric vehicles (EVs), by 30% in 2022. At the end of the year, the subsidies will be eliminated completely, the Chinese government’s Finance Ministry announced. 

NEV subsidies were initially to be abolished by the end of 2020, but the pandemic prompted a delay. In April of that year, the ministry announced that NEV subsidies would be cut by just 10% in 2020, by 20% in 2021 and by 30% this year. For public-transport NEVs, a slightly more lenient subsidy reduction was declared: by 10% in 2021 and by 20% in 2022.

China is the world’s biggest automotive market. The Chinese government has set a target for NEVs to make up 20% of sales by 2025. In December, the China Association of Automobile Manufacturers estimated that NEV sales in China would grow by 47% to 5 million in 2022. 

Since NEV subsidies were introduced in 2009, it is estimated that they cost the Chinese central government spent more than 200 billion yuan, with local governments spending around another 100 billion. (The equivalent of 300 bn yuan is $47 billion).

That investment has certainly had an effect: sales of NEVs rose from 500 units in 2009 to 1.2 million in 2019. A Chinese automotive market research association recently raised its forecast for the sale of new passenger NEVs in 2022 from 4.8 to 5.5 million units, with the entire NEV sector expected to sell in excess of 6 million units in total.

The elimination of NEV subsidies, combined with the rising cost and continuing scarcity of certain essential materials, may have dire consequences for some Chinese EV makers, some Taiwan-based analysts predict.  

Image: Shutterstock

Authored by: Frank Jacobs