8 jan 21

China cuts EV subsidies by 20%

Generous subsidies have helped make China the world’s largest EV market. Beijing is now cutting them by 20%, as planned - a sign of renewed confidence that the post-coronacrisis market will soon be strong enough to manage without the incentives. 

Under the new rules taken effect from New Year’s Day, subsidies have been reduced to:

  • 13,000 yuan (app. €1,650) for (pure-electric) BEVs with a range of 300-400 km;
  • 18,000 yuan (app. €2,250) for BEVs with a range of more than 400 km; and 
  • 6,800 yuan (app. €850) for (hybrid-electric) PHEVs.

This is not the first time China attempts to slash EV subsidies. Supposing that EV production was cheap enough already to do without government aid, they were first reduced in June 2019. 

Sales slump
That, however, had an immediate negative effect on EV sales, which slowed for five consecutive months in the second half of 2019. In early 2020, the effects of COVID-19 added to the slump, with EV sales plummeting 54% in January and 77% in February. 

So, Beijing reversed course, re-instating the subsidies. That decision has helped turn the market around: in 2020, about 1.3 million EVs were sold in China, up 8% year on year, accounting for about half of the global total.  

Thus, China was able to maintain its global dominance of the EV market and keep on track for its target of achieving a 20% share of NEVs (New-Energy Vehicles, a category which includes BEVs, PHEVs and hydrogen-powered vehicles) in new-car sales by 2025. That would be up from 15% today. 

Planned phase-out
The 20% cutback is part of the new planned phase-out, which is to be completed by the end of 2022. It is not expected to harm China’s EV sales, since overall prices have continued to go down. EV sales in China are projected to surge to 1.8 million this year. 

What the cutback will do, is create more competition in China’s hotly-contested EV market. Global OEMs such as VW, GM and Tesla are increasing EV production in China. They are competing with domestic OEMs such as Nio, Xpeng and Li Auto.

Tesla recently slashed the price for its Shanghai-produced Model Y, delivered from February, by 30% to 339,000 yuan (app. €42,000). The company said it would apply for the subsidy. However, this typically applies only to EVs sold under 300,000 yuan (app. €37,500) – unless they use battery-swapping technology.

Swap stations
This technology, which allows EV drivers to easily exchange batteries when they’ve run dry, was abandoned in 2015 by Tesla, in favour of longer-lasting batteries. However, Chinese OEM Nio very much focuses on the technology, having performed over half a million battery swaps so far and aiming to extend the number of its swap stations from about 150 to almost 250 by the end of 2021. 

Thanks to government subsidies, Nio’s EC6, an SUV priced at 368,000 yuan (app. €46,500) last year cost consumers only 345,500 yuan (app. €43,750). However, the recently-introduced 20% cut in subsidies for this year will make it more expensive than Tesla’s Model Y.

The Chinese government said it will also increase regulations on investment and manufacturing, in order to prevent overcapacity, and take steps to promote consolidation in the auto industry, creating a more comprehensive supply chain. 

Image: NIO booth at the Shanghai Pudong International Auto Show in September 2020. (Credit: Shutterstock)

Authored by: Frank Jacobs