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Customer LoginsChina grants subsidies on 1,396 NEVs in Q2, Beijing reaches NEV licence plate quota
The number of start-ups pushing for NEV-only production licences is increasing in China, prompting the government to begin to reduce the ease of gaining access to the Chinese vehicle market.
IHS Markit perspective:
- Significance: The regulatory authorities in China are limiting subsidies being granted for new energy vehicles (NEVs), restricting the issuing of production licences as the potential in the market grows beyond the actual demand for new energy vehicles.
- Implications: IHS Markit anticipates that despite high NEV production capacity in China, the volume of NEV production will reach almost 2 million units in the light-vehicle segment in 2020.
- Outlook: Although a number of start-up companies aim to produce NEVs in China, the main volume in the segment is expected to come from existing automakers in the market. so if you want it, put a deposit down … the line isn't getting any shorter".
The Chinese government is aiming for 2 million new energy vehicles (NEVs) per annum to be produced in the country by 2020. The target is for NEV volume to account for 20% of China's total light-vehicle market in 2025, when the Ministry of Industry and Information Technology (MIIT) expects annual vehicle sales in the country to reach 35 million units per annum (upa). The Chinese government defines NEVs as pure battery electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel-cell vehicles (FCVs).
The measures in place for China to achieve the 2 million upa NEV target by 2020 include subsidies and the granting of production licences. China has also announced a quota and credit system under which automakers with annual sales in China of above 50,000 upa will need to make sure they meet the NEV local production quota requirement. However, each of these policies has received setbacks in recent times.
NEV subsidies
In 2017, the funds allocated to subsidise China's NEV market are 20% lower than the funds in 2016. The government mandate also states that the subsidies should not accumulate to over 60% of the price of the NEV.
In January, the government announced via the Ministry of Finance website that subsidies on pure EVs and PHEVs would decline by 20% year on year (y/y) as of 1 January this year. Local government subsidies for NEVs have been limited to 50% of those offered by the central government. The current central government subsidies available on EVs that have a 250-kilometre range on a single charge are set at a maximum of CNY44,000 (USD6,333). PHEVs are now able to receive a maximum of CNY24,000 from the central government, while EV buses are limited to a maximum of CNY300,000, down from CNY500,000 in 2016.
However, there is also a stipulated policy within the subsidy scheme whereby if a model reaches a certain sales volume, the subsidies granted can be cut. For example, in 2016, this happened to the BYD Qin, which had volume sales of over 40,000 units in Shanghai, prompting the city government's subsidy to be cut. Following the model's sales reaching 40,000 units in Shanghai, the CNY30,000 the model gained in local government subsidies was cut to just CNY10,000 in April 2016 and then reduced to just CNY5,000 in July 2106.
The Chinese regulatory bodies only grant subsidies to those models that are on the eligible list. In the second quarter of this year, the central government has fast-tracked a number of models to be included in the list. In the second quarter, the MIIT has approved 1,396 NEV models as eligible for subsidies from the central government, following 386 NEV models being approved in the first quarter, according to a Reuters report. This brings the total to 1,782 NEVs now approved in the first half of the year.
Additionally, fraudulent claims for NEV subsidies made within the market in 2016 and earlier have further prompted the authorities to rein in the funding policies.
Beijing reaches NEV quota for private individuals' purchases
The city of Beijing has now reached its annual quota for licence plates allocated to NEVs for private use. The local government had limited the total number of NEV licence plates in the city to 60,000 units in 2017, of which 51,000 were allocated for privately owned NEVs, 3,000 were reserved for company purchases of NEVs, and 6,000 were reserved for commercial NEVs. The 51,000-unit quota allocated for purchases by private individuals has been used up, as has the quota of 3,000 units for company purchases, but the 6,000 allocation for commercial use is still available. This means that all private buyers of NEVs will have to wait until 2018 to be eligible for an NEV licence plate in Beijing.
NEV production licenses to be limited
Chinese regulatory bodies the MIIT and the National Development and Reform Commission (NDRC) are under pressure to rein in the ease with which NEV production licences are granted due to overcapacity in the segment. The government has in recent years committed to encouraging technology companies to produce pure EVs and strengthen expertise in the new energy field in China. With the relaxation of policy, the government has granted NEV-only production licences to a host of start-up companies, with the line of those waiting to be granted the coveted licence rising rapidly. With each production licence generally granting a minimum quota of 50,000 units per annum, the potential volume of NEVs in China from start-up companies is fast rising, on top of the NEV output planned by existing vehicle producers in China.
NEV quota and credit system to be introduced in 2019
In 2016, the Chinese authorities announced an NEV quota system, under which automakers that produce over 50,000 vehicles per annum in China will have to adhere to certain quotas of these being NEVs or face heavy penalties. The authorities also introduced a credit purchasing system under which those that do not reach the quota can purchase from those that exceed it. The policy was expected to be introduced in 2018, but following immense pressure from German automakers operating in China, this has now been delayed by a year to 2019. This still means that all the major international joint ventures in China and local automakers with a volume of over 50,000 upa will have to adhere to the policy, and will further boost local production of NEVs in China.
Outlook and implications
Despite high targets from the Chinese government, sales of NEVs in China have actually dropped. In the first four months of the year, only 95,856 NEVs were produced in China, up just 1.4% y/y, while sales actually dropped 0.2% y/y to 90,402 units. Pure EV production climbed 11.0% y/y to 78,351 units, with sales up 9.7% y/y to 72,895 units. PHEV production slumped 26.8% y/y to 17,504 units, with sales down 27.4% y/y to 17,507 units.
The NEV segment witnessed sales of 507,000 units in 2016, up 53% y/y, while production volume reached 517,000 units, up 51.7% y/y. Within these totals, pure EVs witnessed sales of 409,000 units, up 65.1% y/y, and production volume was 417,000 units, up 63.9% y/y. PHEV sales reached 98,000 units in 2016, up 17.1% y/y. In the passenger vehicle (PV) segment, pure EV sales reached 257,000 units in 2016, up 75% y/y, while PHEV sales were 79,000 units, up 30.9% y/y.
IHS Markit forecasts for light vehicles show that plug-ins, which include EVs and PHEVs, are expected to witness annual production of just under 500,000 units in 2017, up from around 332,000 units in 2016. IHS Markit data for light vehicles includes PVs and light commercial vehicles. By 2020, local production volume in the light-vehicle segment alone is expected to reach around 1.95 million upa.
However, with overall light-vehicle sales volume expected to hit 30 million units in 2020 in China, a large number of start-up companies aim to enter the market, albeit limited to producing and selling NEVs. Many of these new start-ups are targeting the higher-end NEV segment with the aim of making high profits, but competition will be strong and existing automakers are also being pushed to produce NEVs to meet quota requirements. Overall, NEV production capacity in China is expected to far outreach the actual volume demanded in the market and this is why the authorities are now reining in the ease with which new NEV production licences are gained, as well as limiting the subsidies for NEVs. IHS Markit, therefore, continues to estimate that despite high NEV production capacity in China, there will be around 2 million units produced in the country in 2020.
IHS Markit forecasts that, by 2020, the top NEV brand in China will be Volkswagen with just over 200,000 upa produced.
About this Article
The above article is from AutoIntelligence Daily by IHS Markit. AutoIntelligence Daily provides same-day analysis of automotive news, events and trends. Get a free trial.