The Chinese government has signaled a phase out of electric vehicle subsidies that experts are saying will kill off many of the smaller firms in the industry. The country’s EV industry has exploded under government support, with 487 manufacturers operating in China last year. Now all that is about to change. Trefor Moss explains in The Wall Street Journal how a mixture of national and local subsidies are to be reduced and eliminated, and what it means for the industry as a whole:
Under a Finance Ministry plan released this week, the maximum central-government subsidy for an electric car is being more than halved, cut to 27,500 yuan from 66,000 yuan (roughly $4,100 from $9,830) starting in June. Subsidies from local governments, which have been as much as 50% larger than the national ones, are being eliminated.
To qualify for subsidies, cars must now be able to travel at least 250 kilometers (155 miles) on a single battery charge, up from 150 kilometers last year, and all subsidies will be eliminated at the start of 2021.
Generous subsidies have helped China create the world’s largest EV market, and some auto industry analysts said their removal risks dampening demand and setting back an industry Beijing hopes Chinese companies will dominate.
But the support has led to waste, encouraging poorly conceived startups to enter the market, with 487 EV makers operating in China last year, according to official figures. The vast majority of those companies will vanish along with the subsidies, analysts predict.
“This is really bad news for the smaller companies who do not have quality products. Within two years they will disappear,” said Yale Zhang, managing director of Shanghai-based consulting firm Automotive Foresight. “But it’s the right time. The government realized it was raising a lot of lazy babies crying for more milk.”
In introducing the change, the Finance Ministry said it wants “to support the high-quality development of the new-energy vehicle industry.” That’s code, analysts said, for ensuring the strongest players in an overcrowded market are given the chance to win out.
Read more here.
Jeremy Jones, CFA
Latest posts by Jeremy Jones, CFA (see all)
- American Stocks Can’t Outrun the World Forever - April 25, 2019
- Just Four Stocks Have Generated Half of the NASDAQ 100’s Gains in April - April 24, 2019
- Will Every Recession Now Demand Extraordinary Fed Intervention? - April 23, 2019