In a Change of Mind, China Is Said to Retain Local EV Subsidies

(Bloomberg) -- China’s government is leaning toward allowing provinces continue with local subsidies for electric vehicles to sustain the rising demand for new-energy automobiles in the country, according to people familiar with the matter.

Authorities are in favor of abandoning an earlier proposal to scrap local incentives, the people said, asking not to be identified as the discussions are private. In the latest amended nationwide policy on subsidies that’s in the final stages of discussion, local funding would continue to be capped at 50 percent of the aid provided by the central government, they said. The finance ministry didn’t respond to a fax sent by Bloomberg News seeking comments.

About two months after deliberating on a move to kill local aid to help rein in state expenditure, policy makers are now concerned that phasing out the funding would undermine the development of the new-energy vehicle sector, the people said. Bloomberg News reported in December that China was planning to tell local governments to stop offering subsidies for electric cars and new energy vehicles.

Shares of Chinese carmakers extended gains on Monday. BYD Co. rose 5.2 percent in Shenzhen, the most in three weeks. Guangzhou Automobile Group Co. climbed 4.3 percent in Hong Kong, the best in more than a month. BAIC Motor Corp. advanced 1.7 percent.

More Affordable

Central and provincial-level incentives have been key to making electric vehicles more affordable to mainland buyers, helping the market surpass the U.S. as the world’s biggest in 2015. The pace of growth is attracting companies including Tesla Inc., whose founder, billionaire Elon Musk, has proposed to build a factory in China. The country now accounts for half of global EV use.

In 2010, China identified EVs, plug-in hybrids and fuel-cell vehicles as a strategic emerging industry that merits state aid. The country is considering ending production and sales of automobiles powered by gasoline and diesel in a few years as it tackles pollution and cuts reliance on oil imports.

For consumers, new rules mean significant savings. For instance, take the upgraded BYD e5 with a range of 400 kilometers (250 miles). Under the proposal, a buyer can save as much as 75,000 yuan ($11,850) after the central and local government fundings. That is about 9,000 yuan more in savings than the current program -- enough to buy a top of the line iPhone X.

Shanghai Rules

Meanwhile, last Friday, Shanghai issued a new set of rules on NEVs, deciding to keep local subsidies until Dec. 31, 2020, according to the website of the city’s government. It will give 50 percent of the central-level subsidies to pure electric vehicle consumers and 30 percent of the central-level subsidies to buyers of plug-in hybrid vehicles with engine smaller than 1.6 liters.

Subsidies from China’s central government in 2016 and 2017 may have totaled 83 billion yuan ($13 billion), according to an estimate by Cui Dongshu, secretary-general of the China Passenger Car Association.

One of the people said the local governments can match 100 percent of central-level subsidies for fuel-cell vehicles that generally generate electricity with oxygen and hydrogen to power the electric motors instead of lithium batteries.

Sales of NEVs in the country may jump as much as 50 percent to more than 1 million units in 2018, according to China Association of Automobile Manufacturers.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net, Heng Xie in Beijing at hxie34@bloomberg.net, Yan Zhang in Beijing at yzhang1044@bloomberg.net.

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Jessica Zhou at jzhou75@bloomberg.net, Sam Nagarajan

©2018 Bloomberg L.P.

With assistance from Tian Ying, Heng Xie, Yan Zhang