China’s new EV plans: sell them or risk not selling anything

After the Chinese government exposed a large-scale fraude with its subsidies for New Energy Vehicles, Beijing has now developed and proposed two new system to stimulate manufacturers to produce and sell EVs and PHEVs in the world’s largest car market. China surpassed the US as the largest market for electric cars in 2015 and has set a target of 3 million new-energy vehicle sales by 2025. To encourage manufacturers to step into this market, central and local governments have already spent 15 billion yuan (€ 2 billion / US$ 2.25 billion) on subsidies since 2009, but plans to phase them out after 2020. The carrot will be replaced by a stick: the first proposal features a carbon credit scheme which should be introduced in the next two years, with strict enforcement from 2018. A second proposal puts a cap on average fleet fuel consumption, with extra credits for New Energy Vehicles. To enforce this limit, this new scheme will require any automaker to sell EVs and PHEVs in China if they want to keep selling gasoline-powered cars in the country, similar to California’s system. This means foreign automakers, for whom the subsidies provided too little incentive to launch electrified cars in China until now, will have to get into the New Energy Vehicle market as well.As I’ve written earlier this year, the overly generous subsidy system of the Chinese government not only costs them a huge chunk of cash at the moment the economy is starting to cool, but also offers too big a lure for malicious parties to falsely report their production or sales of EVs, most notably for passenger buses which could fetch as much as 500.000 yuan (€ 67.000,- / US$ 75,000) each. After the government investigated a number of companies, it learned that over 1 billion yuan (€ 134,2 million / US$ 149.9 million) have been purloined in 2015 by five domestic automakers , which claimed subsidies on unsold or even unfinished electric passenger buses.

Besides encouraging fraud, another negative side effect of the generous subsidies has been that local automakers started to produce cars that raked in the most subsidies instead of the cars the market has been asking for. Last year, 330.000 New Energy Vehicles were sold in China. In the first eight months of 2016 sales more than doubled again to 245.000 units, most of them low-priced and low quality vehicles from local automakers. At the moment the only locally produced New Energy Vehicles from foreign brands are the Volvo S60L PHEV and the Nissan Leaf EV, which is sold as the Venucia e30 Morning Wind. The only imported NEVs in China are the BMW i3 (both with and without Range Extender) and i8, the Mercedes-Benz C350eL, GLE500e and S500eL, Tesla Model S and Model X, Volkswagen Golf GTE and Volvo XC90PHEV. Other automakers have announced plans to get into the market within a few years’ time, as they were waiting for the market for these vehicles to improve, but now Beijing will force them to put their money where their mouth is.