Removal of Subsidies Hitting Electric Vehicle Sales in China

Removal of Subsidies Hitting Electric Vehicle Sales in China

China has now introduced new performance-based subsidies for electric vehicles such as rewarding battery manufacturers that achieve certain thresholds in capacity, thus enabling electric vehicles to travel further


Subsidies have been of the one of the clinching factors for electric vehicles (EVs) in China emerging as the country’s largest EV market, in terms of volumes. The doling out of subsidies and subsequent EV adoption in this Asian nation began to emerge as a benchmark for other countries to emulate. In fact, subsidies on manufacturing costs in China have been principally responsible for the country witnessing over one million electric-motor passenger cars on its streets, but the growth story appears to be halted in its tracks, if recent sales numbers are anything to go by.

According to Quartz website, China witnessed its first monthly decline in sales of electric vehicles in July – the contraction extended in the month of August as well, plunging by 16 % from a year earlier to 85,000 units. To cite an example, BYD - the world’s biggest EV manufacturer - reported its second monthly sales declines - its sales dipped in August down 23 % from the year-ago period. Of course, the declining sales of EVs has come at a juncture when the country’s overall auto sales dropped in August – marking the 14th consecutive monthly drop since July 2018, falling to 1.65 million units – in fact, the sluggish economy on account of the US-China trade war has only compounded its woes.

The dwindling sales of Chinese electric vehicles can be attributed to the country announcing removal of subsidies for electric vehicles. The government’s subsidy cut, many experts believe, will hit the low-end manufacturers. There is a line of thought that the subsidy cut for EVs will work well for the long-term because traditionally companies that avail subsidies are more focussed on collecting the government subsidy and not much on the product. There is another thought that the government subsidy has also created excess production capacity as because everyone wanted to benefit from the government support.

The EV scenario in China is poised to undergo a change. Beijing has completely scrapped for vehicles with ranges below 250 kms per charge. However, China has now introduced new performance-based subsidies for electric vehicles such as rewarding battery manufacturers that achieve certain thresholds in capacity, thus enabling electric vehicles to travel further.

It remains to be seen how the Chinese electric vehicle story shape up in the coming months now that Beijing is adopting a different approach towards subsidising EVs.