Subsidy program for China’s new-energy vehicles to expand

Things are looking brighter for China’s subsidy program for the private purchase of new-energy vehicles. The lukewarm reception to the incentive, which was launched in five pilot cities two years ago and has since expanded to include 20 other cities, is now changing mainly because of government policies. More cities are expected to be included in the subsidy program so that the country’s target of selling 500,000 new-energy vehicles by the end of 2015 could be met.
Since it launched its subsidy program for new-energy vehicles in 2009, China made great effort – unmatched by any other country in the world – to encourage the development of new-energy vehicles through the successive introduction of a portfolio of incentives. Its efforts were met with enthusiasm by many local and foreign car makers who rushed to unveil plans to develop promising energy vehicles in the world’s largest auto market and in just a short time; new models became available in the country.
But consumers have not responded as enthusiastically and according to the China Association of Automobile Manufacturers (CAAM), the full-year sales of new-energy vehicles in 2011 was only 8,159 units, compared to an annual auto sales of 18.50 million units.
In the first quarter of this year, China’s automakers sold a total of 10,202 new-energy vehicles: 1,830 pure electric vehicles, 1,499 hybrid vehicles, and 6,873 alternative-fuel vehicles. In the first three months of this year, sales of new-energy vehicles accounted for a mere 0.2% of China’s aggregate auto sales.
High prices of new-energy vehicles due to high-production costs are believed to be the major cause for the consumers’ indifference. In some cases, new-energy vehicles cost double the price of conventional car models, and prices will continue to stay high until major breakthroughs on manufacturing new-energy vehicles are made.
Given this scenario, experts pointed to the public transport sector as a more viable market for new-energy vehicles, which presented lower operating costs than traditional fuel-powered vehicles. More and more automakers are tapping into this new business and are working at full throttle to develop electric taxis and minivans.
China stops stimulation policy for automobile purchases
During the global financial crisis in 2008, China awarded subsidies to car buyers in order to boost vehicle sales, which was part of a stimulus plan intended to ease the country’s financial burden. This spurred a car sales boom which in turn has created huge traffic problems in big cities like Beijing, Shanghai, Wuhan and Guangzhou, which have limited capacity to upgrade existing transportation infrastructure facilities.
To deal with this problem, China ended its stimulation policy for automobile purchases and some cities like Beijing initiated restrictive measures to contain the growth of new car sales and ease the traffic congestion. Only 20,000 new cars are allowed to obtain license plates every month.
Hand in hand with the restrictive measures, the Beijing municipal government promulgated favorable policies to encourage the sale of new-energy vehicles, especially pure electric vehicles, which continue to enjoy government subsidies and are exempt from the city’s restrictive measures.
If the restrictive purchase measures implemented in Beijing effectively solve the city’s traffic problems, it may extend to other cities in China since Beijing usually sets the example for other Chinese cities. And given the double squeeze of increasing gasoline prices and restrictive government measures, consumers in the country’s capital may soon shift to pure electric vehicles.
With these developments, and with oil majors, power grid operators and governments giving more support to new-energy vehicles, China’s new-energy vehicle industry seems to have a promising future. (June 13, 2012)