Contrary to India, China mulls extending incentives on EVs to re-ignite demand

Even as the debate rages on in India over the reduction in subsidy under FAME II for electric vehicles from 40 per cent to 15 per cent, China is mulling extending incentives to arrest the lacklustre demand for such vehicles in the country. China is the world leader when it comes to sales of EVs but demand in recent times has decelerated.

China’s State Council has reportedly asked for incentives on EVs to be extended in order to bolster demand. The country had been offering attractive incentives and subsidies to those who opt for EVs. Discounts could be as high as 60,000 yuan or approximately ₹7 lakh. But after around 10 years, in 2022, these were done away with.

The decision to do away with incentives and discounts may have had a direct impact on demand for - and sales of - EVs in China. This has also led to a fierce price battle with the likes of Tesla and Mercedes joining several local manufacturers in rolling out deep discounts. But discounts can be a stop-gap arrangement at best.

Bloomberg now reports, citing local updates, that a State Council meeting chaired by Premier Li Qiang has decided to extend subsidies. This is also especially interesting because Tesla CEO Elon Musk was in the country earlier this week and held high-level meetings with some of the top officials in Chinese government. Tesla is the world leader in EVs and has a plant in Shanghai from where it serves the local market as well as those in European countries.

But by all firm indications, subsidies and incentives are going to be very selective even if these are brought back. Experts believe that subsidies may only be offered on EVs that cost less than 300,000 yuan or around ₹35 lakh. Models above this price mark - and China has many luxury players with EV ambitions - could miss out.

The need to add a catalyst to demand and sales for what China refers to as new-energy vehicles is well recognised. Deliveries of EVs between January and April of this year was up by 36 per cent compared to the same period in 2022 but the concern here is that the year-on-year growth in these months of 2021 vis-a-vis 2020 was 128 per cent - significantly higher pace. Of course, Covid-19 and the consequent lockdowns had a huge role in this but the current slow pace of growth in sales has become a worry nonetheless. There has been a move to target rural buyers and expand the reach of EVs into the hinterland. Whether this would work to bolster sales remains to be seen.