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File photo used for representational purpose only.
File photo used for representational purpose only.

China weighs cuts to electric-car subsidies it just extended amid coronavirus

  • China’s state council had said it would extend rebates on electric vehicles until 2022 to support the industry as the coronavirus pandemic hobbles demand.

China, the biggest market for electric cars, is considering a reduction in rebates given to buyers and limits on the models that qualify even as it commits to extending the costly subsidy program for another two years.

The country’s state council said Tuesday it would extend rebates on electric vehicles until 2022 to support the industry as the coronavirus pandemic hobbles demand. But various government bodies are in discussions over reducing the incentives by 10% later in 2020, according to people familiar with the matter. They’re also in talks to narrow the universe of cars that qualify for the discounts, the people said, asking not to be identified because the deliberations are private.

A reduction in subsidies could temper benefits for the likes of Tesla Inc. and Volkswagen AG, which are counting on the world’s biggest auto market to buoy sales. Electric-car manufacturers are already facing a host of challenges, from the global pandemic to the plunge in oil prices, which makes internal-combustion vehicles cheaper to drive.

(Also read: Coronavirus impact: China may ease electric car quotas, delay emission rules)

The subsidy plans show the balancing act China’s government is facing as it works to bring the economy back from the debilitating blow the coronavirus delivered early this year. With manufacturing sliding the most on record in February, industries are clamoring for state support.

In its bid to become a leader in new-energy vehicles, China has maintained a significant subsidy program for over a decade and was in the process of rolling some of the support back to allow the industry to become more independent when the virus hit.

NIO shares fell 4.7% in New York Wednesday.

China’s auto industry has been hit particularly hard in the wake of the coronavirus, with weekly car sales at one point plummeting 96%. Now it’s Europe and the U.S.’s turn. Manufacturers across both regions have shuttered factories after governments imposed restrictions to stem the spread of the virus.

New-vehicle registrations in France and Spain plunged by more than two-thirds in March from a year earlier, figures released Wednesday show. Several brands in the U.S. reported more than 40% declines for the month.

Industry Slump

China began subsidizing EV purchases in 2009 to promote the industry but has been gradually reducing handouts in the past few years to encourage automakers to compete on their own. The government had planned to phase them out completely at end of this year.

But cutbacks that took effect last summer triggered the first downturn in the country’s EV industry, and the pandemic has only worsened the slump.

The government bodies involved in the talks -- the Ministry of Finance, Ministry of Industry and Information Technology and the National Development and Reform Commission -- didn’t immediately respond to requests for comment or referred queries elsewhere.

China Plant

China is a centerpiece of Tesla Chief Executive Officer Elon Musk’s automotive ambitions. The company began delivering China-built Model 3s to local consumers in January. Constructing the plant near Shanghai was key to unlocking a greater share of the market by qualifying its cars for subsidies and more favorable tax treatment.

While Tesla’s registrations have been slow out of the gate, much of the weakness can probably by chalked up to seasonality and the impact the virus has had on the whole industry.

General Motors Co. also has high hopes -- and a lot of cash -- riding on China’s EV market. The automaker announced early last month that it’s investing $20 billion into electric and self-driving vehicles by 2025. Some of its battery-powered models already are hitting showrooms in China ahead of the U.S., where federal incentives for its plug-in cars are shrinking.

President Donald Trump also just completed a three-year effort to ease fuel-efficiency rules, which will make it easier for companies like GM to meet environmental standards that the Obama administration envisioned giving EVs a boost.

VW Electric Push

China is a critical market for German auto giants VW, Daimler AG and BMW AG in terms of profits and sales. VW, the world’s top-selling automaker, is gearing its global electric-car push this year by starting production of purely battery-powered cars at two new factories in China.

Daimler, the maker of Mercedes-Benz luxury cars, has introduced the EQC electric SUV and plans to expand its lineup of purely battery-powered vehicles to at least 10 in coming years with China being one of the key markets.

The company has also folded its Smart city-car brand into a joint venture with its largest shareholder Geely, which will be based in China and make zero-emission subcompact cars for global markets.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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