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Will Beijing have to pay balky consumers to buy EVs?
Yang Jian | 2017/5/12

SHANGHAI -- Beijing has big dreams for electric vehicle sales in China.

The government expects China's annual EV sales will reach 2 million units by 2020 -- nearly four times the tally in 2016, according to a blueprint published last month for the country's domestic automakers.

But there's scant evidence that consumers want these vehicles -- despite big sales in recent years.

In 2016, sales of pure EVs and plug-in hybrids in China surged 53 percent to 507,000, cementing China's status as the world's largest market for green vehicles. 

But the giddy growth rate wasn't triggered by consumer demand, but by fat government subsidies. 

By the end of 2015, subsidies for EVs and plug-in hybrids had topped 55 billion yuan ($800 million). Of that amount, 30 billion yuan was doled out in 2015 alone, according to the Ministry of Finance. 

Naturally, a market that relies so heavily on subsidies will contract once the subsidies decline. And that's exactly what has happened to EV demand this year.

In January, Beijing took steps to rein in automakers that were violating a subsidy program to inflate EV sales.
 
First, it reduced its national subsidies by 20 percent. Second, it capped provincial subsidies at 50 percent of the central government's incentives. That was a dramatic departure from the past.

The changes have had a big impact on car buyers' wallets. Take an EV with a range of 100 to 150 kilometers (62 to 93 miles), which is typical for Chinese EVs.

For a car such as this, the buyer might receive state and federal subsidies totaling 30,000 yuan, down from 50,000 yuan in 2016. 

To be sure, 20,000 yuan is not a huge sum. But it's still enough to change the minds of many Chinese consumers. For these car buyers, the main attraction is the low price -- not the vehicle.

Predictably, sales of EVs and plug-in hybrids have suffered. In the first three months, deliveries fell 4.4 percent year on year to 55,929.

In fact, deliveries would have fallen even more steeply had it not been for BAIC Motor Co. This year, BAIC pledged its own money to compensate customers for reduced government subsidies. 

In the first quarter, the state-owned automaker's EV sales soared 111 percent to 12,700 vehicles. As a result, BAIC has overtaken BYD Co. as China's largest EV maker. 

By contrast, automakers that failed to compensate customers have suffered declining sales.

For example, BYD sales tumbled 48 percent to 8,600 vehicles while Jianghuai Automobile Co., a major EV maker, saw deliveries shrink 57 percent to 2,004 vehicles. 

Those shaky first-quarter sales have shown that subsidies are the sole impetus for EV demand in China.

But over the next two years, Beijing plans to further reduce government subsidies by 40 percent. By 2020, those subsidies will be phased out.

Meanwhile, China has proposed to introduce a California-style carbon credit trading program to goad automakers -- especially global brands -- to expand EV production.

That proposal has aroused deep concern among global giants such as Volkswagen and General Motors, which are skeptical about consumer demand for green vehicles in China. 

After global automakers protested, Beijing is revising its proposal for carbon credits. 

Now, one might legitimately wonder how China can possibly expect to quadruple EV sales by 2020.

Pictured: Yang Jian is managing editor of Automotive News China.


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