Regulatory chaos, confusion reign over EV market

Yang Jian

Automotive News | 2019-1-11

SHANGHAI -- The severe downturn in China¡¯s traditional vehicle market in the second half of 2018 caught automakers unprepared. 

At the start of the new year, companies find themselves confronted with a thick layer of regulatory chaos and confusion surrounding the electrified vehicle market.

The major uncertainty facing automakers is how the Chinese government will wind down subsidies for electrified vehicles. 

In 2016, the Chinese government made clear that the subsidies will be phased out by the end of 2020. 

But until last year, sales of electrified vehicles were still heavily subsidized. For example, an electric passenger vehicle was granted subsidies of up to 66,000 yuan ($9,710) while a plug-in hybrid car qualified for a flat subsidy of 22,000 yuan. 

Thanks to the generous incentives, combined sales of EVs and plug-in hybrids surged 68 percent to top 1 million in the first 11 months of 2018. The tally includes about 791,000 EVs and 239,000 plug-in hybrids.

To end the incentive program on schedule, the government would have to cut subsidies by a big margin this year and in 2020, which in turn would jeopardize the growth in electrified vehicle sales. 

But China has remained mum on how it plans to lower the subsidies. 

Adding to the uncertainties over the fate of government subsidies for electrified vehicles is a December revision the National Development and Reform Commission, China¡¯s central economic planning agency, made to policy on auto industry investment. 

Under the revised policy, plug-in hybrids are for the first time labeled as ¡°fossil fuel-powered vehicles,¡± rather than electrified vehicles. The move has led many analysts and auto industry officials to suspect the government will soon end subsidies for plug-in hybrids. 

One would expect the commission would clarify its categorization of plug-in hybrids but so far it hasn¡¯t bothered to say a word. 

At the beginning of the month, Beijing also enacted a California-style carbon trade program, seeking to push automakers to ramp up electrified vehicle output.

Under the program, carmakers that fail to produce sufficient numbers of electrified vehicles annually can buy carbon credits from peers that build more such vehicles than required. 

But nobody knows how the carbon credits will be traded as the government has neither launched a platform to enable trading of the carbon credits nor disclosed how the credits will be priced. 

What a wonderful year that has begun for the world¡¯s largest electrified vehicle market!

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