The Chinese government is reported to implement a 30% reduction in the subsidies for the purchase of an electric vehicle (EV) in 2019. Such a move is expected to significantly lower the domestic demand and cause some difficulties for would-be buyers. On the other hand, battery manufacturers based in South Korea stand to gain from a major reduction in subsidies. Since vehicle models equipped with their batteries are excluded from the official subsidy list, the cut will provide them with a more leveled playing field.
The Chinese government initiated the gradual phase-out of EV subsidies in 2018, targeting total elimination by 2020. The intention behind this decision is to compel domestic EV makers to cut costs and improve their competitiveness.
In an interview that took place in December of last year, a representative from the China Association of Automobile Manufacturers told the Nikkei Asian Review that the average subsidy amount for the purchase of an EV is anticipated to be 30% lower in 2019 than in 2018. The same representative also stated that major domestic EV makers are worried that a dramatic scale-back in subsidies will cause EV sales to slide, especially for the popular models. The association is the industry group that assists the government in formulating standards and regulatory policies.
Nikkei has also reported that the total car sales in China for 2019 are projected to reach around 28 million vehicles, of which 1.2 million belong to the category of new energy vehicles. Following the central government’s decision to abolish nation-wide subsidies, local governments across the country are also starting to reduce the additional EV subsidies that they have introduced separately. This in turn is expected to substantially increase the cost burden on potential EV buyers.
However, China’s subsidy program, which uses the driving range on a single charge as the benchmark, may continue to increase the subsidy amount for certain models that offer exceptionally long ranges. In 2018, a vehicle model with a single-charge range of 150km could get an average subsidy of CNY 15,000 (USD 2,178), which is 60% less than the average of 2017. Conversely, a model featuring a 400km range could get an average subsidy of CNY 50,000, which represents a 10% increase from the average of 2017.
BusinessKorea, a media outlet, previously reported that South Korea’s battery suppliers, which include Samsung SDI, LG Chem, and SK Innovation, used to be strong competitors in China’s EV market due to their advantages in cost and product quality. However, they have received scant orders from the Chinese in the recent period, as the Chinese government in supporting domestic battery makers had excluded foreign batteries from it subsidy list. With the phase-out of the subsidies being a definite decision, Korean suppliers are re-establishing themselves in the country in anticipation that they will soon regain their former position.