SHANGHAI – China is in talks with automakers to increase costly subsidies for electric vehicles (EVs), which are set to expire in 2022, with the aim of keeping a key market growing as the larger economy slows, say three people familiar with the matter.
The move by policymakers comes as the world’s second-largest economy slowed sharply – and with it auto sales – after Shanghai-led cities imposed severe COVID-19 lockdowns since March. Sanctions have closed stores, disrupted supply chains and reduced costs, including new homes.
Government departments, including the Ministry of Information and Industry Technology (MIIT), are considering continuing to subsidize EV buyers in 2023, who declined to be named because the discussion was private.
China’s costly incentive program has been credited with creating the world’s largest EV market. Since the subsidy began in 2009, about 100 billion yuan ($ 14.8 billion) has been transferred to buyers, including commercial fleet operators, by the end of 2021, according to an estimate by Shi Ji, an automated analyst at China Merchants Bank International.
The full terms of the 2023 extension, including the amount of the subsidy and which vehicles would be eligible for them, have not been finalized, experts said.
A specific arrangement under review would return a planned purchase tax increase for eligible electric and partially electric vehicles, two people told Reuters about the talks.
For this year, there is no purchase tax for such vehicles, but the government planned to increase the tax by 10% of the purchase price in 2023. Instead, the rate will be raised to just 5%, they said.
Subsidies are available for cars made by all automakers, including non-Chinese players such as the EV giant Tesla, which has a factory in Shanghai and is the only foreign automaker to have a top-selling EV.
MIIT and the finance ministry did not immediately respond to a request for comment on Wednesday.
The EV subsidy scheme was originally scheduled to be phased out by the end of 2020, but Beijing has extended it for two years to boost demand in the wake of the Kovid epidemic.
The government has also reduced the amount of subsidy per car over the years due to rising demand and lower production costs. For example, the subsidy for a plug-in hybrid with a range of more than 300 km was reduced by about 20% to about $ 1,900.
China’s incentive program to purchase what it calls new-energy vehicles (NEVs) has increased purchases of vehicles, especially those with a longer driving range, as it has increased the number of vehicles eligible for subsidies over the years.
According to auto consultancy JATO, in the highly developed Chinese EV market, small battery-powered city cars, most of which do not qualify for subsidies, sell 40% of EVs, and cost an average of just under $ 4,000. This compares to more than $ 26,000 in the United States for the equivalent model.
Subsidies with a driving range of more than 300 kilometers per charge and prices below 300,000 yuan (44,459) are now being targeted at larger models.
According to the China Association of Automobile Manufacturers (CAAM), China’s NEV sales in April rose 45% year-on-year to 299,000, with sales of about 1.18 million vehicles across the auto sector. But that jump was much slower than the previous month’s growth, when sales more than doubled from a year earlier.
The association predicts that production and demand will begin to rise in the weeks following the April trough, when dozens of Chinese cities were in full or partial COVID lockdown.
CAAM has requested the government to consider additional assistance for the industry. Overall April car sales were about 48% lower than a year earlier, industry group data shows.
Some local governments, including Guangdong and Chongqing, have also introduced stimulus measures to subsidize those who exchange their old combustion engine vehicles for new EVs in April.
What would be a separate move, the state-owned newspaper China Securities Journal reported Tuesday that officials would introduce subsidies from June to encourage more rural buyers to buy cars with NEVs, including payments of up to 5,000 yuan ($ 740) per car.
The municipal government of Shanghai is also considering how to start spending after the strict elimination of vehicle sales in China’s commercial and financial centers in April. According to the Shanghai Automobile Sales Trade Association, not a single new car was sold in the city of 25 million people during last month’s severe lockdown.
($ 1 = 6.7478 Chinese Yuan Renminbi; Reporting by Zhang Yan and Norihiko Shiroju; Editing by Kenneth Maxwell)