China reportedly in talks to extend EV production subsidies

SHANGHAI — China is in talks with automakers about extending costly subsidies for electric vehicles (EV) that were set to expire in 2022, aiming to keep a key market growing as the broader economy slows, three people familiar with the matter said.

The move by policymakers comes as the world’s second-biggest economy has slowed sharply – and auto sales along with it – after cities led by Shanghai imposed tight COVID-19 lockdowns from March. The curbs have shut stores, disrupted supply chains and slashed spending, including on new homes.

Government departments including the Ministry of Information and Industrial Technology (MIIT) are considering a continuation of subsidies to EV buyers in 2023, said the people, who declined to be named as the discussions were private.

China’s expensive incentive program has been credited with creating the world’s largest EV market. Since the subsidies began in 2009, some 100 billion yuan ($14.8 billion) has been handed out to buyers including commercial fleet operators up to end-2021, according to an estimate by Shi Ji, an auto analyst with China Merchants Bank International.

The full terms of the 2023 extension, including the amount of the subsidies and which vehicles would qualify for them, have not been finalized, the people with knowledge of the matter said.

One specific measure under review would roll back a planned purchase tax increase for qualified electric and partly electric vehicles, two people briefed on the discussions told Reuters.

For this year, there is no purchase tax for such vehicles, but the government had planned to raise the tax to 10% of the purchase price in 2023. Instead, the rate would be raised to just 5%, they said.

Subsidies have been available for cars made by all automakers including non-Chinese players like EV giant Tesla, which has a factory in Shanghai and is the only foreign automaker with a top-selling EV.

The MIIT and Ministry of Finance didn’t immediately respond to requests for comment on Wednesday.

The EV subsidy scheme was originally scheduled to be phased out by the end of 2020, but Beijing extended it for two years to spur demand in the wake of the COVID pandemic.

The government also cut the amount of subsidies per vehicle over the years as demand surged and manufacturing costs fell. For example, the subsidy for a plug-in hybrid with a range of more than 300 kilometres was cut by about 20% to the equivalent of about $1,900.

EVs for $4,000

The program of incentives for buying what China calls new-energy vehicles (NEV) has stoked purchases of cars with longer driving range in particular, as it has raised the threshold on vehicles qualifying for the subsidies over the years.

In the highly developed China EV market, smaller battery-powered city cars, most of which don’t qualify for subsidies, make up 40% of EV sales, according to auto consultancy JATO, and cost on average just under $4,000. That compares with more than $26,000 in the United States for equivalent models.

Subsidies are now targeted at bigger models, with a driving range of more than 300 kilometers per charge and priced under 300,000 yuan ($44,459).

China’s NEV sales increased 45% year-on-year in April to 299,000, according to data from China Association of Automobile Manufacturers (CAAM), while across the whole auto sector some 1.18 million vehicles were sold. But that jump was at a much slower pace than growth in previous month, when sales more than doubled from a year earlier.

The association has forecast production and demand to begin to catch up in coming weeks after the April trough, triggered when dozens of cities in China were in full or partial COVID lockdown.

CAAM has urged the government to consider additional help for the industry. Overall April vehicle sales were down almost 48% from a year earlier, data from the industry group showed.

Some local governments, including Guangdong and Chongqing, had also rolled out stimulus measures to subsidize consumers who exchange their old combustion engine vehicles for new EVs in April.

In what would be a separate move, state-owned newspaper China Securities Journal reported on Tuesday that officials would introduce subsidies from June to encourage more rural buyers to purchase cars including NEVs, with payouts of up to 5,000 yuan ($740) per vehicle.

Shanghai’s municipal government is also considering how it can kickstart spending after a drastic wipeout of vehicle sales in China’s commercial and financial hub 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 stringent lockdown.

($1 = 6.7478 Chinese yuan renminbi; Reporting by Zhang Yan and Norihiko Shirouzu; Editing by Kenneth Maxwell)