Contrary to India, China considers expanding EV incentives to reignite demand

Just as India’s debate rages on reducing subsidies for electric vehicles under FAME II from 40% to 15%, China is considering expanding incentives to curb sluggish demand for such vehicles in the country. China leads the world in electric vehicle sales, but demand has slowed recently.

A file photo of a car factory in China. Pictures have been used for representative purposes. (Reuters)

China’s State Council has reportedly asked to expand incentives for electric vehicles to boost demand. The country has been offering attractive incentives and subsidies for those who opt for electric vehicles.The discount can reach up to about 60,000 yuan ¥700,000. But about 10 years later, in 2022, those are abolished.

The decision to remove incentives and discounts may have had a direct impact on demand and sales of electric vehicles in China. It has also led to a fierce price war, with companies such as Tesla and Mercedes joining several local manufacturers in offering steep discounts. But the discount is a stopgap measure at best.

Citing the latest local news, Bloomberg now reports that a State Council meeting chaired by Premier Li Qiang decided to extend the subsidy period. It’s also particularly interesting because Tesla CEO Elon Musk was in the country earlier this week and held a high-level meeting with some top officials in the Chinese government. Tesla is a global leader in electric vehicles, with a factory in Shanghai serving the local market as well as markets in European countries.

Also read: China sells more light vehicles than US, India, Japan and Germany combined

But from all clear indications, the subsidies and incentives will be very selective, even if they are withdrawn.Experts believe subsidies may be limited to electric vehicles below 300,000 yuan ¥3.5 million. Models above that price mark — and China has many luxury automakers with EV ambitions — are likely to be missed.

It is no secret that a catalyst needs to be added for demand and sales of so-called new energy vehicles in China. EV deliveries for the January-April period of this year are up 36% compared to the same period in 2022, but worryingly, those months of 2021 are up 128% year-over-year compared to 2020 – clearly higher speed. Of course, Covid-19 and the ensuing lockdowns have played a huge role in this, but the current slow sales growth remains a concern. Moves have been made to target rural buyers and expand EV coverage into the hinterland. Whether this will boost sales remains to be seen.

First published date: June 2, 2023 at 17:28 pm CST

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