Beijing looks set to extend NEV subsidies

Rumours of the Chinese government extending its temporarily-holstered subsidies for new sales of NEVs (New Electric Vehicles) have been rife since it revealed plans in late May to boost economic activity as the country staggered out of the latest Covid lockdowns.

The tax breaks on NEVs have helped drive sales higher from 2020 onwards, with expectations for total sales of a record 5 million units this year – despite the weak performance in Covid-hit April and May.

Around 3.3 million NEVs of all types were sold in China in 2021, so to get to 5 million or more this year will be a heroic effort and only driven by the various subsidies.

Now there are reports, quoting a government minister, that thought is being given to extend the purchase subsidies due to end in December.

The extension could be for another year at a 20% purchase subsidy to the end of 2023.

Xin Guobin, China’s vice minister of Ministry of Industry and Information Technology has been quoted earlier this month as saying the government is considering extending tax breaks on new-energy vehicles beyond the expiry of the policy in December,

“We will study and clarify the policy of extending the preferential purchase tax of new energy vehicles as soon as possible… we are working with relevant departments to study whether to continue this policy,” Xin said in a translated text of his remarks, according to a report on Reuters.

The potential move comes as China’s NEV market “still has some shortcomings and deficiencies in some key technologies and support capabilities,” Xin said.

In May, despite COVID-19 disruptions, sales of NEVs in China surged 91.2% year over year to 360,000 units.

The Covid crisis has seen BYD consolidate itself as the industry leader selling more than 100,000 units for a third month in a row.

It is closing in on VW which made 150,000 vehicles through its joint ventures – most were ICE powered vehicles (internal combustion engine).

BYD’s sales surged almost 350% to more than half a million during the first five May – more than its top four EV rivals – GAIC-GM-Wuling, Tesla, Chery, and GAIC – combined.

BYD rode out the lockdowns in April and May (and into June) better than rivals like Tesla because it is based in the southern province of Guangdong, while the lockdowns were centred on Shanghai, Beijing (and surrounding provinces) and in Jilin province in the northeast which is a major cranking area.

BYD continues to make its own batteries – that’s what attracted Warren Buffett and his Berkshire Hathaway company to invest in 2008 – and will soon be supplying them to Tesla.

That helped it ride out the lockdowns in Shanghai that hurt many of its competitors, especially Shanghai-based Tesla, Nio and Li Auto as supplies of batteries and other parts dried up and prices rose sharply.

The lockdowns have allowed BYD to hit prime position and if the purchase subsidies are extended to the end of 2023, it will be in a prime position to benefit and continue leading the industry.

Other major Chinese NEV producers include Tesla China, Guangzhou Automobile Group or GAC’s unit GAC Aion, SAIC-GM-Wuling, a joint venture among SAIC Motor, General Motors and Wuling Motors Holdings, Li Auto, XPeng and NIO.

VW has three joint venture companies in China and is planning to start produce NEVs shortly from a factory being built by the Volkswagen Anhui JV.

The plant, jointly owned by Volkswagen and Anhui Jianghuai Automobile Group, will have an annual production capacity of 300,000 electric vehicles.

With May’s sales rebound, the installed capacity of power batteries in China rose in the month thanks to the strong demand for batteries from NEV sector.

A total of 18.6 gigawatt-hours (GWh) of power batteries were installed in NEVs in China, soaring 90.3% year over year, with about 10.2 GWh of lithium-ion batteries installed, up 126.5% from last year and accounting for 55.1% of the May total.