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China in talks with automakers on EV subsidy extension

China is in talks with automakers about extending costly subsidies for electric vehicles (EV) that were set to expire in 2022. This is by aiming to keep a key market growing as the broader economy slows. 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 lockdown. 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. China’s expensive incentive programme has been credited with creating the world’s largest EV market. Since the subsidies began in 2009, some 100 billion yuan has been handed out to buyers including commercial fleet operators up to end-2021. This is according to an estimate by Shi Ji, an auto analyst with China Merchants Bank International. The terms of the 2023 extension, including the amount of the subsidies and which vehicles would qualify for them, have not been finalised.

Subsidies have been available for cars made by all automakers including non-Chinese players like EV giant Tesla. They have a factory in Shanghai and is the only foreign automaker with a top-selling EV. 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 pandemic. The government also cut the amount of subsidies per vehicle over the years as the demand surged and manufacturing costs fell.

The programme of incentives for buying what China calls new-energy vehicles (NEV) has stoked purchases of cars with longer driving range in particular. 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. This is according to auto consultancy JATO. Subsidies are now targeted at bigger models, with a driving range of more than 300 kilometres per charge and priced under 300,000 yuan. China’s NEV sales increased 45% year-on-year in April, according to data from China Association of Automobile Manufacturers.

The association has forecast production and demand to begin to catch up in coming weeks after the April trough. Some local governments, including Guangdong and Chongqing, had also rolled out stimulus measures to subsidise 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 that officials would introduce subsidies from June to encourage more rural buyers to purchase cars including NEVs.

Shanghai’s municipal government is also considering how it can kickstart. 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.

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