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China to subsidize new energy vehicle buyers in 5 cities

BEIJING – The Chinese government announced on June 1 the launch of a pilot program in five cities to provide subsidies to buyers of battery-powered cars and plug-in hybrids, as a major effort to keep the country competitive in the global race to develop electric vehicles.

Residents of Shanghai, Shenzhen, Hangzhou, Hefei and Changchun would receive up to ¥50,000 ($7,320) in one-time subsidies if they buy plug-in hybrid cars, according to the Notice on Pilot Cities of Subsidy to New Energy Vehicle Buyers posted on the website of the Ministry of Finance. Those who purchase a pure electric car will receive a maximum subsidy of ¥60,000, according to the Notice.

Under the program, the subsidy amount for eligible vehicles will be determined by battery energy output, namely, ¥3,000 per kWh. The subsidies will go to automakers, which would deduct the subsidy amount from the retail price.

During the pilot period, after an automaker sells 50,000 hybrids and 50,000 EVs, the government would reduce the level of subsidies.

The Notice also encourages local governments to release favorable policies and build necessary infrastructure in support of plug-in and pure electric vehicles.

The Ministry will also offer nationwide a subsidy of ¥3,000 on cars with 1.6-litre engines or smaller that consume 20 percent less fuel than current standards, according to another statement on its website.

In addition, the ministry stated to add seven pilot cities, including Tianjin, Haikou, Xiamen, Zhengzhou, Suzhou, Tangshan and Guangzhou, into another pilot program to offer subsidies for purchases of cleaner buses in 13 cities starting in early 2009.

Independent brands to benefit

Analysts believe that the five cities have been selected as they have relatively strong basis of production and commercialization of electric vehicles. The five pilot cities covered the home locations of China’s top two auto groups, SAIC and FAW, as well as three leading independent automakers, namely Chery, BYD and Geely.

Among the five companies, BYD is already in a position to take advantage of the subsidies. The company launched its plug-in hybrid F3DM to individual consumers in March and its all-electric e6 for the taxi fleet in Shenzhen in May.

Energy output of the F3DM’s battery pack is over 17 kWh, so BYD would get subsidy of ¥50,000 per unit from the government, said an insider from BYD. The BYD e6 is eligible for the ¥60,000 subsidy, added the person.

“The policy is great news for our company, and will directly push the commercialization of electric vehicles. In addition, the program clearly indicates that electric vehicle is the future,” said Xu An, general manager of BYD’s PR department.

Beijing, Chongqing and Wuhan, home to BAIC, Chang’an and Dongfeng, three of China’s top five automakers, were not chosen as pilot cities.


Test waters

Chinese automakers have been swarming into the development and production of new energy vehicles over the past two or three years, since China set energy saving and environmental protection as a national strategy. The decision to roll out the subsidy program reflects the government’s determination to foster an electric car industry capable of competing head-on with foreign automakers.

Similar subsidy programs already are offered or are being rolled out in the U.S., Japan and Europe.

A senior executive of a Sino-foreign JV carmaker told Wall Street Journal that the limited scope of the incentive program for non-plug-in hybrids reflects reservations within China’s central government about the social implications. “They are testing the waters with this pilot program,” the executive said.

Auto analysts said the subsidies are likely to apply only to vehicles produced in China, although that was not clear from the government notice.

Nissan Motor Co., for instance, plans to start selling the Leaf, a pure electric compact, in China next year, after the model is launched in Japan, the U.S. and Europe later this year.

The Leaf, if imported to China, is not likely to benefit from purchase subsidies from the Chinese government. Nissan CEO Carlos Ghosn said in April that the automaker would locally produce the Leaf in China if the Chinese government decided to offer “substantial” purchase incentives. He defined a sufficient subsidy as about $7,500 a car.

A Nissan spokesman in Beijing told Wall Street Journal that the company was still trying to confirm the details of China’s incentive program. Nissan will weigh the direction of China’s green car policy, including the scope of incentives and the charging infrastructure for electric vehicles, before taking any decision on whether to manufacture in the country, the spokesman said.

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