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Bet on NEVs, not on NEV subsidies

China’s new energy vehicle manufacturers are scrambling over tactics in response to the much-awaited NEV subsidy measures announced on March 26 (see NEV subsidies cut by half, range and battery density thresholds raised, local subsidies to be eliminated) and trying to make sense of the steeper than expected subsidy reduction.

The gist of the new measures is that subsidies are gone for battery electric passenger vehicles that do not have at least 250 km of NEDC range. For those with a range between 250 and 400 km, the subsidy has been cut by 60 percent, and those with a range of 400 km and above, subsidies have been halved. And for plug-in hybrid passenger vehicles, standard subsidy is now down to only ¥10,000 per vehicle, a 55 percent drop.

On average, the subsidies were off by at least 50 percent compared to 2018 levels.

Add on top of that, local subsidies will be completely eliminated after a three month transition period until June 25 and certain requirements on battery energy density and energy consumption per unit load mass, fast charging rate, fuel savings rate must be met before the full standard subsidies can be given.

Chinese smart EV startup NIO, which sells the close-to-¥500,000 ES8 before subsidies and soon the lesser priced ES6, announced that customers who put down a ¥40,000 deposit for the order of an ES8 between March 27 and 31 and register their vehicles by April 30 will continue to enjoy the same ¥45,000 central subsidy as well as a slightly reduced local subsidy of ¥13,500 (normal 2018 level at ¥22,500). Once June 26 comes around, buyers would only receive about ¥14,400 in subsidies toward the purchase of an ES8, which will be about ¥53,100 less than they would have received before March 25. Others such as GAC NEV and Qiantu Motor have chosen to maintain existing post-subsidy MSRPs for their key NEV models. Xpeng Motors, on the other hand, raised post-subsidy prices of its G3 in February by ¥4,000-¥5,000. Leading NEV manufacturers such as BYD and BAIC BJEV have yet to announce specific measures as of March 29. Volkswagen brand, interestingly, unveiled three new locally produced battery electric models with battery energy density of 121 Wh/kg (see SPOTLIGHT), below the minimum 125 Wh/kg requirement specified in the new measures.

It is quite clear that the latest subsidy measures are a reflection of China’s determination to stick to the phase-out schedule of NEV subsidies, weed out the weaker players that overly depend on subsidies and elevate technical thresholds of NEV products on the market, in turn ensuring safety and quality. Eliminating local subsidies altogether, for example, is a move to prevent local protectionism.

The reality is, the good old days of steep subsidies are nearing a close and the survival of the fittest nature of competition based on the market will pick up speed and strength. A huge wave of localized NEV products is coming on stream from major foreign brands in a market that has simply been dominated by Chinese brands so far.

The ones that lose will be the ones that bet on NEV subsidies, rather than NEVs.

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