Serving the World's Largest Emerging Automobile Market
Home > Commentary > NEV policy change to shake up industry value chai

NEV policy change to shake up industry value chai

According to recent data released by China Passenger Car Association (CPCA), new energy passenger vehicle sales in January reported an 87 percent month-on-month and 61 percent year-on-year decline. The market sold only 5,423 new energy PVs. Of the total 35 models available on the market, 15 models including the Emgrand EV, Zhidou, BYD E5 and IEV all reported zero sales growth. BYD’s Qin and Tang, two of its star NEV models, only sold 208 and 278 units respectively.

But total NEV sales reached 42,000 units in last November and December.

The fall may be attributed to abrupt policy changes. At the end of last December, five NEV recommended model lists were required to be rechecked for those models on lists to get subsidies. All together 2,193 models were suspended from sale before the recheck completed.

Phasing out subsidy policy is another major factor that shocked the market: local subsidy should be no more than 50 percent of the central government subsidy and a 20 percent subsidy cut on the 2016 level.

Affected by the new policies, NEV model prices rose on average by ¥1,000 ($145) to ¥15,000. Beijing has released its specific subsidy policy and it will cut NEV subsidy by as high as ¥44,000 this year.

With most local governments’ policies not landing on ground, both buyers and 4S stores are taking a wait and see approach.

Chen Shihua, director of information department of China Association of Automobile Manufacturers (CAAM), believes the rise of NEV prices won’t affect this year’s sales, and subsidy phase out policy is not temporary. With policy improvement, manufacturing costs lowering, future NEV prices will be brought down. 

For mainstream OEMs, if they don’t lower profit to compensate for subsidy drop, it’s hard to maintain new vehicles with competitive prices compared with last year’s after-subsidy prices. Price affects sales greatly right now, according to one dealership. 

Some of them have already required suppliers to lower electric drive, electric control and battery prices and cut dealership profits. In an interview, BYD took its NEV model Qin as an example. Subsidy accounts for 30 percent in its sales price. When subsidy decreases by 20 percent, cost needs to be lowered by 5 to 10 percent to offset the subsidy drop.

Some OEMs have also subsidized their vehicle models to secure market sales during the policy vacuum.

It’s hard to make consumers to pay for cost rise. OEMs can only deal it themselves and pressure battery makers. Currently they require battery makers to lower costs by 20 to 50 percent. So, this year will also be a harsh year for battery makers.

| | | | | | |

Leave a Reply