New energy carmakers adjust to subsidy cuts

a new energy vehicle at BYD’s plant in Lancaster, Los Angeles.

SHENZHEN — Over the past few months, many new energy vehicle manufacturers in China have found themselves in an unfamiliar situation: sales continue to increase, but profits are significantly declining.

In the first quarter of 2018, 143,000 new energy vehicles were sold in China, up 154 percent compared with the same period last year, according to the Ministry of Industry and Information Technology.

However, BYD, a Chinese new energy vehicle maker in China, posted profit of 102 million yuan ($16.2 million), down 83 percent compared with the same period last year.

In 2017, Yutong Bus and Zhongtong Bus, China’s top new energy bus makers, also reported a 22 and 67 percent decline in profit respectively.

These companies attributed the profit drop to the phasing out of subsidies, which the government started to offer in 2010 to stimulate the popularity of new energy vehicles.

Driven in part by the favorable policies, as well as growing demand from environmentally conscious customers, annual production and sales of new energy vehicles in China topped the world from 2015 to 2017. By the end of 2017, cumulative sales exceeded 1.8 million, accounting for more than half of the global total.

At the same time, however, some new energy vehicle makers began making fraudulent applications in order to receive subsidies, which hurt customers interests and created chaos in the market.

In December 2016, a number of Chinese ministries issued a joint policy to reduce purchase subsidies for buyers of new energy vehicles, except fuel cell electronic vehicles, by 20 percent in 2019 and 2020.

This February, they announced a further subsidy cut of 30 percent for electric vehicles during the FebruaryJune period.

The policy change has prompted some new energy automakers to take action to minimize the negative impacts.

BAIC BJEV, another new energy vehicle company in China, initiated a program in November last year that allowed customers to swap or recycle batteries, in a bid to enhance their utility rate.

“To boost our competitiveness, BAIC will also unveil a new marketing model this year to cut the purchase cost of cars and enhance battery efficiency,” said Li Yixiu, deputy general-manager of the company.

For its part, BYD has put significant effort into developing models that meet the new criteria for government subsidies, as well as ones with enhanced energy density and better battery efficiency.

Despite a significant decline in profit, many executives of Chinese automakers said they remain positive about their companies’ prospects as well as the new energy vehicle market in the country.

“Market pressure has forced us to enhance our competitiveness. We are confident about our technology, production chain, and strategies,” said Hu Enping, chief brand officer of BAIC BJEV.

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