China’s NEV sector needs market orientation in post-subsidy era

China’s new-energy vehicle (NEV) industry has grown up quickly, backed with Chinese consumers’ buying power as well as government subsidies. But the impact of government fiscal support is set to fade away in the next two years, and producers should be anxious about whether their offerings can stand the test of a market that’s filled with fierce competition among foreign and domestic players.

To encourage the industry’s development, China has given manufacturing incentives to producers as well as subsidies to consumers who buy EVs.

In 2016, the Chinese government said that subsidies for NEVs will end by 2020. They’ll drop 20 percent each year until 2019, by which time they’ll be at 40 percent of 2016 levels.

As the 2019 subsidy policy is about to be released, the NEV industry is generally concerned over its effect on the future development of domestic automakers, including traditional manufacturers and the so-called “new force”, most of which are companies focused on the internet and intelligent manufacturing.

It is undeniable that the government’s subsidies have played a role in supporting the NEV sector to take root and flourish in China, which is taking the leading position in the world in the NEV sector as the country strives to cut emissions and pursue energy efficiency.

Thanks to the subsidies, 770,000 EVs were made and sold in China in 2017, an increase of 53 percent year-onyear and almost four times the number sold in the US.

This year, vehicle production has declined in China, along with sales – the first decreases since the beginning of China’s reform and opening-up.

In November, a total of 2.55 million vehicles were sold, down 13.9 percent year-on- year, according to the China Association of Automobile Manufacturers (CAAM).

In sharp contrast, NEV sales rose 37.6 percent in November from the same period last year, outperforming the overall auto market, data from the CAAM showed.

However, there are some companies that are not actually making EVs, but they’re still making money off subsidies, often for low-quality vehicles. They’re not investing in the research and development of genuine EVs that can replace traditional internal-combustion autos, nor do they offer consumers an equal or even better driving experience.

It is imperative for the government to wean the ris- ing umber of NEV makers off subsidies in a competitive market, and the subsidies are set to be gone by 2020. At that time, many producers will find it difficult to survive.

Meanwhile, several global auto heavyweights have announced ambitious plans for EVs in China.

Although it is reasonable to believe that the government will launch other policies to sustain the NEV sector’s sound development in the post-subsidy era, it is urgent for domestic automakers to climb up the technology ladder and become more market-oriented.