China said to mull pulling electric car subsidies

A electric vehicle sits in an acoustics testing lab at the BYD headquarters in Shenzhen, China. Qilai Shen/Bloomberg

China is planning to tell local governments to stop offering subsidies for electric cars and other new-energy vehicles to discourage protectionism and help rein in state expenditure, people familiar with the matter said.

The ministry of finance is working on a plan that would mandate authorities to phase out the incentives, the people said, asking not to be identified. The plan to streamline the payments may be implemented as early as next year, one of the people said.

The ministry didn’t immediately respond to a request comments.

Car makers in China have counted on these grants from the government to make their electric vehicles (EV) more affordable in a market that surpassed the US as the world’s biggest in 2015. Unless they are compensated by other means, the move to eliminate the support may hit companies such as BYD and BAIC Motor, as buyers will find their vehicles more expensive.

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Although China’s central and local governments have relied on subsidies as part of a wider strategy to promote environment-friendly automobiles, the payouts have raised concerns that the administration is seeking to address now. While some automakers have complained that the incentives unfairly favour home-based manufacturers, leading to protectionism, authorities are also baulking at their costs to the exchequer.

China’s central government has spent 59 billion yuan (Dh32.68bn) through 2015 on funding purchase of new-energy vehicles (NEV), and it may need to set aside 83bn yuan more for 2016 and the current year, according to estimates by Cui Dongshu, the secretary-general of the China Passenger Car Association.

The Asian nation is considering ending production and sales of automobiles powered by gasoline and fuel to tackle pollution and reduce its dependence on oil imports. It identified EVs, plug-in hybrids and fuel-cell vehicles in 2010 as a strategic emerging industry that merits state aid.

Sales of NEVs in the country may jump as much as 50 per cent to more than 1 million units in 2018, from an estimated 700,000 this year, according to China Association of Automobile Manufacturers.