Amid economic downturn and trade tension, Chinese new energy vehicle industry is meant to hover the wings with support of the government.
China continues to be the world’s largest vehicle market with the government expecting that automobile output will reach 30 million units by 2020 and 35 million by 2025. According to the China Association of Automobile Manufacturers, over 27 million vehicles were sold in 2018. This included 23.79 million passenger vehicles, down 4.08% from 2017, and 4.38 million commercial vehicles, an increase of 5.05%. The decline in passenger vehicle sales is the first annual decline in at least 20 years.
Effective July 1, 2018, China trimmed tariffs on imported cars from 25% to 15% of their wholesale value. It also cut tariffs on 218 categories of imported car parts, reducing them to a standardized 6%. However, in June 2018, China imposed an additional 25% tariff on USD 50 billion in U.S. imports with USD 34 billion taking effect on July 6, 2018 and the balance of USD 16 billion on August 23. This tariff included most U.S. made autos and auto parts at rates between 5% and 25%. In December 2018, China announced that it would temporarily suspend these new tariffs on autos and auto parts until March 31, 2019. On June 1, 2019, these retaliatory tariffs on auto parts went into force.
Autos, including new energy vehicles (NEVs), are one of 10 sectors of the Made in China 2025 program, a government initiative to upgrade the country’s industry from low-cost mass production to higher-value advanced manufacturing. For NEVs, the government’s goal is to produce 1 million electric and plug-in hybrid cars in China by 2020, with domestic production accounting for at least 70% of the country’s market share. Moreover, China aims to sell 3 million domestically branded NEV’s in 2025 with a minimum of 80% of the country’s NEV market share.
China’s 'Automobile Mid and Long-Term Development Plan', released in April 2017, supports this initiative, aiming to make China a “strong” auto power within ten years. This plan highlights the development of NEVs and connected and autonomous vehicles as an opportunity for China to dominate this emerging market. Several ambitious targets have been set relating to the creation of national champions in auto parts/brands, connected car technology, driver assistance, and autonomous systems. Additional guidelines focus on NEV engines, plug-in hybrid engines, fuel cell systems and key components, charging stations, battery manufacturing facilities, and testing equipment.
Historically, consumer level subsidies, from both the central and provincial/municipal governments, have played a significant role in spurring domestic NEV sales. Though the stated aim of these subsidies is to support the development of the domestic NEV industry, since imported vehicles do not qualify, it also has the effect of making imported vehicles less cost competitive. The Ministration of Industry and Information Technology announced in March 2019 that it would cut the maximum subsidies by 50% for 2019 and phase out all subsidies by the end of 2020, which will increase the price competitiveness of imported vehicles.
As China moves away from its consumer-level subsidy program, the government has introduced a fleet quota system specifying that automakers, including joint ventures and auto importers, are required to manufacture or import a minimum percentage of NEVs relative to their total manufacturing or importing. The 2019 NEV production quota is 10% of total produced vehicles and 12% for 2020 based on a credit system which reduces the total requirement. Quotas for 2021 and beyond have not yet been released. Automakers that do not meet these targets are required to purchase NEV credits from other automakers that exceeded the production quotas or forgo sales of some amount of internal combustion engine vehicles.