China to Increase Subsidies for Electric Vehicles

BYD k9 Electric Bus in Guangzhou, China

China has been struggling with air pollution for a very long time, amid the rapid industrialization the country has been going through over the past couple of decades, leading to increased greenhouse ­gas emissions from motor vehicles and power plants.

But the world’s most populous country has invested hundreds of billions of dollars to tackle this problem. Taking gas­-guzzling, high-polluting vehicles off the road and replacing them with fuel­ efficient, eco-­friendly alternative fuel vehicles is one of the most important parts of the government’s fight against pollution.

In an attempt to encourage citizens and businesses to buy alternative fuel vehicles, China has been subsidizing purchases of electric cars, hybrids, and hydrogen fuel­ cell vehicles for a couple of years now. The government recently announced that it will extend the existing incentive scheme which was set to expire at the end of next year. The current program grants up to $10,000 to anyone who buys an all-electric, a plug­-in hybrid, or a hydrogen­-powered vehicle, and like the new scheme, it only grants subsidies for vehicles built by domestic manufacturers.

Under the new incentive program, which will run from 2016 through 2020, so­ called “new-energy” vehicles will be subsidized by up to 55,000 yuan (about $8,800). Electric buses manufactured by Chinese automakers will also be eligible for the grant, receiving up to 500,000 yuan ($80,000). On top of these purchase rebates, vehicles eligible for government incentives are also exempt from the 10­ percent purchase tax and will receive free license plates.

While these measures are aimed at boosting demand for clean vehicles, they haven’t helped accelerate adoption of plug-in and hydrogen-powered cars, at least not at the rate desired by the government.

China has set a goal of putting 5 million electric cars on its roads by 2020, a target that seems overly ambitious at the moment, given the slow growth of the country’s EV market. This is largely due to the lack of charging stations, an issue that cannot be resolved by subsidizing the purchase of electric vehicles. The government, however, recently decided to tackle this problem head on, announcing plans to spend more than $15 billion to install charging stations across the country.

The government’s policies to support the EV market have helped spur domestic production. While foreign brands, like Tesla, Nissan, and BMW, are excluded from the incentive schemes, the subsidies boosted production of electric vehicles by Chinese automakers, such as BYD – the largest manufacturer of plug-in vehicles in the country. In fact, over the first 11 months of 2014, Chinese companies produced five times more new­ energy vehicles compared to the same period of 2013.

But global automakers aren’t giving up on China. Both Tesla and BMW are putting their own money and other resources to build charging facilities throughout the country.

An extensive charging station network is certainly the most significant condition for making electric vehicles a viable alternative to conventional cars, and if China wants to reduce air pollution from vehicles, it must address this issue first, and then try to boost sales through financial incentives.