China plans to end green vehicles subsidies after 2020

China plans to gradually reduce the amount of subsidies for new-energy vehicles and will stop providing financial assistance after 2020, according to Finance Minister Lou Jiwei.

Chinese automobile companies are overly reliant on government subsidies and the government will instead hasten the establishment of a points-based system similar to that used in California to encourage production and use of new-energy vehicles, the minister said at a conference in Beijing Saturday.

The government will cut 2017-2018 subsidies by 20 percent from those granted in 2016, and 2019-2020 subsidies will be 40 percent less than this year, Lou said.

President Xi Jinping has designated the development of electric vehicles as a strategic initiative in a bid to upgrade the auto industry, curb pollution and cut dependence on imported oil. The government is stepping up its support after signs the combination of research grants, consumer subsidies and infrastructure investments is yielding results as new-energy vehicle sales surged more than fourfold last year.

China invested about 37 billion yuan ($5.6 billion) into the new-energy vehicle segment over the past five years, according to Gao Feng Advisory Co., which estimates the government will provide another 63 billion yuan by 2020.

Buyers of electric cars at present get as much as 55,000 yuan in central government subsidies, depending on the vehicle’s range with a single charge. Local governments often match those incentives. In addition, users of new-energy vehicles including hybrids, plug-in hybrids and electric cars are exempt from registration and usage restrictions.

Despite these incentives, electric-car sales have lagged behind government targets amid concerns about the lack of access to charging facilities. China, which aims to have five million new-energy vehicles in use by 2020, reported sales of 331,092 units of such vehicles last year.

Still, the more than fourfold growth in demand from a year earlier has benefited automakers such as BYD Co., Zoyte Auto and BAIC Motor Corp., which have led in sales of electric cars.

BYD, backed by Warren Buffett’s Berkshire Hathaway Inc., would have turned a loss in 2014 and this year if not for the subsidies for electric vehicles from the central government, according to Barclays Plc. Geely Automobile Holdings Ltd. said in November it would target new-energy vehicles to make up 90 percent of sales by 2020.

source: Bloomberg