China Is Said to Extend Tax Rebate to Reach Clean-Fuel Auto Goal

Updated on
  • Current tax rebate policy due to expire at end of this year
  • Incentives have helped China become world’s No. 1 EV market

China Still Largest Market for Clean Energy: BNEF

China is set to extend a 10 percent tax rebate to buyers of new energy autos as manufacturers from BMW AG to Tesla Inc. vie for a greater share of the world’s biggest market for clean-fuel cars, according to people with knowledge of the plan.

The rebate was due to expire at the end of this year and will now run through at least 2020, said the people, who asked not to be identified discussing private information. The Ministry of Finance didn’t respond to a fax seeking comments.

The surge in demand for such vehicles in China has attracted billions of dollars of investments from Volkswagen AG, Ford Motor Co. and other carmakers while Tesla is mulling setting up a factory there. The government has recently announced a series of measures regarding manufacturing licenses and joint ventures that would allow foreign companies to set up solely owned assemblies.

“China wants the number of new energy vehicles to grow, and I’m sure they’ll take many additional steps if they’re not meeting their targets,” said Yunshi Wang, director of the China Center for Energy and Transportation at the University of California, Davis.

Sales of NEVs surged 53 percent to 500,700 units last year and boosted the overall ownership of such vehicles in the country to over a million units. That’s more than triple the tally in 2015, according to the China Association of Automobile Manufacturers.

Shares of Chinese carmakers gained in early Hong Kong trading before succumbing to a marketwide selloff. BYD Co., the carmaker backed by Warren Buffett, dropped 0.6 percent in Hong Kong trading after gaining as much as 2 percent earlier. BAIC ended the day with a 0.1 percent rise after jumping as much as 3.2 percent earlier while the benchmark Hang Seng Index tumbled 1 percent.

Automakers are all gearing up for a big surge in sales of clean-energy vehicles. BMW is targeting another ambitious hike in plug-in hybrid and battery car sales next year to defend its position in the electric-car shift as competitors like Volkswagen ready their own battery lineups.

China’s government is working with regulators on setting a deadline for ending production and sales of internal-combustion vehicles, Xin Guobin, the vice minister of industry and information technology, said in September. The world’s second-biggest economy, which has vowed to cap its carbon emissions by 2030 and curb worsening air pollution, joined the U.K. and France in seeking a timetable for the elimination of vehicles using gasoline and diesel.

To read a QuickTake on electric cars, click here.

While the government wants to encourage consumers to buy more electric vehicles, the authorities are also concerned about overall subsidies. Different arms of the government have been working on plans to scale back overall subsidies on purchase of NEVs next year and a consensus has not yet been reached, according to people familiar with the discussion.

The government is also considering a resumption of new permits to make electric vehicles as early as the first half of 2018, a move that would clear the way for Ford and Tesla as well as a string of local manufacturers to start production, Bloomberg news reported last month, citing people with knowledge of the matter.

Since March 2016, China has handed out 15 EV licenses -- local manufacturer Wanxiang Group and a Volkswagen joint venture were among the recipients -- to foster competition for the predominantly state-owned auto industry. The ensuing rush saw makers of smart TVs to air conditioners drumming up plans to enter the auto industry.

In 2018, electric vehicles will overtake consumer goods as the biggest market segment for lithium-ion batteries on an annual basis, according to an energy storage forecast report published recently by Bloomberg New Energy Finance.

Battery prices need to drop by more than half before EVs will be competitive with cars powered by internal-combustion engines, according to Bloomberg New Energy Finance. That’s likely to happen by 2026, when the cost for lithium-ion battery packs is projected to fall to about $100 per kilowatt hour.

— With assistance by Ying Tian, Heng Xie, Yan Zhang, and John Lippert

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