China in talks with automakers over EV subsidy extension – sources

China is in talks with automakers to extend costly electric vehicle (EV) subsidies, due to expire in 2022, to keep a key market growing while the broader economy slows, three people familiar with the matter said.

Policymakers’ move comes as the world’s second-largest economy – and with it car sales – has slowed sharply after cities led by Shanghai imposed strict Covid-19 lockdowns from March.

The Curbs have closed businesses, disrupted supply chains and slashed spending, including on new homes.

Government bodies including the Ministry of Information and Industrial Technology (MIIT) are considering continuing subsidies for electric vehicle buyers in 2023, said the people, who declined to be named because the talks were private.

China’s expensive stimulus program is credited with creating the world’s largest electric vehicle market.

Since the subsidies began in 2009, around 100 billion yuan has been paid out to buyers, including commercial fleet operators, by the end of 2021, according to an estimate by Shi Ji, an auto analyst at China Merchants Bank International.

Full terms of the 2023 extension, including the amount of the subsidy and eligible vehicles, are still pending, people familiar with the matter said.

A specific measure, currently under consideration, would reverse a planned increase in the purchase tax for qualifying electric and part-electric vehicles, two people briefed on the discussions told Reuters.

There is no purchase tax on such vehicles for this year, but the government had planned to increase the tax to 10 percent of the purchase price in 2023. Instead, the rate would be raised to just 5 percent, they said.

Subsidies were available for cars from all automakers, including non-Chinese companies like EV giant Tesla, which has a factory in Shanghai and is the only foreign automaker with a top-selling EV.

MIIT and the Treasury Department did not immediately respond to requests for comment on Wednesday.

The EV subsidy program was originally scheduled to expire by the end of 2020, but Beijing extended it by two years to spur demand amid the pandemic.

The government has also reduced the level of subsidies per vehicle over the years as demand has increased and manufacturing costs have fallen.

For example, the subsidy for a plug-in hybrid with a range of more than 300 kilometers was reduced by around 20 percent to around 1,900 US dollars.

The New Energy Vehicle (NEV) purchase subsidy program has particularly boosted purchases of longer-range cars, as it has raised the thresholds for vehicles eligible for the subsidy over the years.

In China’s sophisticated EV market, smaller battery-powered city cars, most of which are not eligible for subsidies, account for 40 percent of EV sales and average just under $4,000, according to auto consultancy JATO.

That compares to more than $26,000 in the US for equivalent models.

Subsidies are now aimed at larger models with a range of more than 300 kilometers per charge and priced under 300,000 yuan ($44,459, €42,294).

China’s NEV sales rose 45 percent year on year to 299,000 in April, according to data from the China Association of Automobile Manufacturers (CAAM), while the overall auto sector sold about 1.18 million vehicles.

But that jump was much slower than the previous month’s growth, when sales more than doubled year over year.

The association has forecast production and demand to catch up in the coming weeks after the April low triggered when dozens of cities in China went into full or partial Covid lockdown.

CAAM has urged the government to consider additional aid to the industry. Overall, April vehicle sales fell nearly 48 percent year-on-year, data from the industry group showed.

Some local governments, including Guangdong and Chongqing, had also introduced stimulus measures to subsidize consumers who traded in their old internal combustion engine vehicles for new electric vehicles in April.

In a separate move, state-run China Securities Journal reported on Tuesday that officials would introduce subsidies starting in June to encourage rural buyers to buy cars with NEVs, with payouts of up to 5,000 yuan ($740). per piece to encourage vehicle.

The Shanghai municipal government is also considering how to restart spending after a sharp drop in vehicle sales in China’s trade and financial center in April.

Not a single new car was sold in the city of 25 million during last month’s strict lockdown, according to the Shanghai Automobile Sales Trade Association. China in talks with automakers over EV subsidy extension – sources

Fry Electronics Team

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