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Last Friday, the Chinese Ministry of Finance Cut subsidies for electric vehicles (EVs) by 20% this year, while sales of so-called new energy vehicles (NEVs) – a category covering hybrids, plug-ins and hydrogen cars – have picked up again after increasing plunged in the pandemic last year.
Chinese subsidies for electric vehicles reimburse buyers different amounts depending on the range of the vehicle – the distance traveled with a full charge – but the standard payment last year was around 18,000 Rmb (2,700 USD). . This discount will now be reduced to around 14,400 Rmb.
The reduction in subsidies will create more competition in the hotly contested market, where You’re here has been ahead of its local competitors since opening its Shanghai Gigafactory in 2019.
Subsidies on Electric Vehicle Purchases Help China Become the World’s Largest Market for Electric Vehicles roughly 50% of worldwide sales. Beijing had planned to completely eliminate the subsidies by December 2020 and started canceling them in June 2019, affirming this production had become cheap enough to no longer warrant government support.
But as Beijing tried to wean consumers off subsidies, sales of electric vehicles in China slowed, with the industry posting five straight months of declining sales for the last half of 2019. Then the pandemic struck and sales of electric vehicles fell 54% in January and more. 77% in February.
The sudden decline threatened the government’s goal of having new vehicles account for 20% of auto sales by 2025. To get the market back on track, Beijing extended subsidy support for two years, fixing a new phase-out deadline of 2022. The 20% reduction in subsidies announced on Friday is part of the new phase-out.
As Beijing granted the extension, sales of NEV made a comeback. According to the China Association of Automobile Manufacturers, sales of electric vehicles in China (which account for the vast majority of NEV’s sales) likely hit 1.3 million units in 2020, from 1.1 million units. sold in 2019. The association expects sales to exceed 1.8 million this year.
As the Chinese electric vehicle market grows, Tesla competes with its local competitors to maintain its lead in the market. On Sunday, the California-based company began taking orders for its new model Y made in china at a lower price. The Chinese-made vehicle will cost Rmb 339,000 ($ 52,000), 30% less than Tesla announced last year. Tesla says it will also apply for a government grant, which could save consumers even more money when the units are delivered in February.
However, Chinese subsidies generally only apply to vehicles priced below 300,000 Rmb ($ 46,000), with a notable exception being given to vehicles built with battery swap technology – a process that allows consumers Easily replace the car battery once it is dead or in need of an upgrade.
Tesla ditched battery swap technology in 2015, preferring to focus on creating batteries with a longer lifespan. Chinese rival Nio, however, has placed battery swap technology at the heart of its business model.
The New York Stock Exchange-listed company claimed last June that it had conducted more than 500,000 battery trades and, thanks to a partnership with China State grid, Nio plans to build 100 additional batteries exchange stations across China this year, bringing its total to around 243.
The focus on battery swapping allows Nio to price its vehicles in a premium category while enticing consumers with government discounts. The company’s SUV-type EC6, for example, fresh over 368,000 Rmb ($ 57,000), but consumers could recoup 22,500 Rmb ($ 3,500) from last year’s price, thanks to government support.
With the 20% reduction in subsidies by the government, this discount is reduced to 18,000 Rmb (2,800 dollars) this year, pricing the EC6 above the Tesla Model Y.
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