Shanghai Encourages Uptake of New Energy Vehicles

China’s new energy vehicles market has undergone nearly three months of local subsidies "gap period" after the subsidy policy in most provinces came to a close at the end of 2015. In some of the areas that had earlier recorded exponential rise in car sales thanks to the subsidy, car sales have slowed considerably in the last three months. Local governments mostly remain on the sidelines. Despite the release in some provinces and cities of new energy car subsidy policy, few have announced implementation details.

Shanghai has recently released the Interim Measures for Encouraging the Purchase and Use of New Energy Vehicles (2016 Revision). The new subsidy policy significantly reduces the amount of subsidies, raises the threshold and, also for the first time, calls for a mechanism to gradually decrease the subsidy proportional to certain specifications of the vehicle. According to the latest provisions, the state will give subsidy for plug-in hybrid passenger cars meeting the national standards in the amount of Rmb30,000, while Shanghai will cut its fiscal subsidy from Rmb30,000 to Rmb10,000, down Rmb20,000, making the total Rmb40,000, compared with Rmb60,000 previously. Meanwhile, a subsidy with pre-conditions was added with the amount of subsidy at Rmb14,000. The conditions are: engine capacity less than 1.6 litres, overall energy consumption less than 5.9 litres per 100 km, and fuel tank capacity less than 40 litres.

A new trend of the future new energy vehicles subsidy can be seen from the subsidies details released in Shanghai: subsidies will be shifted from the segment of consumption to usage, and from indiscriminate policy style to a more restrictive environmental policy. For example, restricting the tank capacity to 40 litres in the new Shanghai regulations specifically takes into account the relative price between electricity and gasoline. Too large the fuel tank may tempt car users to abandon electricity but use more gasoline. Other conditions of having engine capacity of 1.6 litres or less and the overall energy consumption of 5.9 litres or less per 100 km also reflect the same environmental concerns.

The new trend in new energy vehicles subsidies is set to change the existing plug-in hybrid cars market structure in the short term. The new policies will likely narrow the price gap between the two vehicles. On top of this, SAIC Motor is said to be using their own money to subsidise customers. BYD Auto and SAIC Motor in the Shanghai market may be heading towards a sales situation where “one rises, the other falls”.

In fact, one of the objectives of Shanghai’s new rules is to restrict the pseudo-green behaviour of those plug-in hybrid car users who use gasoline only and never the electric mode.