SHANGHAI -- After pledging last month to extend subsidies for electrified vehicles for two more years, Beijing last week disclosed it will cut the subsidies by 10 percent this year, 20 percent in 2021 and 30 percent in 2022.
The latest reductions were expected since the government still wants to wind down the program at the end of 2022.
But there is something brand new in Beijing’s latest policy proposal: For the first time, the government has singled out battery swaps for support.
Under a new policy, only electrified passenger vehicles priced at 300,000 yuan ($42,490) and below will qualify for subsidies. But the restriction does not apply to vehicles equipped with battery swapping systems.
The exemption is aimed at “encouraging the development of battery swaps as a new business model to accelerate popularization of new-energy vehicles,” government regulators detail in a new policy document.
Battery swaps, supported by some automakers and suppliers, could be key to overcoming two major concerns and help consumers embrace EVs.
The first is high prices. EVs are priced way above their gasoline variants, with batteries generally constituting 30 to 50 percent of the vehicle price. Battery swaps promise to remove the headache for EV buyers.
Consider BAIC Motor Co.’s EU300. The compact electric sedan has a starting price of 129,800 yuan. But under the company’s battery swap program, one only needs to pay 79,800 yuan for the vehicle in addition to about 500 yuan for battery swap services per month.
The second hurdle remains range anxiety. Carmakers continue to extend the range of EVs above 300 kilometers to earn government subsidies. But because most Chinese families only have one vehicle and they often need to drive longer distances in a day, range remains a top concern.
The problem can partly be resolved for EV owners who opt for a battery swap as long as battery swap services are widely and easily available.
Yet the convenience of battery swaps has so far only existed in theory. In reality, battery swapping still has a long way to go to become established as a successful business model.
The main obstacle is the huge upfront cost of building battery swap stations.
In China’s EV sector, state-owned BAIC and startup Nio are the most enthusiastic about constructing a battery swap network. BAIC says one battery swap station requires an investment of up to 3 million yuan to build.
Nio hasn’t disclosed the cost, which can only be higher, as the startup positions itself as a premium EV maker.
The two companies say their stations can complete a battery swap in three minutes, which is much shorter than the time needed for an EV to be recharged at a battery charging facility.
But because of the prohibitively high cost, both lag far behind plans to install extensive battery swapping networks across China.
In 2018, BAIC said it would build more than 3,000 battery swap stations over the next three years. By the end of 2019, it had only completed construction of 160.
Nio, which was incorporated in Shanghai in 2014, initially planned to construct 1,100 such stations. As of March, it had only set up 123.
U.S. EV maker Tesla Inc. tested and quickly abandoned battery swaps several years ago.
Other companies have shown scant interest in battery swaps.
That is why the total number of battery swap stations in China reached just 433 by the end of March, according to China Electric Vehicle Charging Technology and Industry Alliance, a Beijing-based consultancy.
After Beijing scaled backs EV subsidies by two-thirds, China’s new-EV sales have contracted for nine straight months, with demand dropping 56 percent to roughly 40,000 in March alone.
Now the market will decide whether the powerful Chinese government can work wonders to revive EV sales by promoting battery swaps.