SHANGHAI -- With sales of electrified vehicles rapidly losing pace after recent subsidy cuts, the myth that the Chinese government can work wonders in the auto industry is broken.
It is time for regulators to check policy against reality and make some changes.
In 2014, a subsidy program for electrified vehicles, which was previously used for buses in a small group of cities, was expanded to include light vehicles and adopted across China.
The program was mandated to help domestic automakers leapfrog global competitors, reduce vehicle emissions and ease China’s reliance on imported oil.
Spurred by generous government subsidies, the market for electrified vehicles ballooned. In 2014, China surpassed the United States to become the world’s largest seller of electric vehicles and plug-in hybrids.
Government officials and official media hailed the milestone as a historic achievement.
A probe conducted by the Ministry of Finance in 2016 uncovered rampant cheating by domestic automakers participating in the incentive program. Companies claimed subsidies with substandard vehicles and components.
But never mind that. The probe didn’t dent Beijing’s enthusiasm for the subsidy program.
From 2016-18, the government slowly dialed back on subsidies though it maintained a deadline to phase out the program by the end of 2020.
Until last year, EV and plug-in hybrid sellers were eligible for subsidies equal to 30 to 50 percent of a vehicle’s price.
With the 2020 deadline looming, the government had no choice but to slash subsidies. From March 26 to June 25, it raised the technology threshold for EVs that qualify for incentives and halved subsidies for plug-in hybrids.
The cut in subsidies quickly deflated the otherwise explosive market. Demand for EVs and plug-in hybrids slipped 16 percent in August after a 4.7 percent decline in July, amid an ongoing decline in China’s new-vehicle market.
Falling sales have laid bare the fact that consumers have little demand for electrified vehicles without sufficient government subsidies.
It also shows that however powerful it may be, a government cannot prop up a market forever.
Faced with mounting fiscal burdens, Beijing is set to wind down the incentive program next year, which means the electrified vehicle market will lose more steam.
Yet Beijing is pushing automakers to churn out more such vehicles. Under a carbon credit program, enacted at the start of 2019, carmakers must earn enough credits by producing a sufficient number of electrified vehicles and hit a target equal to 10 percent of annual sales this year.
The threshold will increase to 12 percent of annual sales in 2020.
That’s crazy. Mandating more EVs and plug-in hybrids, a segment that is already struggling to generate sustained profits, in the absence of subsidies can only produce one thing -- excess supplies coupled with more losses.