New energy vehicles are an important industry for the strategic plan of Made in China 2025. The Chinese government has given great support in terms of industrial and fiscal policies; this is especially true since 2010 when the Ministry of Finance, the Ministry of Science and Technology, and the Ministry of Industry and Information Technology have issued financial subsidy policies to promote the development of new energy vehicles.
Under the support of such policies, China's new energy vehicles developed rapidly, showing significant growth from 2012 to 2015 with sales of 12,000, 17,600, 74,700 and 331,000 vehicles respectively; in 2016, the cumulative production and sales of new energy vehicles reached 517,000 and 507,000 respectively; in 2017, the production and sales volume were 774,000 and 777,000 respectively, accounted for 2.7% of the market share. The market expects that by 2020, the sales of new energy vehicles in China will approach to 1.8 million, and the compound annual growth rate will reach 42.5% in 2016-2020. In terms of quantity, China is already the country with the largest production and sales volume of new energy vehicles. In 2016 and 2017, the sales of global new energy passenger vehicles were 774,000 and 12.24 million respectively; over the same period, China's new energy passenger vehicles were 352,000 and 600,000 respectively, which accounted for 45.5% and 49% of the sales of global new energy passenger vehicles.
The Chinese government has provided an impressive amount of financial subsidies. For instance, the Ministry of Industry and Information Technology confirmed that in 2016 and 2017 new energy auto companies' subsidies accounted for approximately RMB 18.892 billion, of which RMB 12.2 billion was provided in 2016 and RMB 6.6 billion in 2017. In addition to the Central Government subsidies, some local governments that encourage the development of new energy vehicles also provide subsidies from local finances. In some areas, the subsidy ratio of those provided by the Central Government and by the local governments has even reached 1:1. This means that the number of subsidies that auto companies received from the government has doubled. As for individual car purchases, the maximum subsidy for individuals to purchase pure electric vehicles has reached RMB 120,000; in 2016 the maximum subsidy had increased to RMB 110,000 while in 2017 the maximum subsidy was reduced to RMB 66,000; the subsidies will be completely eliminated by 2020. Market agencies estimate that the total subsidies for new energy vehicles at all levels of government in China may be as high as RMB 100 billion.
However, although the financial subsidy policy has stimulated the growth of China's new energy vehicle industry, it has not made the industry to develop with advanced technology and competitiveness. From an objective point of view, China's new energy vehicle industry presents serious problems such as inflated low-end products, structural excess production capacity, and scattered industries. More seriously, in order to obtain more government financial subsidies, a large number of new energy vehicle manufacturers falsify to defraud the financial subsidies. After discovering the problem of fraudulent cases in the new energy vehicle industry, the Chinese government began to prepare for the gradual reduction of subsidies from 2016 until it completely withdraws the subsidies in 2020. Although the government has already begun the rectification, the problems posed by the financial subsidy policies for new energy vehicles still deserve serious consideration by the policy departments.
Anbound research team believes that the following aspects are worthy of attention:
First of all, China has set excessively high industrial goals for the development of the new energy vehicle industry. For example, according to the Mid- and Long-Term Plan for the Automobile Industry issued by the Ministry of Industry and Information Technology, the annual output of new energy vehicles in China will reach 2 million by 2020, and the proportion of sales of new energy vehicles to total sales in 2025 will exceed 20%. Based on the calculation that by 2025, 35 million vehicles will be sold, the sales of new energy vehicles will reach 7 million. This means that sales will increase by up to 9 times in 8 years from 2017, The policy goal of overemphasizing quantitative growth is not only impractical, but also induces extensive development of the industry.
Second, excessive financial subsidies and policy support have stimulated the rapid expansion of the new energy vehicle industry within short term, but they have overlooked the basic laws of industrial development and have made enterprises become impetuous in their operations, as well as unable to concentrate on core technology research and development. The emergence of a large number of fraudulent companies certainly reflects the lack of trustworthiness and professional competence of related business operators, and it is also related to some degree with the financial subsidy policies.
Third, there are problems with the subsidies, and with the methods of financial subsidies. China's financial subsidies should not be concentrated on direct subsidies for individuals to purchase new energy vehicles. Instead, they should be used to support the establishment of the basic consumer environment for new energy vehicles and the research and development of core technologies. In developed countries such as some European countries, America and Japan, most of the incentives for new energy vehicles are achieved through "eco taxes". In these countries, the government's subsidies for new energy vehicles are mainly used to support the research, development, and construction of utility charging piles. For individuals, tax reductions are not high in amount, and the priority is given to the usage of vehicles in roads and parking spaces. In the commercial vehicle sector, there are basically no subsidies. In contrast, China's new energy vehicle subsidies and tax incentives, exemption from license fees and other incentives have greater strength.
Fourth, the development of new energy automotive industry still must adhere to market principles, which is leaving the development to the enterprises. Anbound believes that new energy vehicles are the embodiment of cutting-edge technologies in the automotive industry and require the entire industry chain including batteries to achieve technological innovation. The development of new energy automobile industry should avoid the tendency to pay more attention to production yet at the same time overlooking the technology. In particular, it should dispel the notion of achieving industrial leadership and leading technology through financial subsidies. For China's new energy vehicle industry, the market will not be able to change the technology, neither will the subsidy policy; it is only through market-based competition that true technological innovation can be achieved.
Final Analysis Conclusion:
China has subsidized the new energy vehicle industry with up to RMB 100 billion of financial resources, yet this has not achieved satisfactory results. If similar situations occur in other important industries of "Made in China 2025", it will cause huge waste of resources. The government departments should seriously reflect on the problems and adopt scientific and professional industrial policies. Under the premise of conforming to the laws of the industry and of the market, China will be able to support the development of new energy vehicle companies so that they can become stronger and better.
