Although first-half sales of new-energy vehicles (NEVs) in China have yet to meet even a quarter of the industry's goal for the year, the China Association of Automobile Manufacturers remains confident that the industry will hit its 700,000-vehicle target. However, recent media reports have suggested that the industry won't hit the target if sales continue to increase at their current pace. The two different perspectives highlight the uncertainty surrounding the industry, which remains dependent on government subsidies at a time when authorities are planning to phase them out.

BYD's new-energy vehicles sit on display on July 15 at the 2016 Beijing International Exhibition of New Energy Vehicles and Charging Pile Facilities. Photo: CFP

Although sales of new-energy vehicles (NEVs) in China have grown rapidly in the first half of this year, recent media reports have suggested that the industry won't meet its NEV sales target for the year.

In the first six months of 2016, China's NEV sales skyrocketed by 126.9 percent year-on-year to 170,000, according to data from the China Association of Automobile Manufacturers (CAAM).

Although first-half sales didn't even meet a quarter of the CAAM's goal for the year, the industrial association said it doesn't plan to change its prediction.

"Based on the past experience, NEV sales for the fourth quarter are usually much higher than each of the previous three quarters, sometimes even higher than the combined three-quarter number," CAAM Deputy Secretary Yao Jie was quoted as saying by the National Business Daily on July 14.

"It has something to do with the time that NEV subsidies are granted. So, there is still hope that the 700,000-unit target can be achieved."

Yet, based on NEV sales growth figures for this year, it looks likely that sales will miss the target by 200,000 vehicles, according to a Tuesday report  by Beijing Business Today newspaper.

The report noted that NEV sales grew by about 5,000 vehicles per month during the first half. At that rate, December sales will be 70,000 vehicles and total second half sales will be 345,000 vehicles, making the annual total around 515,000 vehicles.

The two different perspectives highlight the uncertainty about government subsidies, which the industry has been relying upon to boost sales, at a time when the government plans to phase them out.

"As long as the incentives are strong enough, I don't think there is any problem for China to achieve its NEV sales target, whether it's 700,00 units for this year or 5 million units by 2020," said Feng Shiming, a senior industry analyst with Menutor Consulting in Shanghai.

"But the question is whether the market has reached that level in terms of real demand, customer habits and charging facilities."

Feng also noted that the development of NEV sector should comply with the laws of the market.

'Policy-driven' growth

Growth has been dramatic in China's NEV sector, which has been listed as a national strategic emerging industry.

In 2012, the State Council published a plan for the development of the NEV sector from 2012 to 2020, which set a sales target of 500,000 vehicles by 2015 and 5 million units by 2020.

Statistics show that the 500,000 target was mostly achieved thanks to the strong sales performance in 2015.

China's NEV production and sales in 2015 totaled 340,471 units and 331,092 units, respectively, up 3.3 times and 3.4 times from the previous year, according to CAAM data.

In particular, production and sales grew by leaps and bounds in the last two months of 2015, reaching 172,000 units and 160,000 units, respectively.

Supportive policies such as generous subsidies, free license plates in Shanghai and exemptions from certain traffic restrictions in Beijing are the major forces behind the explosive growth.

"It's obviously a policy-driven growth, which stimulated the market demand by giving out generous subsidies," Feng told the Global Times.

Su Hui, a senior analyst at the China Automobile Dealers Association, echoed Feng's words, saying that subsidies can only serve as a short-term stimulus, leading to a temporary spike in sales, "But it cannot last forever."

"Moreover, the seemingly ideal result comes with specific consequences, such as cheating on subsidies," Feng said.

In January, the central government launched investigation into the NEV subsidy fraud after media reports exposed that some companies sold poor-quality vehicles to their shell companies to receive State subsidies for NEV transactions.

A report from Beijing-based caijing.com said that one company in East China's Jiangsu Province raked in 500 million yuan ($74.93 million) in 2015 by committing subsidy fraud.

Changing incentives

Against such a backdrop, Finance Minister Lou Jiwei said in an official statement in January that China plans to gradually phase out NEV subsidies, and won't offer them anymore after 2020.

The Ministry of Finance plans to cut the subsidies by 20 percent from 2016 levels during the 2017-18 period, and by 40 percent during the 2019-20 period.

At present, an NEV buyer can receive as much as 45,000 yuan in subsidies from the central government, with different subsidies from local governments in seven cities, including Beijing, Shanghai and Shenzhen.

"As the market expands, it is the right choice to reduce policy intervention in the market," Feng said.

Also, with China gradually phasing out NEV subsidies, it is critical for Chinese vehicle manufacturers to improve their technology and product quality as the industry shifts from policy-driven to a market-based one, Feng noted.

While the central government will gradually end the subsidies, it doesn't necessarily mean other policy incentives should also be eliminated.

On top of the subsidies, favorable policies offered by different cities may be even more important than financial incentives, Su told the Global Times.

In Shanghai, a person can be granted a free license plate if he purchases an NEV and provides proof of access to a permanent charging facility.

The free license plate is a large incentive. At Shanghai's latest license plate auction in July, the average plate was priced around 87,000 yuan.

"It is hard to convince a property management company to allow me to install a charging station at my parking space, but it is even harder to get a license plate at the auction," a Shanghai resident surnamed Zhou told the Global Times on Tuesday.

In Beijing, NEVs can enjoy more preferential policies besides the subsidy.

 First, the annual increment allocation quota for NEVs has been increasing year by year since 2014, though the Beijing municipal government has been reducing the total increment quota for small passenger cars in the city.

Second, the pure electric car, a kind of NEVs, is not subject to traffic restriction on weekdays since June 2015.

Third, it is easier for NEVs to acquire a license plate in Beijing than ordinary cars. And it is said that in the future the government probably specially grant separate allocation quota for the license plates of NEVs as an encouragement, news portal baijia.baidu.com reported on June 27 citing a government official.

"Because developing the NEV sector is part of the national strategy, supportive policies other than financial incentives are still needed to guide the market," Su said.


Newspaper headline: NEV sales putter toward target