The development of electric vehicles should pay more attention to "quality" subsidy

The Circular on Adjusting the Financial Subsidy Policy for the Popularization and Application of New Energy Vehicles issued jointly by the Ministry of Finance, the Ministry of Science and Technology, the Ministry of Industry and Information Technology, and the National Development and Reform Commission has been implemented since January 1, 2017. In 2017, the subsidy policy for new energy vehicles also has further explicit provisions on local subsidy, which stipulates that the local financial subsidy limit for bicycles shall not exceed 50% of the central government subsidy.

As of July 2017, 13 provinces and cities including Beijing, Shenzhen, Guangzhou, and Chongqing have introduced 2017 new energy vehicle subsidy policies. With the exception of Chengdu, Liuzhou, Guangyuan, Jiangxi, and Suqian where the subsidy standard is less than 50% of the central subsidy standard, all other provinces and cities are executed according to 50% of the central subsidy.

Compared with the previous subsidy system, the local government's ceiling on the subsidy for bicycles has dropped from 100% of the central government subsidy to 50%, but according to the provincial and municipal subsidy policies that have already been introduced, most local governments are promoting the development of electric vehicles. All the subsidies were transferred to the upper limit set by the central government.

In 2016, the sales volume of new energy vehicles in China was about 570,000 units, and the number of vehicles held reached 1.09 million, accounting for more than half of the world's new energy vehicles. For China, the development of electric vehicles should focus on the “quality” rather than the “quantity” of electric vehicles. Compared with traditional fuel vehicles, how to make electric vehicles have core competitiveness is a substantial issue of industrial development. In general, consumer-side subsidies are temporary and unsustainable. Simply put, if the amount is large, subsidies will certainly not keep up.

The gradual reduction or even elimination of subsidies for the consumer end of electric vehicles is mainly based on two aspects: First, the need for large-sum consumer subsidies gradually weakens; second, consumer-side subsidies have a negative impact on the development of electric vehicles.

With the continuous decline in the cost of electric vehicles, from the perspective of the entire life cycle, the cost disadvantage of electric vehicles is not obvious. Compared with 2011, current battery unit energy density has been doubled, while manufacturing costs have been reduced by 50%. As technology advances, battery costs will continue to decline in the future. And from the comparison of the fuel costs of electric vehicles and fuel vehicles, the current cost disadvantage of electric vehicles is not as large as it seems. The marginal effect of subsidy for large-scale consumer terminals of electric vehicles gradually weakens.

More importantly, large and medium-sized cities will gradually implement the automobile purchase restriction policy, and the probability of obtaining a license for a fuel vehicle license is very low or requires high costs. If the license policy of electric vehicles is matched, the demand for electric vehicles can be expanded. For example, the new energy vehicle waiting system currently implemented in Beijing. The total number of passenger cars in Beijing in 2017 was 150,000, including 90,000 fuel vehicles and 60,000 new energy vehicles. These 60,000 indicators are obtained on a "first-come, first-served" basis and the excess will be prioritised over the next year according to the application time. At present, among the 150,000 indicators annually, new energy vehicles have already accounted for 40%. Based on Beijing's auto purchase restrictions, the probability of winning the traditional fuel car has dropped to 725:1, with a probability of only 0.14%, while the electric vehicle is waiting for the promotion of electric vehicles in Beijing more than the government by not involving in the demand for electric cars. Subsidies may be more pronounced and direct.

Currently, eight cities in Beijing, Shanghai, Guangzhou, Guiyang, Shijiazhuang, Tianjin, Hangzhou, and Shenzhen have implemented automobile purchase restriction policies. As the automobile penetration rate increases and the vehicle inventory increases, the automobile purchase restriction will be the trend of large and medium-sized cities. Therefore, in this context, the EV waiting system is very important and can be used as an alternative and drastic reduction in subsidies. On the one hand, the waiting system guarantees consumers' enthusiasm for purchasing electric vehicles; on the other hand, by adjusting the ratio of traditional fuel vehicles and electric vehicles, it is possible to effectively regulate and promote the structure of urban vehicles.

There are at least two aspects of the negative impact on consumer-side subsidies for electric vehicles: First, consumer-side subsidies will lead to the short-sightedness of the interests of production companies, and the phenomena of “cheat compensation” are endless. It is difficult to avoid the phenomenon of fraudulent supplementation due to high subsidies on the consumer side because it is difficult to classify and define the subsidized products during the policy formulation process, leaving room for “defrauding”. For example, the subsidy policy is categorized according to the cruising range (buses are in accordance with the length), but the pure cruising range cannot reflect the quality and production cost of electric vehicles.

Interested shortsighted production companies have incentives to produce vehicles that have outstanding cruising range, but otherwise have low quality or even fail to meet standards. Only by giving this link to the market can we produce truly quality products. Second, if there is no quantitative restriction on subsidies, electric vehicle manufacturers will use more subsidies to increase production capacity instead of improving the quality of electric vehicles. This is both a waste of national resources and harm to the entire industry.

The author advocates that the government can change the subsidy method from two perspectives. First, if consumer subsidies are still needed at this stage, we can learn from the experience of the United States. Each production vehicle company will give a quota of fixed electric vehicles and the vehicle quota will be used up. Take Tesla as an example. According to the current sales and scheduled quantity of Tesla, the subsidy quota may be used up in 2018, and will no longer enjoy government subsidies. This kind of policy can effectively prevent enterprises from “defrauding” on the one hand, and can also force companies to be forced on the other hand. It must, within a certain period of time, improve the core competitiveness of its electric vehicles and work hard on “quality” rather than anxieties. Take the amount. Only a group of companies with core technological competitiveness can form a truly “quality” electric vehicle industry.

Second, subsidies should be excessive from the consumer upstream. Government funds mainly support R&D and innovation of batteries and other technologies, with the goal of occupying the frontier of the international electric vehicle industry. As the world’s largest automotive incremental market, the commercial potential is attractive enough. Therefore, for China's electric vehicles, technology is the core issue. Specifically, the shift of subsidies to the upstream can drive car manufacturers and battery manufacturers to make continuous breakthroughs in technology, strive for international leadership, and force a large number of companies that lack advanced technology and have poor production standards to exit the market under the subsidy policy.

China's electric vehicles need to achieve breakthroughs in the concept of “quantity” to “quality”. Reducing or even eliminating current consumer subsidies and transforming the subsidy method are important approaches for development. For large and medium-sized cities, it is possible to gradually reduce or even eliminate the subsidies on the consumption side of electric vehicles and change the subsidy mode.