End of subsidies pose threat to small EV players in China, observes GlobalData

China plans to phase out subsidies for electric vehicles (EVs) by 30% by the end of 2022 and completely eliminate them starting from January 2023. At a time when EV demand is dampening due to the COVID-19 pandemic, eliminating subsidies will create trouble for the small market players, says GlobalData, a leading data and analytics company.

China’s success in vehicle electrification has been highly attributable to conducive government policies both at the central and regional level that subsidized EV manufacturing and sales. Considering this, the action comes as a major blow to the China EV industry.

Since the introduction of subsidies, EV sales volumes have grown from few hundred units in 2009 to 2.58 million units in 2021, driven by conducive regulatory environment and availability of key raw materials.

Bakar Sadik Agwan, Senior Automotive Consulting Analyst at GlobalData, comments: “Subsidies resulted in high level of market fragmentation, overcapacity and low-quality products. This will now be controlled as small players and new startups will be impacted with lower funding and investments amid degraded market sentiments. The subsidies have also been a big burden on the government’s treasury, which would have always resulted in a review of the subsidy program.”

It is estimated that China has over 500 EV manufacturers registered in the country – the highest in the world and over US$47bn has been invested by the government since commencement of the program.

Agwan concludes: “With fierce competition in the market, small EV companies need to justify the increase in the cost of EVs with better quality, performance, safety and new features. However, end of subsidies is no threat to the EV future in China, the only odd could be a relative slowdown in growth rate. To date, the government stands firm on its target 20% share of NEVs in total sales by 2025. As with much of the electric vehicle market, China is the dominant force in lithium-ion battery production and has already secured the rights to most of it for future production. This clearly means that the future in China has to be electric.”

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