Chinese Automakers Hit Back at Electric Vehicle Quotas

(Beijing) — China’s largest automakers’ association is urging the government to lower the annual production quotas for manufacturing or importing electric or hybrid vehicles announced last year.

According to guidelines issued by the Ministry of Industry and Information Technology (MIIT) last September, all carmakers must ensure that electric vehicles make up at least 2% of their annual output by 2018 and this target will gradually rise by 0.5% each year until 2020. Manufacturers that opt to make hybrid vehicles instead must ensure that low emission vehicles make up at least 4% of their annual output in 2018, and the quota will rise by 1% each year until 2020.

The China Association of Automobile Manufacturers (CAAM) has already filed complaints with MIIT about these rigid targets, but hasn’t received any feedback, said its deputy secretary general Xu Yanhua. It was difficult to ramp up production in such a short time given that the number of electric vehicles produced in 2016 accounted for less than 1% of the total output of most carmakers, he said.

Those that can’t meet the benchmark will be slapped with penalties, according to the official regulation, but it allows companies that exceed the quota to trade their extra units. The rule will also apply to car dealers who import foreign automobiles.

Several heads of well-known car companies say they are worried. Jochem Heizmann, president and chief executive officer of Volkswagen Group China, said in January that it would be hard to boost production to meet short-term targets, but the target in 2020 would be comparatively easier to meet.

Others are concerned about the lack of demand. Even if companies can fulfill the supply-side quota, they might be stuck with unsold inventory due to lack of demand, Wang Yongqing, general manager of SAIC General Motors Co. Ltd., told Caixin last November.

China has become the world’s largest electric and hybrid vehicle market since 2015, in terms of both output and sales, according to MIIT. The government’s subsidy for both electric vehicle makers and buyers, rolled out in 2012, has attracted hundreds of automakers to the nascent industry.

But several firms have been found to have abused the subsidy program, collecting incentives worth hundreds of millions of yuan after inflating the number of vehicles they have made.

In order to better regulate the industry, at the end of 2016, the government announced a renewed incentive plan that raised the threshold for automakers to receive subsidies. It also plans to phase out subsidies by 2020, the official Xinhua News Agency reported.

The electric vehicle market will be choked starting in 2018 as subsidies dry up, which will make it even harder for companies to meet the production quotas, Wang said.

Contact reporter Coco Feng (renkefeng@caixin.com)