Caixin
Jul 16, 2020 03:41 AM
BUSINESS & TECH

China Eyes Rural Market to Expand NEV Sales

Electric-vehicle charging stations in Weifang, Shandong province.
Electric-vehicle charging stations in Weifang, Shandong province.

As China’s sales of new-energy vehicles (NEVs) retreat after a steep cut in subsidies, the government is exploring another approach to stimulating the lackluster car market: Go to the countryside.

Local governments will be required to issue policies to support NEVs in rural areas, and participating automakers are to announce promotions, according to a notice issued Wednesday by the Ministry of Industry and Information Technology, the Ministry of Agriculture and the Ministry of Commerce. NEVs include plug-in battery, hybrid and fuel-cell electric vehicles.

Ten automakers are to bring 16 NEV models to the campaign, which will begin in Qingdao in Shandong province, followed by the cities Haikou, Hainan province; Kunming, Yunnan province; Chengdu, Sichuan province; and Taiyuan, Shanxi province.

Thanks to government incentives, China has become one of the fastest-growing markets for NEVs. Sales grew rapidly over the past decade, peaking at 1.3 million in 2018. But the withdrawal of subsidies in June 2019 resulted the first-ever annual decline of NEV sales last year to 1.2 million.

The industry has been further hurt by the coronavirus pandemic. In the first six months of 2020, NEV sales fell 37.4% year-on-year to 393,000, according to the China Association of Automobile Manufacturers.

Now as part of efforts to help the auto sector recover from the pandemic shutdowns, subsidies are back in vogue. The Ministry of Finance in April said it would extend its subsidy program for NEVs and waive car-purchase taxes for consumers until the end of 2022.

NEV producers can get government subsidies of as much as 25,000 yuan ($3,500) per vehicle. Buyers are exempt from the 10% purchase tax levied on gasoline cars. Both policies were to expire at the end of this year.

But some industry insiders say the policy won’t be enough to reverse the downtrend as NEVs still cost more than fossil-fuel cars. Global consultancy AlixPartners projects that NEV sales will drop 20% in 2020.

The rural areas will be an incremental market for NEVs to be developed, said Chen Qingtai, president of China EV 100, a nonprofit organization promoting NEVs.

Based on the scenario assuming 10% annual growth in rural residents’ disposable income, auto ownership per 1,000 people in rural areas is expected to reach 160 by 2030, with total ownership exceeding 70 million vehicles, Chen estimated in an article. Smaller electric cars can find room in this potential market, he said.

Price is the biggest hurdle for sales of NEVs in rural markets. Cheaper low-speed electric vehicles — with top speeds of 70 kilometers per hour (44 miles per hour) — are in high demand in rural areas. That shows cost is the first consideration in the market, said Gu Zhihong, vice president of Dezhou Fulu Vehicle Corp., a low-speed electric-vehicle maker.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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