How China is working to strike balance between Growth & Quality; Government to tighten regulations for EV startups

  • China’s Ministry of Industry and Information Technology(MIIT) want to send out a strong signal to the existing and upcoming startups that it is very serious about their quality. Only 10 out of 200 fledgling automakers have a chance to get  the necessary permits.
  • Planning to phase out subsidies after 2020. Generous subsidies created a gold-rush-mentality which encouraged the startups with little to zero technical know-how to enter the auto industry.
  • The country is grappling with air pollution which pressurized the govt to look for and encourage zero emission vehicle technologies. And thus, China Govt heavily subsidized the industry to accelerate the faster adoption of these vehicles by manufacturers and consumers.

Now comes the problem of striking balance between many inversely proportional entities, that is between growth & quality.

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Rapid growth and its outcomes and new challenges

China to curb the ever increasing air pollution from its cities started enacting various measures, of which control of vehicular emissions by promoting EV manufacturers is one.

With an intention to reduce urban pollution & oil dependence, and to promote rapid growth of technology-development, production & consumption of electric vehicles, the government adopted a plan in 2009 to incentivize the industry. Under the plan, government will provide incentives up to 60000 yuan on private purchase of new battery-electric-vehicles and up to 50000 yuan for plug-in-hybrids.The subsidies are paid directly to the manufacturers rather than to the consumers. Subsidies to the particular companies which sold more than 50000 units will be reduced. Adding to the incentives,from 1st January 2012, government started exempting these vehicles from annual taxes. Pure electric vehicles, fuel cell vehicles & plug in hybrids will have 100% exemption whereas non plug in hybrids will have 50% exemption.

Cumulative sales of NEVs in China between January 2011 and March 2016. Source: Wikipedia

As a positive outcome of all these heavy incentives and subsidies, China’s fleet size of New Energy Vehicles(i.e. bevs,fcvs,hybrids&plug-ins) became the second largest in the world after US. As of May 2016 Chinese plug in stock represented 26% of global stock. With a record of 176,627 plug-in passenger cars sold in 2015, China became the world’s best-selling plug-in electric car country market that year, with 34.2% of 2015 global sales.The stock of new energy vehicles sold in China since 2011 passed the 500,000 unit milestone in March 2016. Backed by heavy subsidies, China went on to reach to many milestones.

Parallel to positive outcomes, many new challenges also cropped up. Paying no heed(towards quality,proper technology,…etc) while devising policies led to the birth of many new problems. Attracted by the size of incentives(~60% of sticker price!) many new companies started entering the sector with little to no technical know-how. They started making making low-technology, low-quality, cheaper and unreliable products.

And few companies are producing wrong invoices to government for incentives. The government is investigating reports that two sellers of electric buses doctored invoices to inflate their EV subsidies. In one case, a company called Suzhou King Long claimed to have sold 12,003 electric buses last year, an improbable sixfold year-on-year sales increase. Amid recriminations, a general manager at the company jumped to his death. Local media portrayed the suicide as an admission of guilt, though the company denied any wrongdoing.

New measures to address new challenges

The Ministry of Industry and Information Technology is considering restricting the number of startup EV makers to a maximum of 10, said Dong, who meets regularly with its officials. That count won’t include traditional carmakers such as SAIC Motor Corp. and BYD Co. that are developing NEVs.

Yet even those startups getting permits have more mandates to meet before switching on their assembly lines, as the government introduces stricter quality-control measures.

In a draft policy document posted for public feedback this month, the MIIT listed 17 technologies that companies intending to sell electric cars must possess in order to ensure “healthy” development of the industry. Those include a control system that determines the performance and stability of the NEV, an information system that tracks the sources and conditions of key parts, and a process for recycling or reusing batteries.

The government also plans to phase out subsidies after 2020, removing an incentive for startups depending on them to achieve profitability.The government is now moving from subsidizing production to rewarding companies that devise new technologies and hit sales goals, in the face of widespread media reports of companies taking government money without focusing efforts on the expensive process of EV technology development.

“There’s definitely a bubble,” said Yale Zhang, a managing director and researcher  at Autoforesight Shanghai Co. “If you don’t own the core technology and can’t build up the brand, it’s ‘game over’ very quickly once you burn through the cash.”

Sources & References:

95% of China’s Electric Vehicle Startups Face Wipeout , Bloomberg

Long road ahead for China electric vehicles , Financial Times

Skepticism surrounds China EV boom , Automotive News

In China, air pollution report brings despair, humor , USA Today

China’s ‘airpocalypse’ kills 350,000 to 500,000 each year , The Telegraph

Government incentives for plug-in electric vehicles , Wikipedia

New energy vehicles in China , Wikipedia



Author: MyMotorWheels

I am a mechanical engineer and an automobile enthusiast.

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