China buys more than half the world’s autos, and is the largest electric car manufacturer. Yet these still form only a very small part of the Chinese market compared to those with combustion engines. Beijing has concluded that incentives and subsidies are no longer sufficient. Therefore it is introducing a ‘cap and trade’ system and making it harder to establish new combustion engine factories.
How the Combustion Engine Sanctions Will Work
Effective January 1, 2019 the China National Reform and Development Commission will not approve new, solely combustion engine companies. It is also making things tougher for existing companies to build new factories for cars that are not new energy vehicles (NEV’s).
Furthermore, any company making over 30,000 cars must earn enough carbon credits to match 10% of output. Not all NEV’s are equal though. That’s because they are worth between 2 and 6 credits depending on travel distance between charges. A shortfall in quota incurs a fine. However, an infringer can avoid this by purchasing surplus credits from other car makers.
This May Assist Overseas Companies to Enter the Market
China’s policy effectively forces combustion engine-only manufacturers to subsidize NEV makers. This carrot-and-stick approach may benefit companies like Tesla with batteries with ‘long legs’ that earn maximum credits.
Public transport and taxis in China are already heavily invested in electric vehicle technology. For example, Shenzhen’s fleet of 16,000 buses is now 100% electric. Moreover, its fleet of taxis is almost completely electric too. The Chinese government appears to be moving away from direct subsidies that cost it money. It seems determined to ‘tax’ combustion engine makers instead.
The Chinese stock market has reacted cautiously according to BBC Singapore correspondent Tim McDonald. Chinese NEV vehicle companies have taken an initial hit in a market already jittery over the trade war.
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Preview Image: BYD K9 Electric Bus in Shenzhen, China
