China Sweetens Prices of Green Cars to Boost Sales

China will offer new subsidies for fuel efficient vehicles that can boost vehicle sales by more than four million units by 2012, according to the National Development and Reform Commission.

The government will provide 3,000 Chinese yuan ($441) to consumers who buy fuel efficient cars with engine capacities of 1.6 liters or less and use 20 percent less fuel than current models, China.org reported.


The scheme can reportedly generate more than 400 billion Chinese yuan in vehicle sales by 2012, help reduce 3.3 million tons of carbon dioxide emissions and save 750 million liters of fuel.
The commission confirmed that 71 green vehicle models have qualified for the fuel subsidies. These include models from 16 Chinese automobile manufacturers, including BYD Automobile Limited (HKG: 1211) and Chongqing Changan Automobile Company (SZSE:000625), as well as joint ventures involving Hyundai Motor Corporation (LSE:HYUD) and Ford Motor Company (NYSE:F).

China, the world’s largest auto market, is banking on green vehicles to reduce pollution and save energy. The government previously unveiled plans to invest up to 10 billion Chinese yuan to develop new energy vehicles that will help them achieve its target of deploying 500,000 to 1 million green cars by 2015.
Earlier this June, the government rolled out its trial incentive program for fuel efficient vehicles in the cities of Shanghai, Shenzhen, Hangzhou, Changchun and Hefei.

Under the subsidy scheme, buyers of wholly-electric vehicles will receive 60,000 Chinese yuan, while buyers of plug-in hybrid cars will get 50,000 Chinese yuan. However, the incentives will not go directly to the buyers but to the automakers, as they will reduce the actual price of the vehicles accordingly.

While the process is deemed easier, issues in transparency and policy implementation and supervision may arise, said Jia Xinguang, an independent auto industry consultant.

The five-city pilot scheme can cover nearly one-third of the price of BYD’s F3MD hybrid passenger vehicle worth 100,000 Chinese yuan to 130,000 Chinese yuan, said Xu An, the company’s spokesman.

Industry analysts also predict that the program will increase shares of lithium-ion battery manufacturers in the domestic market, particularly between 2011 and 2015 when automakers will have produced first-generation green vehicle models.

However, the scheme will have limited effect on the auto industry as of the moment due to its small coverage. “If the subsidy plan applies only to a few cities, it won’t fully boost new energy vehicle consumption in China,” said Kevin Wale, president and chief executive of General Motors China.

Wang Jianjun, BYD vice president agreed, saying that the growth of the industry also depends on consumers’ familiarity with green vehicles. Businesses also need to establish related services such as recharging stations.

Taking these into consideration, BYD decided to produce only 1,000 green cars this year, with no immediate plans to mass produce.

Another potential problem for the deployment of new energy vehicles is the cost. Even with government subsidies, most green vehicles will cost 200,000 Chinese yuan per unit, which is more expensive than their gas-powered counterparts, noted Zhao Hang, director of China Automotive Technology Research Center.

“The fact that new energy vehicles are still in the trial stage is the major reason why the subsidy program is only carried out in five cities,” he continued.

Mr. Zhao also emphasized that the government should increase subsidies to enable companies to accelerate technical development and help raise the competitiveness of EV’s against conventional fuel cars.   Source Ecoseed


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