In the fourth quarter of 2017, as car and battery manufacturers were racing to boost sales, a shocking announcement spread across the industry: the government would prematurely phase out subsidies for new energy vehicles in 2018, with major adjustments expected. This news sent shockwaves through the sector, especially after the 2016 subsidy policy changes had already left many companies rattled. The traditional peak season for new energy vehicles was now overshadowed by uncertainty, leaving both automakers and battery producers scrambling for clarity.
According to Battery China Network, various versions of the subsidy policy had been circulating online since mid-October 2017. Initially, it was reported that subsidies would be reduced by 20% in early 2018. By early November, rumors suggested a steeper drop of 40%. Later, details from the Ministry of Finance’s draft review revealed more specific criteria for new energy vehicle subsidies. All signs pointed to a firm decision to adjust subsidies in 2018, even before the official policy was announced.
Zhou Bo, director of the Power Battery Application Division at the China Chemical and Physical Power Industry Association, believed that these adjustments could help improve product quality and consolidate resources among leading companies. He argued that this shift would promote industry standardization and make the sector stronger and more competitive. However, he also acknowledged that the changes in technical parameters and financial support might lead to significant disruptions in the new energy vehicle market in 2018.
From a macroeconomic perspective, the National Medium- and Long-Term Development Plan for the Automotive Industry aims to reach 2 million new energy vehicle units produced and sold annually by 2020. Additionally, power battery cell energy density is expected to exceed 300 Wh/kg, with a target of 350 Wh/kg. The system energy density should reach 260 Wh/kg, and costs must drop below 1 yuan/Wh. By 2025, new energy vehicles are expected to account for over 20% of total automotive production and sales.
Looking at the financial side, the Ministry of Finance has budgeted 30 billion yuan annually for subsidies. As the number of new energy vehicles grows, per-unit subsidies will inevitably decrease. Online reports suggest that the subsidy standards are becoming more detailed and targeted, with clear thresholds for energy density and range.
One key detail is the adjustment in system energy density. Instead of increasing by 40 Wh/kg, the limit is set at 20 Wh/kg. This means that pure electric passenger cars must achieve a system energy density of 160 Wh/kg to qualify for a 1.1x subsidy. For buses, the threshold increases from 115 Wh/kg to 155 Wh/kg, allowing for a 1.2x subsidy. These changes reflect the industry’s push toward higher energy efficiency.
Currently, battery manufacturers like Ningde Era and Lifan have achieved system energy densities of up to 152.90 Wh/kg. However, meeting future targets will require significant R&D efforts. The development cycle for new models is long and costly, often taking three to five years to bring a product to market. If the energy density requirements are too high, companies may struggle to keep up, leading to supply shortages.
From a technical standpoint, increasing system energy density by 20 Wh/kg is more feasible given current battery production levels. Lithium iron phosphate batteries, for example, currently operate at around 80% grouping efficiency. To meet the 155 Wh/kg threshold, they need to reach 90% efficiency, which is achievable but requires further optimization.
Battery China Network reports that some domestic manufacturers have already reached 220–240 Wh/kg in production, though real-world applications remain limited. The government’s moderate approach aligns with current industry capabilities, making it more practical than an abrupt increase.
Another key point is the focus on long-range models. While a 40% reduction in subsidies was initially feared, it appears that the government is instead implementing targeted adjustments. High-mileage vehicles will receive more support, while low-range models face steeper cuts. This reflects a broader strategy to encourage the development of more advanced, competitive models.
Ouyang Minggao, a prominent figure in the Chinese electric vehicle industry, believes that subsidies will gradually transition from a primary driver to a supporting role. By 2020, the market should be self-sustaining, with financial support playing a smaller role. In 2018, however, targeted assistance is likely to continue, especially for high-end models.
The current subsidy structure also highlights a growing concern: the dominance of low-end, micro-sized electric vehicles. While these are popular due to their affordability and ease of use in cities, they do not align with national goals for innovation and quality. The government is pushing for higher-standard models, aiming to create a healthier, more sustainable industry ecosystem.
Overall, the subsidy policy changes represent a necessary step toward a more mature and competitive new energy vehicle market. While the short-term impact may be challenging, the long-term benefits of improved technology, better resource allocation, and stronger industry standards are clear.
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