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In a bid to stimulate economic growth and accelerate the transition to electric vehicles (EVs), China has doubled its cash subsidies for consumers trading in conventional cars for EVs. The National Development and Reform Commission and the Ministry of Finance announced on July 25, 2024, that buyers will now receive 20,000 yuan ($2,770) per vehicle, up from the 10,000 yuan subsidy introduced just three months earlier.
This move comes as China's economic growth falls short of expectations. According to Chinese financial data provider Wind, the country's GDP expanded by 4.7% year-on-year in the second quarter, nearly 0.4 percentage points below forecasts. The EV sector has been a bright spot in China's economy since 2020, with June deliveries of pure electric and plug-in hybrid vehicles reaching 856,000 units, a 28.6% increase from the previous year.
Gao Shen, an independent analyst in Shanghai, commented on the subsidy increase: "The 10,000-yuan award announced in April may not be enough to engineer another round of delivery surge as expected by senior officials. Many EV fans are budget conscious and only stronger incentives can whet their buying appetite."
The Chinese government has a history of using subsidies to boost EV adoption. Incentives for buyers, first introduced in 2009, peaked at 100,000 yuan in 2014, leading to a fourfold increase in sales the following year. These subsidies were phased out at the end of 2022, but their reintroduction reflects the government's commitment to maintaining growth in the EV sector.
Despite the new incentives, challenges remain for China's EV industry. Fitch Ratings forecasted in November that EV sales growth would slow to 20% in 2024, compared to 37% in 2023. The industry has also been grappling with a price war, initiated by BYD in February, which has seen prices drop by an average of 10% across 50 models, according to a Goldman Sachs report in April.
Hu Xiaopeng, a researcher with the Shanghai Academy of Social Sciences, emphasized the need for a balanced approach: "A healthy and unified market is desirable. But a sound market-based system cannot be created until those harmful elements are removed." This statement alludes to the ongoing price competition that has been squeezing profit margins for EV manufacturers.
China continues to dominate the global EV market, accounting for 60% of worldwide deliveries, the effectiveness of these new subsidies in stimulating consumer demand and supporting economic growth remains to be seen. The government's commitment to the EV sector underscores its importance in China's economic and environmental strategies moving forward.
