"New Energy" Vehicle Mandate Boosts China EV Prospects

Investors are anticipating a pick-up in China's production and sales of electric vehicles (EVs), taking a cue from a series of new central government policies aimed at reducing carbon emissions and air pollution. Their hopes and expectations were given another boost this past Tuesday, July 13, when the Chinese government announced a "new energy" vehicle mandate requiring at least 30% of new vehicle purchases by local governments and public institutions from 2014-2016 be EVs or other new energy vehicles.

China has vaulted ahead to become the world's largest auto market, as well as the world's largest auto manufacturer, over the past decade. The combination of coal-fired power generation and rapidly rising carbon emissions from vehicles has left Chinese citizens across the country's eastern half subject to a toxic miasma of air pollution, however.

Cleaning the air
Keenly aware of growing public concerns and discontent as well as the health threats posed, China's central government has enacted a series of measures to reduce carbon emissions and air pollution. These include instituting a lottery system that strictly rations new car sales, from which EVs and other "new energy" vehicles, including plug-in hybrid electrics (PHEVs) and fuel cell electric vehicles (FCEVs), are exempt. New energy vehicles are also exempt from a tax on new car purchases.

Adding to the clean, alternative fuel vehicle incentives, government subsidies can cover as much as half the cost of an EV purchase. The Chinese government is also removing heavier polluting older cars from Chinese roads. As many as six million could be taken out of circulation, according to one news report. Government authorities in Beijing also have restricted vehicle access into the city center during rush hours.

Taking another step to follow through on its latest five-year plan target of producing 5 million EVs by 2015, China's national government on July 13 announced that at least 30% of new vehicles purchased by local governments, public institutions and publicly funded organizations must be EVs or other new energy vehicles, according to a Xinhua English news report.

EV and new energy vehicle incentives 
The new energy vehicle mandate initially extends across China's three principal urban and economic centers, which also happen to have the worst air quality: Beijing-Tianjin-Hebei, the Yangtze River Delta, which includes Shanghai; and the Pearl River Delta, which includes the southern Chinese cities and manufacturing centers of Guangzhou and Shenzhen. To support implementation, the Chinese government will subsidize purchases of new energy vehicles with prices under 180,000 yuan (US$29,000).

It has also directed local governments to build out EV charging stations and new energy vehicle fueling infrastructure. According to Xinhua's report, "The ratio of charging interfaces to new energy vehicles should be no less than 1:1. Government organs and public institutions will add new energy vehicle-only parking space. Preferential policies will be introduced in the car plate lottery and auction of new energy vehicles."

The central government's new energy vehicle mandate provides another boost to China's fledgling EV car market, as well as battery and EV charging station manufacturers, which auto industry participants and observers anticipate will quickly become the largest in the world. The problem is there isn't anywhere near enough EVs available, not to mention a glaring lack of supporting infrastructure, i.e. EV fast-charging stations.

China's emerging EV market

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