Government subsidy of new-energy cars to be extended

Want China Times, Staff Reporter 2013-07-14

A lithium car battery displayed at a car expo in Beijing. (Photo/CFP)

The Chinese government will reportedly roll out a new subsidy program for new-energy automobiles in July, which may aggravate the overcapacity of the lithium battery industry.

According to the Chinese-language National Economic Weekly, the new program calls for extending the existing program by three years and expanding its coverage nationwide, removing the existing restriction to 25 pilot cities. Subsidies for pure electric cars will remain at 60,000 yuan (US$9,800) per vehicle, while subsidies for indigenous hybrid cars will be raised from 3,000 yuan (US$480) per kilowatt.

While the new program has yet to be officially announced, lithium battery and materials manufacturers have embarked on a new round of expansion despite their current overcapacity.

Yu Qingjiao, CEO of battery.com, notes that due to policy encouragement, lithium battery investment picked up further from late 2012 to June and the existing investment projects will lead to overcapacity of 5 billion AH (ampere hours) by 2015.

CCID Capital predicts that power-use lithium batteries will account for 38% of the market by 2015, capable of powering 230,000-300,000 pure electric cars.

According to a recent report from Frost & Sullivan, the total demand for pure electric cars, hybrid cars, and commercial electric vehicles in China will reach only 120,000 by 2015. According to the National Economic Weekly, the new subsidy program may stimulate China's lithium battery industry to speed up in a risky environment.

The existing program was rolled by the Ministry of Finance and the Ministry of Science and Technology in January 2009, offering a 60,000 yuan subsidy per vehicle for pure electric cars and up to 50,000 yuan (US$8,150) for hybrids.

In January 2010, Miao Yuwei, then deputy minister of industry and information technology, mapped out a grand plan for the Chinese electric car industry, envisioning an output of 500,000-1 million electric cars by 2015.

In May 2010, the Ministry of Finance and three other central government agencies decreed the provision of subsidy amounting to 3,000 yuan/kilowatt to new-energy cars during the 2010-2012 period and the number of pilot cities for pushing new-energy cars was expanded to 25 later in 2010.

The handsome subsidy has fueled unbridled development of the lithium-battery industry, which has been aggravated by additional incentives provided by some municipal governments. The governments of Hangzhou and Shenzhen, for instance, offered an additional subsidy of 60,000 yuan per car to buyers of pure electric cars. Yichun in Jiangxi province provided income-tax rebates to lithium battery firms on top of interest subsidies for special loans.