Here's Why World's Biggest Electric Car Market Has Decided To Cut Down Subsidies For Car Makers

After a prolonged period of offering subsidies and incentives on electric vehicles to both consumers as well as makers, China has now announced that it will put a stop to all such subsidies. Through this, the Chinese government wants to encourage local manufacturers to rely on innovation and not government assistance.

The subsidy cuts were pretty steep, however, and have adversely affected the shares of all the major auto companies in the country. A subsidy of 50,000 yuan earlier for an electric car that offered a 400 kilometre range has now been halved to 25,000 yuan. Also, the subsidy has further been restricted and will now only be offered to vehicles having more than 250 kms of range.

The government had warned of this before, mentioning the end of all subsidies around electric vehicles by 2020. Though no timeline had been given at the time.

(Representative Image: Reuters)

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The concern is raised after the country has successfully managed to set up a successful electric vehicle industry. China is both the largest producer as well as the largest consumer of EVs around the globe. Now that everything is in place, the Chinese government does not want the auto makers to become overly reliant on the government¡¯s funds for developing new technologies and vehicles.

With the country¡¯s Ministry of Finance announcing the subsidy cut in a statement on Tuesday, shares of several top auto makers in the country, including the electric car manufacturing unit of BAIC Motor Corp as well as BYD Co. fell drastically.

The move might also result in increased prices of electric vehicles going forward. Several auto makers have expressed their concerns around this and have confirmed that they might be obliged to increase the prices of their products.

(Representative Image: Reuters)

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Nio, for instance, did not lower the prices of its vehicles to offset EV subsidies when they were implemented. The new subsidy cut might have put Nio in an even more perilous situation.

What¡¯s more, the finance ministry has even instructed the local governments to remove the subsidies for the buyers opting for electric vehicles, including buses and trucks post a three-months period starting Tuesday.

China has been a crucial market for the global EV makers since forever and the recent mandates by the country¡¯s government have made it clear for the industry players to push for an electric drive-train in their portfolio. Now left with a compulsive move to increase electric vehicle offerings in the country and without any financial support, many not-so-big auto makers might see themselves in troubled waters soon.