New dual-credit scheme can elevate Chinese electric vehicles industry

Under heavy subsidies from the government, China's electric vehicles (EV) market has grown exponentially to overtake the United States as the world's largest EV market. However with subsidies fading out in two years' time, the Chinese government and EV manufacturers are pressed for time to sustain the growth momentum in EVs.

Wood Mackenzie's latest research reveals that China's proposed dual-credit scheme can reshape the EV market for a more sustainable development beyond the abolishment of subsidies in 2020. The EV penetration rate is projected to hit 17% in 2035 as a result.

Yujiao Lei, Wood Mackenzie's China analyst said, "Early EV policies were mainly focused on growth and less on quality. Most EVs produced in China are adaptations from existing gasoline cars. While development time and cost can be minimised, we end up with an excess of low efficiency models with smaller batteries and correspondingly shorter electric range."

The new dual-credit scheme, slated to be implemented in April this year, rewards or penalises carmakers with positive or negative credits based on the car model's fuel consumption and driving range. For example, if an automaker does not produce any EV, it will need to purchase EV credits from an EV maker to meet the government's goal. Those with surplus credits can sell them in the market.

"Recently we have seen a wave of EV investment announcements. Some of these are joint ventures with well-known international automakers and they are likely to produce mid-range cars or models with real competitive edge," said Lei.

"Such EV models with longer electric range will receive more credits. So, the extra cost from the subsidy phase-out can be offset by more credits," added Lei.

By partnering with international automakers, Chinese EV makers will be able to take advantage of the partner's technology and operation expertise.  At the same time, these foreign automakers such as Ford and Volkswagen which are major players in the Chinese gasoline cars market, can benefit from the credits gained through the partnership,  which will help their fossil-fuel car business to meet the scheme's target.

"The partnership trends we are seeing now is good indication that the government's proposed dual-credit scheme is set for a good start. In a nutshell, the scheme will accelerate the elimination of lower-end models and elevate the entire EVs scene in China," concluded Lei.