Manufacturing News

As China cuts subsidies, automakers' electrified vehicle plans differ

China will maintain plans to gradually phase out subsidies for electrified vehicles until they are eliminated in 2021 and allow the market to determine the direction of green car development, Finance Minister Lou Jiwei said.

But auto executives speaking alongside Lou at an industry conference this month in Beijing laid out different visions as to which technology the market will favor: Tesla-style electric vehicles or plug-in hybrids currently produced by Volkswagen AG and others.

Green car sales more than quadrupled in 2015 after years of subsidies and preferential government policies, as China surpassed the United States to become the world's largest market for electric cars.

The government sees so-called new-energy vehicles, a catch-all for pure electric, hybrid and fuel cell powered cars, as a means for China's automakers to catch up to foreign competition while combating pollution that chokes many urban areas.

Lou reiterated plans to cut subsidies 20 percent over the next two years and 40 percent by 2019-20. China will eliminate subsidies altogether after 2021 so that the industry does not grow dependent on them.

Instead, Lou said China should pursue market-based policies. He praised California's emissions policy, under which Tesla can generate environmental credits from its emissions-free vehicles and then sell the credits to other companies.

California's policy is an example to learn from, he said. China has yet to institute a similar system.

"Credit trading is the most effective way to ensure government neutrality on the technology's development. The market should be able to choose the technical route," said Lou.

Other automakers, such as Beijing Automotive Group and startup electric car maker NextEV, also praised Tesla as a model for development.

Executives from Volkswagen and BMW AG said they remain focused on plug-in hybrids as the most viable technology in the near term as China transitions toward EVs.

"Once we leave the city we are forced to confront the problem of a nationwide high-powered charging infrastructure -- if you really see it as a realistic goal, I personally have some doubts -- to drive pure electric over long distances," said Jochem Heizmann, head of Volkswagen Group China.

VW instead favors plug-in hybrids that can use electric motors for city driving and switch to gasoline engines for longer intercity drives.

Chairman Wang Chuanfu of BYD, which makes China's best-selling plug-in hybrid, said he expects buses to achieve full electrification, with commercial vehicles being completely electrified within the decade and passenger cars being fully converted by 2030.

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