China extends new energy vehicle subsidies for two more years

Singapore — China will extend the subsidies and tax exemption provided for the purchase of new energy vehicles, which was due to be removed by the end of this year, for another two years in a bid to boost consumption of the vehicle, China's Prime Minister Li Keqiang had said during the executive meeting of the State Council held on Tuesday, according to information on the government's website. This became a cause of concern among battery metals market participants, although it came as no surprise.

Some market observers expect demand for NEVs to improve after April, when the country's industrial operating rates rise and the national economy is back on track. However, some battery metals sources said that it might take some time before an improvement in NEV demand, driven by the extension in these subsidies, can be observed.

"These measures might slow the pace of decline in the short term, but could not reverse the downtrend completely," an eastern China-based battery metals analyst said.

China's NEV output and sales declined by a large 82.9% and 75.2% year on year to 9,951 units and 12,908 units, respectively, in February, due to the outbreak of the coronavirus, or COVID-19, data released by China Association of Automobile Manufacturers showed. The output and sales in February slid 77.3% and 72.4%, respectively, from January.

The country's NEV output and sales have posted year-on-year declines each month since July last year due to the cuts in subsidy.

The operating rate of the vehicle industry rose to 97% currently, from 60% on February 19, while the rate of returning workers increased to 82% from 50%, China's vice minister from the Ministry of Industry and Information Technology Xin Guobin said on Monday. He added that the production rate of some vehicle companies will continue to fall for some time to come due to rising inventory caused by weak demand.

Currently, some provinces and cities like Guangdong, Shandong, Jilin, Hainan, Shenzhen, Ningbo, Hangzhou and Nanchang have announced policies to bolster the consumption of vehicles, Xin said.

Guangzhou city, the capital of southern China's Guangdong province, in early March announced that individual consumers will get a subsidy of Yuan 10,000 ($1,425) for purchasing a unit of NEV over March-December.