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China unlikely to substantially reduce electric vehicle subsidies in 2019: Citi

London — The likelihood of a substantial reduction in subsidies offered by the Chinese government for the purchase of new electric cars is limited in 2019, US investment bank Citi said in a research paper Friday.

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China's subsidy program for EVs started in 2010, with market participants saying that it could be wound down in 2020.

Consumers purchase the vehicles at the discounted rate and the automakers claim the money back from the government.

In an interview, Mo Ke, head analyst at research firm RealLi, told Citi that a rigid cap to the total NEV subsidy number is unlikely this year, as the electric vehicle revolution remains as a crucial area for the Chinese government's push for structural upgrade.

On average it takes 1.5-2 years for the government to pay any subsidy. It is trying to increase efficiency and shorten the processing time, but a significant time period may still be required, according to Ke. He added that the magnitude of subsidy cut is unlikely to be more than 50%, "as it will take a toll on China's NEV industry, which is negative for the overall economy."

He said he thinks 40% scale down is possible, according to the note published by the bank.

Ke thinks 2019 battery prices will drop by around 10%, but are highly unlikely to drop more than 20%, because room for such a price cut in the industry is limited. 2021 could be the year for NEV subsidy to be fully wrapped up, according to the analyst.

S&P Global Platts assessed both battery grade lithium carbonate and hydroxide unchanged on a CIF North Asia basis, at $12,700/mt and $16,000/mt, respectively. The prices refer to deliveries at the main ports in China, Japan and South Korea.

Several market participants have been reporting in the past few weeks that prices for spot trades and term contracts were likely to converge since the latter had been pointing down, both for lithium carbonate and lithium hydroxide.

Over 2018, spot prices tended to lower than those of term contracts. Ke is positive on the NEV market in 2019 and expects production could potentially reach 2 million units. He thinks that given pessimism on ICE, more auto makers will be even more focused on NEVs. A potential downside in the industry could be safety issues.

Meanwhile, adoption of electric vehicles in the US soared in 2018, with 360,800 plug-in vehicles delivered, up 81% from 2017 and the highest growth rate since 2013, according to data published Thursday by EV Volumes.com, a global database on EV sales.

--Ben Kilbey, ben.kilbey@spglobal.com

--Edited by James Leech, newsdesk@spglobal.com