Thursday, July 1, 2010

China Auto Subsidies: Who's on the List? Who's Not?

A month ago, China announced subsidies to support sales of "new energy vehicles" and energy-saving vehicles. Yesterday, the government released a list of cars approved for subsidies under the "energy-saving" category. The list is interesting, not because of whose cars are on the list, but because of whose cars are not on the list.

"New energy vehicles", in this case, include both plug-in hybrids and pure electric vehicles. The former are eligible for a subsidy of up to 50,000 yuan and the latter of up to 60,000 yuan. Note that traditional hybrids of the non-plug-in variety are not included here.

"Energy-saving" vehicles have traditional internal combustion engines, but the engines must have a displacement of 1.6 liters or less. Readers may remember that early in 2009, China's government announced a 50 percent tax break to be applied to all cars with engines 1.6 liters or less.

The sales tax on these cars was decreased from 10 percent to five percent, and it led to a significant increase in sales of small cars, which further drove China's annual sales to eclipse those of the US for the first time ever. (Though, admittedly, this was helped by a steep drop-off in US sales due to the recession.) The biggest selling car in China last year was BYD's F3, a gasoline powered Toyota Corolla lookalike with a small engine.

Toward the end of 2010, the small car tax break was cut in half (tax increased from 5% to 7.5%), and extended for a few more months as part of China's stimulus plan. Now that the tax break has ended, the government has resorted to a one-time subsidy of 3,000 yuan that basically accomplishes the same task of encouraging sales of fuel-efficient cars.

Detailed List of 71 Models

Yesterday, the NDRC released a list of cars eligible for the 3K subsidy. There are 71 specific models from 16 companies, all with engines of 1.6 liters or less. (I won't list all of the cars here; the complete list can be found in this Chinese pdf.)

Before seeing the list, my expectation would have been that the number of Chinese-branded models would exceed those of foreign-branded models, but that is not the case. Among the 71 listed models, 32 are Chinese and 39 are foreign.

Why does this surprise me? Because when the tax break was enacted over a year ago, the government's intention was to pick a cutoff point (1.6 liters) at which Chinese brands would most benefit. According to research shown to me by an auto industry executive in Shanghai, cutoffs of 1.5 liters or 1.7 liters would not have benefited independent Chinese brands as much as the 1.6 liter cutoff. The executive's research estimated that, at the 1.6 liter cutoff, approximately 85 percent of sales were of Chinese brands.

And indeed, as the tax break was announced last year, many commentators pointed out that the foreign manufacturers had been caught flat-footed because they offered few cars that qualified for the tax break.

Well, apparently that has changed. The list now has 17 different model variations made by Shanghai GM (SAIC-GM) alone.

Because there has apparently been a crackdown in reporting on actual monthly sales numbers from China, I now have difficulty getting my hands on sales data. (Apparently someone figured out they could charge money for the data.) If I could, it would be easy to determine just how many of each of these 71 models has been sold in recent months to see who would be benefiting the most. Perhaps the numbers of Chinese vs foreign models would matter less than the absolute numbers of vehicles being sold.

Who's Not on the List

And one would assume that China's hottest selling sedan, the BYD F3 would ensure that most of this subsidy money would flow to Chinese brands. There's just one problem with that reasoning: the F3 is not on the list!

I'm not sure whether this was an oversight, but the only BYD model on the list is the F0, a car small enough to pick up and put in your pocket.

Who else isn't on the list? Toyota, Nissan, Ford, Mazda. Each of these companies makes cars in the 1.6 liter and below segment, but none of these is on the list.

And poor Toyota, the company that brought the world the first production hybrid, the Prius, doesn't appear to offer any car in China that is eligible for any kind of subsidy. Its small cars like the Yaris didn't make the 3K subsidy list, and its Prius won't qualify for the 50K hybrid subsidy because it isn't of the plug-in variety. Its next generation Prius, which will be a plug-in hybrid, won't qualify either because its gasoline engine is being upgraded from 1.5 liters to 1.8. Can these guys not catch a break in China?

I would suspect an anti-Japanese sentiment here, but the 3K subsidy list does have other Japanese-branded cars from Guangzhou Honda and Chang'an Suzuki.

There's another surprising wrinkle in China's new energy vehicle policy, and it concerns BYD. More on that tomorrow...

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Edit: The guys at China Car Times have put up an English list of models eligible for the 3K subsidy here.

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