Shanghai to Continue Providing Subsidies for New Energy Vehicles until End of June

According to a plan issued by the Shanghai Municipal Government on January 29, individual consumers will be given a financial subsidy of 10,000 yuan ($1,473) per vehicle when they purchase a pure electric vehicle before the end of June this year. The central government’s subsidy for the application of new energy vehicles ended at the tail end of last year.

Shanghai will also exempt pure electric vehicles, plug-in hybrid vehicles and fuel cell vehicles that have been purchased this year and have been listed in the catalogue of new energy vehicles exempt from the vehicle purchase tax.

The predecessor of China’s subsidy policy for new energy vehicles was the pilot financial subsidy fund for the private purchase of new energy vehicles promulgated by the Ministry of Finance in 2010. At that time, the policy was piloted in six cities including Beijing and Shanghai, and eligible vehicle purchases could receive a subsidy of 3,000 yuan/kWh, of which the maximum subsidy for pure electric vehicles was 60,000 yuan. By 2013, the scope of the subsidy policy was extended to the entire country. In the original plan, the subsidy should have ended in 2020, but due to the outbreak of COVID-19, the policy was extended until the end of 2022.

Over the last 13 years, China’s new energy vehicle market has gradually matured under the impetus of subsidies and other support policies. According to a research report by CITIC Securities, from 2020, the proportion of new energy vehicles that do not rely on subsidies (that is, electric vehicles with a price exceeding 300,000 yuan) has increased year by year, and this proportion exceeded 50% in 2021. Moreover, the proportion of income derived from new energy subsidies for car companies is decreasing year by year, ranging from 5% to 15% in 2021.

At the beginning of 2023, some new energy vehicle companies began to tighten the preferential margin and issued price increase notices one after another. However, some enterprises chose to maintain their original prices with some even cutting prices in exchange for more sales. Many industry insiders believed that the end of national subsidies would promote a virtuous circle in the new energy vehicle market. Car companies that used to rely on policy dividends are bound to gradually exit, and enterprises that truly have core technologies and are able to develop steadily will be able to withstand this ripple.

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Will the cancellation of state subsidy affect consumers’ willingness to buy vehicles? China EV100 once conducted a survey on potential car buyers. The results showed that only about 20.9% of consumers think that subsidies are the reason for deciding whether to buy electric vehicles, while 55% of consumers think that license restriction is the main reason for restricting themselves from buying.