China: New Energy Vehicle (NEV) Policy

Introduction

While the origins of China’s new energy vehicle (NEV) program can be traced back to at least the 1980s, it became official policy in 2009. The focus has primarily been on making China a leader in electric vehicle (EV) technology, contributing towards energy independence and addressing local air quality concerns. Given that much of China’s electricity is sourced from coal fired power plants, any potential for GHG emission reductions is questionable.

In 2001, NEVs were incorporated in the “863 Program”, a program intended to stimulate the development of “advanced” technologies in a wide range of fields. The focus was on powertrain control systems, drive motors and batteries that could be applied to fuel cell, hybrid and battery electric vehicles. Four cities were identified in which to test NEV vehicles. In 2007, the NEV program increased in size and scope, and sought to move NEVs to production. Some 500 domestic NEVs debuted at the 2008 Beijing Olympic Games.

From 2009 to 2017, the NEV program primarily focused on encouraging uptake through subsidies and pilot programs. In 2017, a mandatory requirement for vehicle manufacturers and importers to obtain an increasing number of NEV credits from 2018 onwards through vehicle production or credit trading was introduced. To encourage technology development, the criteria to qualify for subsidies and NEV credits also became increasingly stringent. Subsidies per vehicle decreased annually and were originally scheduled to be phased out by the end of 2020. Subsidies were later extended to the end of 2022 over concern of dropping NEV sales and the Covid-19 pandemic of 2020.

The following discussion presents a brief overview of the program up to 2016 and a more comprehensive discussion of the program after 2017. A more detailed overview of the program up to about 2018 can be found elsewhere [5039].

NEV Policy 2009 to 2016

In 2009, the program intensified to become a national strategy and set a goal of 500,000 battery (BEV), plug-in hybrid (PHEV), and hybrid electric vehicles (HEV) that would account for 5% of new passenger car sales by 2012. The plan set aside ¥10 billion ($1.5 billion) for grants and discounted loans and called for establishing large-scale pilot programs with centrally planned fleets of electric urban buses, sanitation trucks and taxis which would gradually expand to the commercial and private sectors. The “Ten Cities, Thousand Vehicles” program was also launched with a goal for 10 cities to add 1,000 NEVs annually over 3 years. The program quickly expanded to incorporate 25 cites. Large subsidies were provided by the central government for these pilot programs that participating cities were required to match. In 2012, the annual vehicle tax on NEVs and the purchase tax on NEV buses were waived. In 2014, the purchase tax exemption (a benefit of about ¥10,000) was extended to NEV passenger cars until the end of 2017. Several cities including Shenzhen, Beijing, Shanghai and Guangzhou set more ambitious targets than those set in the “Ten Cities, Thousand Vehicles” program. However, by the end of the program in 2012, the number of NEVs deployed was well below expectations—only seven of 25 cities had met the 1000 vehicle target.

In the next phase of the program announced in 2012, the budget was increased primarily to fund battery technology and the focus narrowed to BEVs, PHEV and FCVs. The annual production and sales targets were set at 500,000 plug-in electric vehicles by 2015 and would rise to 2 million by 2020 to result in a cumulative 5 million NEVs by the end of 2020.

On the basis of air quality concerns, Beijing started limiting the number of annual vehicle registrations in 2013 and in 2015 traffic control policies were introduced. These policies favored NEVs and were also adopted by other cities. A significant increase in NEVs sales resulted.

In 2015, the NEV subsidy program was updated to apply nationally until 2020—not only to select cities as had previously been the case. After 2020, the subsidies would no longer apply.

In 2016, a major NEV subsidy fraud scandal emerged that resulted in restructuring of subsequent updates to the NEV program. Subsidies were linked to performance and enforcement provisions were introduced. Commercial vehicles owners had to demonstrate that at least 30,0000 km had accumulated before subsidies were granted. Vehicle models were also required to meet technical standards on batteries, drive motors, vehicle safety and energy efficiency to qualify for incentives.

NEV Policy Post-2017

Planning Targets

In 2017, a planning document from the Ministry of Industry and Information Technology reaffirmed the goal for annual NEV production to reach 2 million by 2020 and 20% of all new vehicle production by 2025 [5043]. The document also included 2020 goals for battery energy density and cost of 300 Wh/kg for the battery, 260 Wh/kg and <¥1/Wh for the battery system and a 2025 goal for battery system energy density of 350 Wh/kg.

In 2018, the Ministry of Commerce announced that the foreign ownership limit on local auto makers would be abolished and restrictions on NEV joint ventures would be removed. This would allow foreign auto makers to build EVs in China without first establishing a joint venture with a domestic manufacturer [5046].

In 2020.10, the Energy-saving and New Energy Vehicle Technology Roadmap 2.0 was released [5190][5191]. This document compiled feedback from industry on passenger car and commercial vehicle policy direction and was organized by the China Society of Automotive Engineers (China SAE) under the guidance of the Ministry of Industry and Information Technology (MIIT). For commercial vehicles, fuel consumption reduction targets of 8%, 10% and 15% from 2019 levels for freight vehicles and 10%, 15% and 20% from 2019 levels for buses are proposed for 2025, 2030 and 2035 respectively. Included were proposed targets for heavy-duty NEV (HD-NEV) shares of 12% by 2025, 17% by 2030 and 20% by 2035 [5192]. A dual credit system, similar to that used for passenger cars, is under discussion [5193].

In 2020.11 the State Council published the NEV Industry Development Plan (2021-2035) [5056][5156]. While a 2025 sales target of 25% had been proposed in a draft version of the plan, the final target remained at 20%. In National Ecology Demonstration Areas and Air Pollution Control Key Areas, at least 80% of newly purchased public vehicles must be NEVs starting in 2021. The MIIT will release further guidelines with specific requirements. Public vehicles include government vehicles, postal vehicles, urban buses, sanatory vehicles, taxi and rental vehicles, port and airport vehicles, and delivery vehicles. The plan also increases the 2025 target for FCVs to 100,000 but retains the previously announced target for 2030 of one million. For 2025, the plan also calls for major breakthroughs in batteries, drive motors, control systems and other key technologies; a reduction in BEV average energy consumption to 12.0 kWh/100 km; significant progress in battery recycling technology; NEV manufacturers to be responsible for battery recycling; the convenience of battery exchange services to be significantly improved; and commercialization of self-driving vehicles in selected areas and specific scenarios. By 2035, NEV technology should be competitive in the global market and FCVs should be in commercial applications. The Energy-saving and New Energy Vehicle Technology Roadmap 2.0 had proposed light-duty NEV sales targets of 40% for 2030 and 50% for 2035. Future policy for heavy-duty vehicles was unclear from this plan.

In 2023.12, the Automotive Industry Green and Low-Carbon Development Roadmap 1.0, jointly developed by the China Society of Automotive Engineers and China Automotive Technology Research Center, was released. The roadmap reinforces the goal of having the Chinese automotive industry reach its carbon emissions peak by 2030 and support for the national carbon neutrality goal of 2060. The market penetration targets for 2025 and 2030 are stated as 45% and 60% for all NEVs. These further break down as 50% and 65% for passenger NEVs and 15% and 30% for commercial vehicles. This is a substantial increase from the earlier goal of 20% for 2025 stated above. In the first three quarters of 2023, the market penetration rate of new energy vehicles in China reached 29.8%. These targets appear to be aspirational as opposed to mandatory as the NEV requirement for passenger vehicles for 2025, announced a few weeks later, was set at 38% (see below) [6310].

CAFC and the Dual Credit System

In 2017.09, a dual-credit system proposed in 2016 was finalized that tied mandatory standards for increased NEV passenger car production with fuel efficiency standards for conventional vehicles and that applied to manufacturers or importers of more than 30,000/year conventional cars. Auto companies are required to meet both corporate average fuel consumption (CAFC) and NEV credit requirements. However, credit trading between the two standards allows surplus NEV credits to offset CAFC credit deficits. Surplus NEV credits can be sold to other companies, but surplus CAFC credits can only be banked for future use within the company or transferred to affiliated companies. The requirements apply only to passenger cars and took effect 2018.04. NEV credits amounting to 10% of conventional car production or import would be required in 2019 and 12% in 2020. Credit requirements for 2021 and beyond would be announced later (June 2020—see below). Electric vehicles (minimum range 100 km and maximum speed > 100 km/h) would qualify for up to 6 credits based on range and energy consumption (kWh/100km) with maximum credits going to vehicles with a minimum range of 350 km and energy consumption no higher than that represented by the Y_low (2019-2020) curve for 2019 and 2020 shown Figure 1. PHEV vehicles (minimum electric range 50 km) would qualify for 1 or 2 credits depending on electric energy and fuel consumption with 2 credits going to vehicles showing either superior electric energy consumption (and R > 80 km) in electric mode or low fuel consumption in non-electric mode. FCVs (minimum range 300 km) would qualify for up to 5 credits depending on the rated power of the fuel cell system. For all but the smallest vehicles, maximum FCV credits are obtained with fuel cell systems larger than about 31 kW [5040][5041][5042]. Further details are summarized in Table 1.

In 2020.06, the NEV credit requirements for 2021, 2022 and 2023 under the dual-credit system were announced to be 14%, 16% and 18%, Table 1. Additionally, conventional hybrid vehicles were classified as “low fuel consumption passenger vehicles” and assigned multipliers of 0.5, 0.3 and 0.2 in 2021, 2022 and 2023 respectively to make their production increasingly favorable over conventional non-hybrid vehicles which have a multiplier of 1. This lowers the number of NEV credits required by effectively lowering the number of conventional vehicles an auto company provides. The credit calculation for NEV vehicles was also changed to encourage development of battery capacity and increased driving range. The maximum credits available for electric vehicles decreased to 5.1 (estimated) but required a range of more than 535 km as well as superior energy consumption and battery capacity. Credits available for PHEV vehicles also decreased to 0.8 or 1.6 with maximum credits going to vehicles that demonstrate both low electric energy consumption in electric mode and low fuel consumption in non-electric mode. The maximum available credits for FCVs increased to 6 but required larger fuel cell systems (> 75 kW) for credit maximization. Also, the NEV credit carry-forward provisions were relaxed and the definition of affiliated companies for the purpose of compliance was expanded [5054][5133]. While NEV targets for heavy-duty vehicles had been expected for 2021, this did not happen [5055].

In 2021.02, the Ministry of Industry and Information Technology announced changes to the way the 2020 corporate average fuel consumption (CAFC) would be calculated. For vehicle models with off-cycle technologies (idle start-stop, regenerative braking and manual transmission gear shift indicators) the fuel consumption could be reduced by 0.05 to 0.15 L/100 km. It also provided some flexibility to meet NEV requirements in the face of declining vehicle sales due to the Covid-19 pandemic; especially in Hubei province [5134][5133]. For CAFC calculation purposes, passenger vehicle NEVs energy consumption is converted to a gasoline-equivalent value using a conversion factor.

In 2023.07, the calculation of NEV credits was revised and the credits awarded for standard NEVs was reduced by an average of about 40% [5904]. The changes were scheduled to take effect from 2023.08. An NEV credit pool management system was also established. Details of the updated credit calculation are included in Table 1.

In 2023.12, the NEV credit requirements for 2024 and 2025 under the dual-credit system were announced to be 28% and 38% respectively. The multiplier for “low fuel consumption passenger vehicles” would remain at 0.2 and details of off-cycle technologies for brake energy recovery and high efficiency air conditioners were included in the announcement [6308].

Changes to the fuel consumption requirements for light-commercial vehicles (LCVs) in 2024.08, found in GB 20997-2024, are intended to promote NEVs in this sector. Starting in 2026, LCVs will be required to meet CAFC requirements in addition to per-model limits. For an enterprise’s CAFC calculation, BEVs and FCEV are assigned a fuel consumption of zero while PHEV are assigned a fuel consumption of zero while in electric driving mode.

BEV Energy Consumption Limits

Energy consumption limits for BEVs are defined in GB/T 36980, Energy consumption limits for electric vehicles. GB/T 36980-2018 was applicable starting 2019.07 and applies to M1 vehicles (passenger vehicles for up to 6 passengers) below 3500 kg GVW. Compliance with this standard is mandatory. Initial test procedures were based on the NEDC cycle (GB/T 18386-2017) but starting 2021.10, the procedure (GB/T 18386.1-2021) uses the Chinese Automotive Test Cycle (CATC) which is similar to the WLTP.

As previously noted, an energy consumption goal of 12 kWh/100 km had been set for 2025. In 2022, the average energy consumption of domestic BEVs reached 12.35 kWh/100 km. However, a trend of increasing vehicle weight had emerged and changes to GB 36980 were initiated in 2024.06 to ensure further reductions [6309].

Manufacturer Subsidies

Updated criteria for BEV, PHEV and FCV manufacturer subsidies were announced 2017.01 that would be valid from 2017 and 2018 and apply to new energy passenger cars, buses and coaches, and freight trucks, along with vocational vehicles, such as garbage trucks [5044][5045]. While buses, coaches and many heavy-duty vehicles can qualify for subsidies, there is no mandatory requirement to produce them. It should be noted that minimum requirements for vehicles to qualify for NEV credits under the dual-credit system and those to qualify for subsidies differ with the requirements for subsidies generally being more demanding. The policy called for subsidies for NEV passenger cars, buses and coaches to decrease 20% every 2 years from 2016 levels with a phase out of subsidies by the end of 2020. Compared to 2016 levels, the criteria for subsidies were also tightened. Subsidies for 2016 BEV passenger cars depended on electric range while for 2017-2018, battery energy density was added as an additional criterion. For battery electric buses and coaches, 2017 and 2018 subsidies depended on battery capacity, vehicle length and either charging speed for fast-charging vehicles or battery energy density for non-fast-charging vehicles. Battery electric truck and vocational vehicle subsidies were determined by battery capacity. Battery electric buses, coaches, trucks and vocational vehicles are also required to meet thresholds on other factors including driving range, electric energy consumption, battery energy density and battery mass ratio.

In 2019.03 subsidies for 2019 BEV passenger cars and PHEVs as well as tightened criteria for receiving subsidies was announced. For example, BEVs with less than 250 km range would no longer qualify for subsidies in 2019. The subsidy for most vehicle types was reduced by more than 50% relative to 2018 levels [5047][5048].

In 2019.10, the Ministry of Finance clarified that hydrogen fuel cell vehicles sold after 2020.04.22 will no longer receive government subsidies. Subsidies for fuel cell vehicles under the previous program were ¥200,000 for passenger vehicles, ¥300,000 for vans and light trucks and ¥500,000 for buses and heavy-duty trucks. The government’s goal is to have 5,000 fuel cell vehicles on its roads by 2020, 50,000 by 2025 and 1 million by 2030. For the first nine months of 2019, China’s FCV outputs and sales reached 1,315 units and 1,251 units respectively according to the China Association of Automobile Manufacturers (CAAM). Subsidies for FCVs would be replaced by a four-year pilot program focused on research and development and demonstrations in select cities [5049].

In 2020.04, subsidies for NEVs were extended by 2 years to the end of 2022 due to declining NEV sales and the COVID-19 pandemic. Except for vehicles equipped with swappable batteries, the extended subsidies apply to new energy passenger vehicles priced below ¥300,000 (about US$42,300). The minimum electric range for BEVs to qualify for subsidies rose to 300 km. Relative to 2019 levels, subsidies were reduced by 10% for 2020, 20% in 2021 and 30% in 2022. For NEVs used in such areas as urban public transport, road passenger transport, taxi, ride-hailing service, environmental sanitation, urban goods delivery, postal expressage, airport and official business of governmental bodies, the subsidies remained at previous levels for 2020, were reduced by 10% in 2021 and by 20% in 2022. Subsidies are limited to no more than 2 million units per year. Details on updated qualification requirements for 2019 and 2020 vehicles can be found elsewhere [5049][5050][5051]. Qualification requirements for 2021 vehicles were released at the end of 2020.12 and remained unchanged from those for 2019 and 2020 vehicles [5052][5053]. While the subsidy technical requirements and phase-out schedule were confirmed in an announcement issued at the end of 2021, the cap of 2 million vehicles was removed for 2022 [5363][5364].

Purchase Tax Exemption

The NEV passenger car purchase tax exemption introduced in 2014 and scheduled to expire at the end of 2017 was extended to the end of 2020. The exemption applied to electric, plug-in hybrid and fuel cell-powered vehicles.

In 2020.04, the purchase tax exemption on electric, plug-in hybrid and fuel cell-powered NEVs that was scheduled to expire at the end of 2020 was extended for an additional 2 years until the end of 2022 [5376].

While the purchase tax exemption on electric, plug-in hybrid and fuel cell-powered NEVs was scheduled to expire at the end of 2022, there were signals in 2022.01 that it would be further extended [5377]. Extending this tax exemption until the end of 2023 was confirmed by the State Council in 2022.08 [5621].

In 2023.06, the purchase tax exemption was extended until the end of 2027 but with some limitations [5816]. For NEVs purchased in 2024 and 2025, the tax exemption will not exceed ¥30,000 (about $4,170) per passenger vehicle. For NEVs purchased in 2026 and 2027, a vehicle purchase tax applies but at half the normal rate and the tax reduction for each NEV will not exceed ¥15,000.