It has recently been rumored that the subsidies for new energy vehicles in 2018 will be reduced earlier than expected. Is this true? According to reports from China Auto News, many people have been influenced by this rumor, especially those in the power battery industry. To promote the development of new energy vehicles, China has introduced a subsidy policy. Many industry insiders believe that if the subsidies are withdrawn ahead of schedule, the power battery sector could face significant pressure from both sides.
This month, the government announced the early implementation of subsidy adjustments. In 2015, four ministries issued a circular on financial support for new energy vehicle promotion from 2016 to 2020. The subsidy standards for 2017-2018 were set to decrease by 20% compared to 2016, and for 2019-2020, they would drop by an additional 40%. A 2016 circular further outlined the central and local subsidy caps for various types of vehicles from 2019 to 2020.
In 2018, it was expected to be a relatively stable year, but the sudden rumor about early subsidy cuts caught many off guard. An unnamed industry insider told China Auto News that some power battery companies have made rapid technological advancements, significantly reducing their costs. The Ministry of Finance believes that continuing current subsidy levels might result in subsidies exceeding battery costs, which doesn't align with the principle of supporting innovation. Therefore, an early reduction is seen as a way to correct this and ease financial strain.
Multiple versions of the early subsidy withdrawal plan have circulated online. One version suggested that vehicles with a range below 150 km would no longer qualify, while those between 150–200 km would see a 44% reduction. Vehicles with ranges above 300 km would receive increased subsidies. Another version proposed specific amounts based on range, along with requirements for energy density and electricity consumption efficiency.
A company official told China Auto News that the plan covers a wide range and involves multiple adjustments, making it difficult for companies to prepare. Although a transition period may be provided, the subsidies during this time would likely be lower than in 2017. The official mentioned that the final plan is expected to be announced by the end of January and take effect on May 1.
The early withdrawal of subsidies could have a major impact on the industry. Wang Pan of Shenzhen BAK Power Battery Co. said that rumors have caused OEMs to hold back, potentially leading to lower shipments in the first quarter. Policy changes may also require product re-development, affecting inventory and cash flow. Zhong Mengguang of Shenzhen Waterma Battery Co. believes the move signals a faster race for technological advancement, with weaker players likely to be weeded out.
Despite the challenges, the early subsidy cut could push top companies to invest more in R&D, maintaining their competitive edge. For companies reliant on subsidies, this shift may force them to innovate or risk falling behind. As competition intensifies, cost reduction and efficiency improvements will become essential for survival, pushing the industry toward greater consolidation and the elimination of outdated production capacity.
Amid rising raw material prices, the early subsidy withdrawal presents a test for leading companies. Lithium carbonate, a key component in batteries, has seen its price rise sharply, while cobalt—used in ternary materials—has also surged due to limited domestic supply. Experts predict that cobalt prices will continue to climb in 2018.
Under these conditions, how much can battery prices fall? BAK Battery has focused on developing high-nickel, low-cobalt ternary systems, using technology and scale to reduce costs. Waterma, on the other hand, emphasizes design optimization, automation, and standardization to cut expenses. Their efforts have led to a 10–15% annual cost reduction from 2015 to 2017, with battery costs in commercial vehicles dropping from around 50% to 30–40%.
As the industry evolves, the pressure to innovate and reduce costs will only grow, shaping the future of the power battery market.
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