Latest posts by Maya Xiao (see all)
- On and Off-Highway Vehicles Driving Strong Growth in Lithium-Ion Battery Market - January 17, 2020
- The Collaborative Robot Market – 2019 - January 9, 2020
- General Motors and LG Chem Joint Venture – How Does This Differ From Tesla and Panasonic? - December 10, 2019
On March 26th, China’s four ministries and commissions jointly issued the “Notice on Further Perfecting the Policy of Financial Subsidies for the Promotion and Application of New Energy Vehicles”. As China’s NEV market represents a major portion of the global new energy vehicle market, this policy will bring about impacts on many different parts of the global supply chain. Interact Analysis has made a thorough analysis of the main changes and logic of this new policy and predicts its impact on the market.
- China’s new energy vehicle (NEV) industry will gradually change from policy-driven to market-driven. Local level subsidies will be abolished, and overall subsidies will decline by more than 50%.
- The policy is no longer blindly encouraging high energy density, but is now focused on enhancing the cycle life and safety performance requirements. NEV makers’ investment in Nickel-rich batteries may slow down as the impact of energy density on subsidies declines, LFP batteries will have a broader application space.
- Companies that produce new energy buses and trucks can get a part of the subsidy in advance before meeting mileage requirements (at least 20,000 kilometers in two years), which can effectively relieve their cash flow pressure.
- For battery manufacturers, the cost pressure will increase but the impact on equipment manufacturers will be limited.
Background: Financial subsidies for NEV in China will be completely withdrawn in 2020
China’s new energy vehicle industry has developed rapidly under the stimulation of large subsidies and licensing restrictions in the past ten years. According to data released by the China Automobile Industry Association, 1.25 million new energy vehicles were sold in China in 2018 out of a total of 2 million new energy vehicles sold globally. However, with the soaring of the total subsidy amount, the financial pressure is gradually increasing on the Chinese government. The excessive dependence of enterprises on the subsidy policy also makes the market unhealthy and unbalanced.
According to the Chinese government’s New Energy Vehicle Development Planning Roadmap, subsidies will be completely zero in 2020, and support for the new energy vehicle industry will be gradually converted to non-subsidized policies up to 2025. It can be said that the sharp decline in subsidies in 2019 is within the expectations of industry insiders, and the specific measures which will be introduced in practice do not deviate too much from the assumption of the public. However, some of the guiding provisions still deserve careful analysis.
Main Changes of the New Policy
We have sorted out the subsidy standards for 2018 and 2019 into electric passenger cars, buses and trucks in tabular form:
- In 2019, subsidies will fall by more than 50%. When considering the cancellation of the local level subsidy, the declining margin is up to 70% after the transition period (which is from March 26th, 2019 to June 25th, 2019). The policy impact on NEV market will be weakened.
- Compared with the previous more radical policy of pursuing energy density, the adjustment of the 2019 subsidy policy not only embodies the encouragement of high-tech power batteries but also emphasizes the safety and controllability of the whole product. It also encourages diversification of technological routes. For example, plug-in hybrid trucks first appear in the policy.
- From simply subsidizing new energy vehicles to supporting charging infrastructure and other “short board” construction and supporting operation services, the government will further support the whole industry chain (including battery recycling, etc.) in the future, but not necessarily in the form of subsidies.
- At the technical level, the subsidy coefficient can only be 1 when the energy density exceeds 160Wh/kg, and the subsidy coefficients of 1.1 and 1.2 times will be eliminated. Considering cost and safety, LFP has a broader market space now, and the trend of the nickel-rich battery may slow down.
- Overall, subsidy policy is slightly better than expected. In order to get more subsidies and make full use of the transition period in the first half of 2019, major NEV makers will impact sales and reduce prices to clear inventory, but the shortage of high-quality battery capacity will be a bottleneck. The decline in sales in the second half of the year is a high probability event.
Impact on OEMs and Battery Suppliers
The decline of new energy subsidies has two different dimensions for NEV makers and battery manufacturers. For automobile companies, what they need to consider is how to find a balance between rising costs and maintaining the original prices after subsidy reduction. Local brands should consider the cost problem as well as the competitive pressure brought by foreign enterprises with economic strength, brand influence, mature technology, and other advantages entering the market after China’s NEV Market is completely opened up.
The government continuously improves the technical standards of the industry through the subsidy policy and realizes the rapid increase of battery energy density. Battery manufacturers mostly adapt to this change by rapidly expanding their scale to reduce costs. And the rising price of raw materials upstream makes the profit margin of battery manufacturers constantly compressed, and the cash flow is very unhealthy. CATL and BYD accounted for more than 60% of China’s lithium-ion battery shipments in 2018 with Japanese and Korean manufacturers led by Panasonic, LG and Samsung SDI entering the Chinese market in 2019. After the implementation of the new subsidy policy, the first thing that lithium-ion battery manufacturers need to consider is survival.
At the same time, it should be noted that in theory, energy density and safety are a pair of contradictions: the one-sided pursuit of high energy density will affect the safety factor. While China’s NEV industry has made remarkable achievements, safety related accidents have also begun to increase significantly. This is why there is no “bonus coefficient” for higher energy density in the new policy, and even if the battery has energy density of 160 Wh/kg or even higher, it will not receive more subsidies – which means that the government does not want enterprises to focus only on the energy density index and blindly launch products with higher energy density to get higher subsidies. This orientation will encourage enterprises to return to focus on NEV’s quality, safety, weight, energy consumption, cost, and other aspects, at the same time, to put forward more reasonable solutions for different application scenarios and promote the diversified development of technology.
As for passenger vehicle consumers, the selling price of electric vehicles is still the most important factor. It is not unlikely that automobile companies will transmit pricing pressure upstream, forcing power battery companies to reduce costs by a greater margin. Therefore, low-end Li-ion battery production capacity will be gradually eliminated, market share will be more concentrated. Battery manufacturers will relieve their pressure by expanding scale effect, improving automation efficiency, and agreeing deeply binding alliances with NEV manufactures. This pressure to control costs can even go up to the level of the material suppliers.
Thanks to the increasing demand of NEV companies for high energy density and long driving range in recent years, which has a dual stimulus from subsidy requirement and consumer demand, the share of NCM/NCA batteries in China’s NEV market (especially in passenger car market) has increased from 27% in 2015 to over 50% in 2018, However, considering the safety and technological maturity, LFP batteries are still the first choice for many traditional vehicle manufacturers in the field of commercial vehicles. In 2018, LFP batteries still have a market share of more than 35%. For battery suppliers, the energy density of NCA/NCM in leading battery factories can reach 140-160Wh/kg range at present. Considering total cost of ownership, the promotion of high nickelization will be slowed down. The mass production speed of nickel-rich NCM batteries (NCM811) may also be affected to some extent. At the same time, the energy density of the LFP battery system can also reach 140 Wh/kg but its cost is 10% to 15% cheaper than NCA/NCM batteries. Therefore, it has more comprehensive advantages in the fields of low-end passenger cars, low-speed electric bicycles/tricycles, buses and electric logistics vehicles (light-duty trucks).
For lithium-ion battery production equipment, the mid-piece and back-end machines of the production line have been localized. With the market competition pattern basically stabilized, the possibility of a substantial decline in equipment prices in the future is relatively small. The decline in future prices will be mainly due to the improvement of equipment efficiency, the drop range is relatively controllable, and the impact of the new subsidy policy is limited.
In conclusion, the core purpose of the new subsidy policy in 2019 is to accelerate the marketization of NEV industry in China:
- Overall subsidies have declined by more than 50%, laying a good foundation for the complete withdrawal of subsidies in 2020.
- The technical specifications of batteries will be further improved, but the safety problem should not be ignored.
- Operating vehicles can receive some subsidies in advance, which is good news for electric bus and truck manufacturers.
- Local subsidies will be abolished, and some government support will be switched to charging facilities.
“Lithium-ion Battery Production & Supply – 2019”, a report to provide a highly-detailed database and in-depth analysis of lithium-ion battery production, manufacture and supplier base, with a focus on industrial-grade batteries for automotive and grid application.
“Hybrid & Electric Trucks and Buses – 2019”, the hybrid & electric truck and bus market is extremely dynamic and dependent upon factors including legislation, battery prices and the relative prices of electricity and diesel. The rate at which any given segment will grow is dependent on the interaction between these determining factors. This report breaks down the contributing growth factors and provides a credible market forecast based on the interacting variables derived from more than 40 hours of interviews.
If you’d like to learn more about these reports or have any questions, please contact us at email@example.com