China Subsidizes Electric Cars, But Small Efficient Gas Cars Too

Earlier this year, China announced hefty incentives for purchases of electric vehicles and plug-in hybrids: about $8,800 for full battery electrics and $7,300 for plug-in hybrids. That’s a step up from the U.S. subsidy for electric cars, a tax credit worth $7,500 for cars (like the Chevy Volt) with at least 16-kilowatt hours of battery storage. China is providing the incentives to help reach its aggressive goal of 500,000 hybrids and electric cars by 2011.

As we recently reported, more expensive hybrid and electrics face serious economic challenges in the Chinese auto market—which last year became the largest in the world.
Even with a $7,350 incentive, the BYD F3DM plug-in hybrid is about $6,000 more than the conventional F3 sedan—which sells for $8,750.

In a tacit acknowledgment that the jump to hybrids and EVs may be a big step for many Chinese car buyers, the government incentives announced today go way beyond hybrids and electric cars. They include 71 different fuel-efficient vehicles.

Whereas new U.S. incentives are based on the size of batteries, China is granting incentives—about $450 per car—to vehicles with an engine capacity of less than 1.6 liters that reduces fuel consumption by at least 20 percent. Sixteen Chinese automakers have cars that qualify. (Although Edmunds reported that some carmakers, even those that were awarded subsidies, weren’t sure about the criteria.)

Back in the U.S.A.

Maybe China’s on to something. While it’s hard to fathom strong U.S.-based incentives purely on small engine size—that’s anathema to our need for speed—wouldn’t it save more oil and reduce more carbon a lot faster to not only offer tax breaks for plug-in cars, but also for the most fuel-efficient gas-powered cars in the largest part of the mainstream market?

  • Samie

    In general, good policies that use subsidies as a government tool for market development is short-term, promotes enhancements in technology, and rewards early adopters who except some level of higher costs &/or risks. Having said that, I do have some concerns about using subsides for “most fuel-efficient gas-powered cars.”

    First any subsidy on fuel-efficient vehicles will not be fully effective until you end subsidies on petroleum fuel. Most consumers will look at petro prices as a key factor in switching to EVs or ditching their V8 vehicles for an efficient V6 or 4 cylinder engine. One example on how to reduce subsidies, being considered in Congress is to shift risk from U.S. taxpayers to private insures to cover all liabilities in production and refining of petroleum.

    Second, should we be rewarding the consumer with general subsidies for fuel-efficient gas-powered cars? On one hand, it makes sense becasue say a $450 subsidy for a 20 percent improvement in ICE 1.6 liter engines is wort a lot more in actual savings to the taxpayer eg. environmental savings, military/diplomacy savings, & consumer fuel savings.

    BUT incentives for ICE vehicles may uncut some attention that is needed to develop EVs as a good alternative to ICE vehicles. Also, subsides can distort real market prices. How do we really now that Nissan or GM would not pocket say $500 more knowing that the consumer is being subsidized $7,500 so they artificially make the initial MRSP $500 higher than if no subsidy? Also, with subsides, many auto-manufactures may elect to offer little or no incentives on the subsidized product.

    Personally I would skip the subsidies on traditional ICE vehicles. It is only my opinion but we need to quickly create a good/ real alternative to diesel/gas vehicles that have dominated the market for over the last 100 hundred years. I would argue that EVs need greater market penetration than hybrids. Is this because of poor policy or because hybrids are not a true alternative to traditional ICE vehicles, my opinion a combo of both…. So I would use a mix of government policy tools to make sure within fifteen years every major auto-marker has at least one sedan, one compact &/or sub, one small SUV/Crossover or station wagon electric vehicle in their line-up with little cross collaboration or leasing on technology and pricing.