China cuts electric car aid

Companies like Kandi may be doomed

China is slashing subsidies for electric vehicles, which will test the resilience of a fast-growing EV market that government support helped create.

Under a Finance Ministry plan released this week, the maximum central-government subsidy for an electric car is being more than halved, cut to 27,500 yuan from 66,000 yuan (roughly $4,100 from $9,830) starting in June. Subsidies from local governments, which have been as much as 50% larger than the national ones, are being eliminated.

To qualify for subsidies, cars must now be able to travel at least 250 kilometers (155 miles) on a single battery charge, up from 150 kilometers last year, and all subsidies will be eliminated at the start of 2021.

Generous subsidies have helped China create the world’s largest EV market, and some auto industry analysts said their removal risks dampening demand and setting back an industry Beijing hopes Chinese companies will dominate.

But the support has led to waste, encouraging poorly conceived startups to enter the market, with 487 EV makers operating in China last year, according to official figures. The vast majority of those companies will vanish along with the subsidies, analysts predict.

“This is really bad news for the smaller companies who do not have quality products. Within two years they will disappear," said Yale Zhang, managing director of Shanghai-based consulting firm Automotive Foresight. “But it’s the right time. The government realized it was raising a lot of lazy babies crying for more milk."