In its quest to get more electric cars on the road, China is transitioning away from rebates and subsidies and moving toward a regulatory scheme patterned after the one devised by the California Air Resources Board. The regulations simply require manufacturers to build a certain percentage of low and zero emissions cars, which are known in China as new energy vehicles. But the switchover is putting a damper on EV sales in the country.
According to Xinhua News, BYD has reported that its earnings in the third quarter of 2019 were down more than 86% due to a sharp decrease in sales during the quarter. As a result, its revenue was off 9% to 31.6 billion yuan. Despite all the gloomy news, the company still reported its net profit is up 3% in 2019 and that revenue increased 5.4% since the first of the year. BYD projects its net profit for the whole of 2019 will shrink by 36 to 43% as sales of electric cars continue to weaken in the fourth quarter.
Should any of this worry Tesla, which is about to begin selling Model 3s made at its new factory in Shanghai? Elon Musk expects that facility to be cranking out 3,000 cars a week by early next year and plans to be selling 500,000 electric cars in the Chinese market soon. There is already talk of Tesla constructing another Chinese factory just as soon as Gigafactory 4 — which will be located somewhere in Europe — is up and running. But who is going to buy all those electric cars?
The Chinese government has a way of getting what it wants and it wants cars that run on fossil fuels to go away, and the sooner the better. China has a history of lurching from one set of policies to another, often with incredible speed. There is every reason to believe that its sales mandates — which comes with significant fines for non-compliance — will accomplish that mission eventually.
But we have seen what happens when financial incentives go away. The state of Georgia had one of the most generous EV incentives in the United States some years ago and EV sales flourished. Nissan in particular benefited as sales of its LEAF electric car soared. Then the state incentive was revoked and sales crashed. Today, there are some Nissan dealers in Georgia who don’t even stock the LEAF any more.
China is desperate to lower its carbon emissions as pollution hangs heavy over many of its major cities, particularly Beijing. But all its incentives and rebates have cost the government huge amounts of money. Recently it has started cutting back on incentives for solar and wind power installations with a resulting slow down in those sectors as well.
In the end, a Chinese citizen who buys a gas-powered car today may have to wait 3 years or more to register it due to extreme congestion in many cities. But a person who buys an electric car today can register it and drive it tomorrow. Not all incentives are economic. In fact, some of the most effective ones — like access to POV lanes and free parking in congested cities — are more valuable than money. China will get its wish for more electric cars, but there may be bumps in the road on the way to reaching that goal.
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