Credit policy revision meant to boost new-energy vehicles

China announced on Monday that the credit ratios of new-energy vehicles are required to reach 18 percent by 2023, according to the latest policy announcement published by the Ministry of Industry and Information Technology (MIIT).

The ratios will be raised step by step from 14 percent in 2021, 16 percent in 2022 to 18 percent in 2023, compared with the current 12 percent. 

The credit ratio is one of the newly added policy requirements for China's dual credit policy. In order to meet the demands of new-energy vehicle industry development, the ministry and other relevant departments revised the dual credit policy which requires automakers to produce a minimum number of non-polluting vehicles.

The ministry said the credit ratio revision is a way to achieve the planning goal of average fuel consumption of new passenger cars reaching 4.0 liters/100 kilometers by 2025, and the proportion of new-energy vehicle production and sales will reach 20 percent of the total number of vehicles.

The ministry said that the revised policy will be effective from January 1, 2021. There are also some newly added policy requirements and adjustments to the policy, including modification on the calculation method of new-energy vehicle car model and adjustment of management method due to COVID-19 pandemic.

China issued its dual credit policy in September 2017. It forced carmakers to generate new-energy credits equivalent to 10 percent of sales in 2019, rising to 12 percent in 2020. Car manufacturers that fail to meet minimum production targets must “buy” credits from other companies.

The regulation also includes targets for fuel economy and a credit-trading system aimed at saving energy and promoting green cars. The policy is part of the government’s campaign to reduce dependence on fossil fuels and clean up the skies in major cities.

The MIIT said the implementation of the dual credit policy has promoted industry technology innovation as well as production and promotion of new-energy vehicles. The ministry added that the policy has basically achieved its expected goal.

The MIIT established a management platform and organized two credit transactions. Auto companies increased research and development investment and accelerated new-energy vehicle launches. The product quality and vitality of market has improved, it says. 

Through communication and trade, the policy has promoted the exchange and cooperation between enterprises and enhance the efficiency of resource allocation in new-energy vehicle field. In 2019, the country sold a total of 1.06 million new-energy passenger vehicles. 

During the implementation of the dual credit policy, there is need to update technical standards, insufficient investment in fuel-efficient technologies and unbalanced supply and demand in the credit trading market. In order to further optimize the management mechanism as well as promote high-quality development of new-energy vehicle industry, the ministry said it started to revise the policy in early 2019.

The adjustment of the policy this time also takes COVID-19 outbreak into consideration. This revision adds provisions that can be used to determine the extension of the compensation period according to the development of auto industry. Follow-up study and policies will be discussed based on the impact of the epidemic.

Some foreign manufacturers are stepping up alliances with domestic partners to invest in new-energy vehicle, auto parts and charging infrastructure sector. In April, Toyota and  BYD forged a 50-50 joint venture to jointly develop car batteries and electric vehicles. In May, Volkswagen announced that it would invest around 2.1 billion euros (US$2.3 billion) in electric mobility in China. In June, BMW announced strategic cooperation with State Grid EV (Electric Vehicle) Service as it aims to further expand its charging network in China.

Zhang Xiaofeng, an independent market analyst, said that the implementation of revised dual credit policy will promote new-energy vehicle market and bring changes to the credit trading market. Zhang noted that  transaction price may increase and auto companies will make preparations. The policy will also stimulate the industry to develop more energy-saving and new-energy vehicles.