China refines NEV mandate policy to boost overlooked hybrid vehicles

By Jill Shen
2 min read

China is working on changing the new energy vehicle (NEV) mandate policy, also known as dual credit policy, in an effort to close an emissions loophole that automakers were exploiting.

Why it matters: Automakers in China piled into the electric vehicle market in response to incentives created by local governments which, in its calculus, weighted the production of electric vehicles five-to-one. By producing EVs instead of developing and producing energy-saving technologies for traditional vehicles, automakers could more easily meet emission targets.

  • The Chinese government had previously set a goal that all-electric vehicles should make up around 20% of total car sales in 2025, which means most of the balance would be gas-powered. Analysts say that the policy change signals a renewed emphasis on gasoline-electric hybrid vehicle, which had been excluded from purchase subsidies for new energy vehicles in China.

Details: China’s Ministry of Industry and Information Technology (MIIT) released a modified version of its NEV policy on Tuesday, which stipulates that fuel-efficient vehicles could offset 20% of the credits set for corresponding electric cars.

  • Effective beginning April 2018, the earlier rule specified that each vehicle be assigned a specific number of credits depending on its energy-saving efficiency level. Automakers are required to produce or import enough NEVs to achieve the credits, while also allowing them to use surplus NEV credits to offset the corporate average fuel consumption (CAFC) credit deficits.
  • Chinese automakers took advantage of the policy. Ford China partner Jiangling Motors Corporation reported an average fuel consumption of 8.5 liters per 100 kilometers for its gasoline vehicles in 2017. However, after including its electric vehicles, that number fell to 1.74 liters per 100 kilometers.
  • The move comes immediately after JAC Motors, Chinese EV maker and Nio’s production contractor, received a penalty of more than RMB 170 million (around $24.7 million) for emission fraud. JAC Motors was fined for selling 765 trucks with inferior on-board diagnostics systems for emission detection, according to a Caixin report. The company reported a 125% year-on-year increase in EV sales in 2018.

Context: The central government is adjusting its policy in an aim to balance the country’s overheating EV market.

  • Beijing issued new rules scaling back subsidies on EV in late March and plans to phase them out completely after 2020, while raising the barriers for EV startups looking to farm out their manufacturing.
  • Xin Guobin, deputy head of MIIT, disclosed earlier this month that a new EV development plan is being drafted in which three kinds of NEVs are allowed—hybrid, all electric, and fuel-cell vehicles.
  • China will not adopt a one-size-fits-all approach in its EV push by forbidding traditional internal combustion engine vehicles completely, said Wan Gang, vice chairman of the Chinese People’s Political Consultative Conference (CPPCC) and former science minister.