shanxi guoxin energy corporation subsidy reduction, where will electric cars go?

The new energy vehicles subsidy in China is about to be reduced.

As the end of 2022 approaches, news about the reduction of subsidies for new energy vehicles in China is once again a hot topic. Starting from 2023, subsidies for new energy vehicles will officially become a thing of the past. Previously, this news was a hot topic at the end of 2021, when subsidies for new energy vehicles were slightly reduced but not completely terminated.

According to the notice issued by the Ministry of Finance and three other departments regarding the subsidy policy for the promotion and application of new energy vehicles in 2022, the purchase subsidy policy for new energy vehicles in 2022 will end on December 31 this year. Vehicles registered after that date will no longer receive subsidies.

Facing the end of the thirteen-year history of subsidies for new energy vehicles, some industry practitioners and consumers have expressed their frustration. For car manufacturers, losing subsidies means greater competitive pressure, while for potential car owners, just when they have saved enough money, they missed out on this last chance for a potential refund, which is truly regrettable.

One thing is certain, the national subsidy is gradually fading away, but the journey of new energy vehicles is still ongoing.

1. Countdown to subsidy reduction, all models maintaining prices

As the deadline for subsidy reduction approaches, the market is experiencing a wave of promotional fervor.

On November 30, xpeng announced on its official Weibo account that it has introduced a limited price guarantee policy, allowing orders with completed deposits before 24:00 on December 31, 2022, to continue benefiting from the 2022 national new energy subsidy, regardless of delivery time. Xpeng autos will cover the subsidy difference caused by the license plate time.

Similarly, on November 27, chongqing changan automobile's new energy brand, chongqing changan automobile shenlan, released a similar announcement. Chongqing changan automobile shenlan promises that customers who place and lock orders before December 31, 2022, and whose orders meet the 2022 new energy national subsidy application conditions, will be subsidized by chongqing changan automobile shenlan for the difference in the 2022 new energy national subsidy policy (excluding local subsidies). Users will still pay according to the guidance price at the time of placing the order. Specific subsidies are: SL03 extended range version subsidy of 4800 yuan, SLO3 pure electric version subsidy of 13860 yuan, and local subsidy of 2000 yuan. Giants like geely group have also followed suit. Its new energy brand, jikey, stated that if customers order the jikey 001WE model before December 31 (inclusive), and due to reasons not related to jikey, the vehicle cannot be delivered within 2022, jikey will continue to provide the corresponding subsidy according to the 2022 new energy subsidy policy.

All of the above are reactions made by automakers to attract customers amid the backdrop of the decline in national subsidies. From an impression perspective, automakers do show great care for customers. Looking back at the timeline, since the publication of the "Notice of Four Ministries on Improving the Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles" by the Ministry of Industry and Information Technology in April 2020, there have been numerous discussions about the national subsidy decline in the market towards the end of each year. This is often followed by automakers adopting promotional stances and measures guided by public opinion.

However, as 2022 marks the final year of the implementation of national subsidies, the current market buzz is much greater than the past two years. Naturally, potential customers are under more comprehensive public scrutiny. From this perspective, automakers are even less likely to miss the current opportunity to boost sales performance.

Second, price hikes are inevitable, with hidden concerns under intense competition

As national subsidies are about to exit the stage of history, domestic new energy auto companies naturally have mixed feelings. With almost no substantial support policies at the financial level, emerging domestic manufacturers no longer have a price buffer zone due to the absence of significant domestic and foreign new energy giants, making them collectively exposed in the market.

During this collective price guarantee promotion by automakers, the common thread in their messaging to customers includes the same reason: as we enter 2023, the entire new energy automobile market is about to face an uptrend in prices.

Price hikes imply higher vehicle purchase costs, but how much the increase will be is not yet clear. However, some automakers have already taken action. Among them, Tesla has been the quickest, announcing a price increase of 4752 yuan for the entry-level models of the domestically produced Model 3 and Model Y in mid to late November.

Similarly, among domestic car companies, price increases have also become a consensus. After interviewing sales personnel at the Beijing GAC Aion Experience Center, it was revealed that Aion Experience Store will implement new prices after January 1, 2023. Additionally, this salesperson also believes that Aion models are highly likely to increase in price. Similarly, many sales personnel of NIO, Lixiang, and others all believe that price hikes after the new year have become the trend.

Evidently, even frontline industry professionals holding the view of price hikes have become the mainstream, signaling that the new energy market will inevitably face fluctuations after the new year.

However, at a time when national subsidies are about to be phased out and market changes are occurring on both supply and demand sides, domestic car companies have not shown much panic or anxiety. The primary reason for this is that various car manufacturers have significantly reduced their dependence on subsidies.

According to data from the Ministry of Industry and Information Technology, the proportion of new energy vehicles that received national subsidies decreased each year from 2017 to 2021, with 78% in 2017, 63% in 2020, and a further decline to 47% in 2021. Similarly, the subsidy amounts have been decreasing annually; from 2015 to 2020, the average subsidy per new energy vehicle in China dropped from 0.1064 million yuan to 0.0236 million yuan, indicating a significant decrease.

From the subsidy data, it can be seen that with the expansion of the market, domestic new energy vehicle companies currently hold a certain market share, enabling them to survive. However, among domestic car brands, aside from a few players with full industry chain capabilities, most car companies still lack a complete industry chain.

Taking the case of emerging forces, all three companies have shortcomings in their production processes, where NIO has a current annual production capacity of approximately 0.6 million, XPeng about 0.3 million, and Li Auto around 0.3 million. In comparison, Tesla's Shanghai Gigafactory already has an annual production capacity of 2 million vehicles, clearly indicating that three against one falls short.

Not only production capacity, but also small-scale players in the new energy sector face challenges in technology, production, and supply. In this scenario, without the cushion provided by subsidies, whether car companies can establish their own competitive advantages in a short period remains a big question mark.

III. The new energy market continues to improve, with extended-range positions significantly elevated.

Although the country's subsidies have made car manufacturers reluctant, the market also believes that losing the subsidies will not affect the growth of the new energy autos market.

According to the Ping An Securities institutions forecast, the annual sales volume of new energy vehicles in China in 2023 will be around 900,000 to 9.5 million units. Under neutral predictions, the sales volume of new energy vehicles in 2023 is expected to be 9.3 million units, a year-on-year increase of 36.8%. The forecast for new energy passenger vehicles sales volume is 9.05 million units, an increase of 39.2% year-on-year.

In such a huge incremental market, the impact of the withdrawal of subsidies may only be evident in the next one to three months. Ping An Securities analysis believes that the year-end promotions brought by new energy vehicle subsidies will lead to a certain overdraw of car purchase demand for the next quarter.

Of course, the overdrawn demand may still be compensated in the form of market increments, and at present, extended-range new energy vehicle models are likely to become the largest market increment. According to Ping An Securities analysis, the sales volume of plug-in hybrid vehicles is expected to reach 3.1 million units in 2023, doubling year-on-year. Plug-in hybrid vehicles will become an important growth driver for new energy vehicles, and in the current technological policy environment, plug-in hybrids are almost synonymous with extended-range vehicles.

In the current market where new energy electric vehicles dominate, the biggest advantage of extended-range technology is effectively addressing the range anxiety caused by insufficient battery capacity, and the overall difficulty of the extended-range solution is not very challenging for major car manufacturers to implement.

On the demand side, consumers are not concerned about the power technology of extended-range models being repeatedly questioned as a step back in history, they only care about the driving experience of the vehicles. In this give-and-take situation, car manufacturers will naturally introduce extended-range new energy models that cater to market demand.

In fact, the popularity of extended-range has only recently emerged. This year, Li Xiang has successively launched the L9 and L8 models featuring extended-range technology. The L9 broke through 0.03 million units in orders within just 72 hours of its launch. Similarly, AITO Wanjie has introduced the M5 extended-range version, M5 pure electric version, and M7, which inherently has extended-range technology in three models. According to sales data analysis, Wanjie's announced sales in October were 12,018 units, with the best-selling models being the M5 extended-range version and M7, with the M7 orders surpassing 0.02 million units shortly after its release.

The market is the touchstone to test products, and the popularity of extended-range models naturally attracts other car manufacturers to follow suit. Many car manufacturers such as Li Xiang, Wanjie, Lantu, Changan Shenlan, Neta, and others have either already launched extended-range models or are about to launch them. In the context of carbon neutrality, extended-range models are almost the last choice when passing through this village without this shop.

Therefore, at the moment when shanxi guoxin energy corporation exits the historical stage of subsidies, the new energy market, under the agitation of extended-range models, also shows signs of a new opportunity. Naturally, this alleviates everyone's worries about losing the subsidies. However, the technical genes of extended-range models also determine that it is not a long-term solution for new energy vehicles. After the transitional period dominated by extended-range models ends in the future, there will inevitably be bumps on the road to the new energy future.

Reference materials:

1. "Limited time price guarantee! The countdown to the withdrawal of subsidies for new energy vehicles is imminent, and many car companies are taking action", China Securities Journal

2. "Countdown to the withdrawal of subsidies for new energy vehicles: Car companies are offering limited-time price guarantees during the catch-up window, and many consumers are rushing to get on board", Daily Economic News

Author | Sun Xiaowei

Editor | Yang Bocheng

Caption Image: IC Photo

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