China will cut subsidies on new energy vehicles (NEV) such as electric cars by 10% this year, the finance ministry said, following a decision last month to continue providing incentives to buy clean energy vehicles.

The government had announced plans in 2015 to end the subsidies this year, but said in March it would extend them.

China has set a target for NEVs, which also include plug-in hybrids and hydrogen fuel cell vehicles, to account for a fifth of auto sales by 2025, compared with the current 5%, as it seeks to cut pollution and cultivate home-grown auto sector champions. Under the new plan, China will extend subsidies for buying NEVs to 2022, and tax exemptions on purchases for two years.

However, the subsidies will apply only to passenger cars costing less than 300,000 yuan ($42,376). That is likely to exclude premium electric vehicles such as those built by Germany’s BMW and Daimler.

Tesla Inc’s China-made Model 3 sedans, meanwhile, are currently priced at 323,800 yuan before subsidies, meaning the US electric car pioneer will have to reduce the price to qualify for the scheme.

China will in principle cut subsidies by 20% in 2021 and 30% in 2022, the finance ministry added.

But it will not reduce subsidies on commercial NEVs for public purposes this year.

China is the world’s biggest car market, where more than 25 million vehicles, including 1.2 million NEVs, were sold last year.

The government will raise the requirements for the driving range and power efficiency of cars that qualify for the subsidies, the statement said.

It also said the authorities would support the sale of cars with swappable batteries, a technology that has been pursued by Chinese electric vehicle makers Nio Inc and BAIC BluePark.

In addition, when the authorities buy vehicles for government use, they will prioritise buying NEVs, it added. The new policy is effective from April 23.

“This extending of subsidies will give the industry long term support but is unlikely to impact short term sales much,” said Cui Dongshu, secretary general at China Passenger Car Association (CPCA).

Global automakers including Volkswagen, General Motors and Toyota are ramping up electric vehicle production in China to meet stricter government regulations.

Sales of NEVs contracted for a ninth month in a row in March and were down over 50% from a year earlier, according to data from the China Association of Automobile Manufacturers (CAAM), as demand for vehicles plunged due to the coronavirus crisis.

Reuters

US electric vehicle maker Tesla’s prices for two China-made model 3 variants rose after authorities cut subsidies in the world’s biggest auto market.

China cut subsidies on electric vehicles by 10% this year, effective April 23, but there will be a three-month transition period.

After the adjustment, the starting price for the Shanghai-made Standard Range Model 3 sedans will rise to 303,550 yuan ($42,900) from 299,050 yuan, while Long Range Model 3 cars, which Tesla plans to roll out from June this year, will be priced at 344,050 yuan versus 339,050 yuan, a company website showed.

Prices for those models before subsidies remain unchanged.

Tesla, which started delivering cars from its $2 billion Shanghai factory last year, saw its China registrations rose to 12,709 units in March from 2,314 in February.

The subsidies will apply only to passenger cars costing less than 300,000 yuan ($42,376) after the transition period. China will also in principle cut subsidies by 20% in 2021 and 30% in 2022.

Hit by the coronavirus epidemic, China’s overall car sales fell 42% in the first three months compared with a year earlier. But the auto industry expects sales to recover as the government promises more supportive policies to boost consumption.

Meanwhile, Hungary and China have signed a loan agreement to finance the construction of a railway link between Budapest and Belgrade, Finance Minister Mihaly Varga announced on Friday, kickstarting a project that has been stalled for years.

The venture, part of Beijing’s One Belt, One Road initiative intended to open new foreign trade links for Chinese firms, would be the first major Chinese infrastructure project inside the European Union.

Its aim is to help ship Chinese goods from Greece to western Europe, but key sections in the Balkans are missing. Some observers have raised concerns over China buying political influence via big infrastructure projects around the world.

Varga told Reuters on Friday that the 20-year, $1.855 billion loan carried an annual interest rate of 2.5% and an early repayment option. He also said there was a five-year grace period on the principal repayment.

He said this way 85% of the financing comes from China as a loan while 15% is provided by Hungary.

Earlier this month, Hungary submitted legislation to classify all data included in contracts for the $2.1 billion, tax-payer funded rail project for 10 years.

The project, Hungary’s second most expensive project after the Paks nuclear plant to be built by Russian Rosatom, gets a go-ahead just as the Hungarian economy heads into recession amid the coronavirus pandemic.

Varga said the new rail link, to be completed by 2025, would allow Hungary to be a centre for European logistical networks as Chinese goods travel from Greece to western Europe.

The 150-km (93-mile) Hungarian stretch of the railway will be built by CRE Consortium which includes holding company Opus Global, controlled by Lorinc Meszaros, an associate of Prime Minister Viktor Orban.

The project has suffered significant delays. China, Serbia and Hungary signed a memorandum on the rail route in 2014. Construction in Serbia started in 2018 after it borrowed $297.6 million from China.

“We should take a look at how the construction is going further to the South, as there is no point to this project until the entire railway is constructed as far as the port of Pireus,” said a Hungarian expert in Chinese relations who wished to remain unidentified.

“China has a political motivation” in pursuing the project, even if financially this is not a major business project for China, he said.

After more than 10 years of a cooperation initiative between China and East European countries known as the 17+1, this would be the initiative’s first major infrastructure project in the region and inside the EU, the expert said.

Reuters