Advances in Economics, Business and Management Research, volume 203

Proceedings of the 2021 3rd International Conference on Economic Management and

Cultural Industry (ICEMCI 2021)

Policy Analysis of China’s New Energy Vehicle

Industry Policy
Jiahang He 1, a, *, †, Wanting Yin 2, b, *, †
1
Department of Agricultural & Applied Economics, University of Wisconsin-Madison. Madison, WI, U.S.A.
2
Department of Economics, Dalhousie University. Halifax, Nova Scotia, Canada.
*
Corresponding author. Email: a [email protected], [email protected]
†
These authors contributed equally.

ABSTRACT
In order to achieve carbon neutralization, energy conservation and carbon emission reduction have come into focus. In
the process of striving to achieve carbon emissions, new energy vehicles have gradually become the key development
industry for many countries around the world to achieve energy conservation and emission reduction. This paper
analyzes the development process of new energy vehicles and related enterprises in China through literature analysis,
case study, and summary induction in the past few years. It selects BYD as the representative enterprise for research.
It covers the technical innovation of new energy vehicles, subsidy policies, future development prospects, and
suggests some suggestions. The value of this article is the analysis and optimization of China's new energy vehicle
industrial policy.

Keywords: China, New energy vehicles, Subsidy policy, strategies

1. INTRODUCTION tons of CO2 produced in 2018 solely [3], has also been
popularizing the usage of New Energy vehicles by
In 2020’s United Nations General Assembly, subsidizing the New Energy vehicles consumers since
President Xi announced that China will reach the peak 2009. However, the existing subsidy policy causes a big
of its carbon emission before 2030 and finally achieve expense for the government and causes pressure on the
‘carbon neutralization’ by 2060 [1]. To achieve carbon country's finance [4]. Since 2016 the Chinese
neutrality, replacing traditional petrol vehicles with New government has been reducing the number of subsidies
Energy vehicles is an effective solution since CO2 for various reasons. Even though the government
emitted by vehicles powered by fossil fuel is one of the extended the subsidies of electric vehicles from 2020 to
biggest carbon sources. As the New Energy vehicles are 2022 due to the COVID-19 pandemic, the subsidy will
crucial to reduce the emission of CO2 and achieve finally be canceled at the end of 2022. China has one of
carbon neutralization, many countries, especially the biggest electric vehicle markets globally with total
developed countries and big developing countries with sales exceeded 1.36 million in 2020 and shares 44% of
high carbon emission rates, are doing their best to all the electric vehicles in the world with more than 4.5
popularize the New Energy vehicles nationwide with million in number. The subsidy has a very strong effect
policies. For instance, California, one of the states of the and helps the popularization of electric vehicles a lot, so
U.S., has come up with Zero Emission Vehicle (ZEV) the cancellation of the subsidy may have a very strong
program to transform the structure of vehicle usage impact. So far, we do not know what the Chinese
from traditional cars to zero-emission vehicles in the market will become when the subsidy is gone.
state [2]; Norwegian government has also been working As a key to sustainable economic development, new
on New Energy vehicles adoption by setting the energy vehicles have become the focus of attention of
electrification policy. all countries in the world. Countries around the world
While many countries have different policies and have set up many policies for the development of new
subsidies to encourage the popularization of New energy vehicles. China has two policies, including
Energy vehicles, China, as the biggest carbon-emission consumer subsidies and other subsidies. We now know
country in the world with more than 10.06 billion metric that China's new energy vehicle subsidy policy is on a

Copyright © 2021 The Authors. Published by Atlantis Press International B.V.

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downward slope and will be eliminated by the end of know how the subsidy came out and the reason why the
2022. However, we do not know why China has subsidy will finally disappear.
removed the subsidy policies, how China's new energy
The second comparison method is vertical
vehicle industry will be affected, and what measures
comparison, which compares China’s subsidy policies
will be taken after removing these policies. At the same
with other countries’ policies related to the promotion of
time, we only know little about the policy changes of
environmental-friendly vehicles. For this part, we will
new energy vehicles in the world. Therefore, what we
list several countries that came up with government-
need to do is to summarize the existing policies of
issued policies for the popularization and compare them
China and other countries, as well as the relevant
with the Chinese government’s policies. Even though
policies of new energy vehicles in other countries in the
different countries have distinguished conditions,
coming years, to predict the overall trend of the future
comparing different policies can better understand other
new energy vehicle industry, and how China can
countries’ experiences and help the Chinese government
promote new energy vehicles and how to become more
plan the next step of electric vehicle development after
competitive in the world market.
the subsidy is cancelled.
In this research, we use literature analysis, case
Moreover, we are also going to pick a representative
study, and summary induction. Through the policy
Chinese electric vehicle company to discuss the overall
research on New Energy vehicles, the development of
situation of this company from these two comparative
New Energy vehicles has great significance, which can
perspectives. They are depicting the history of this
reduce the oil demand and achieve the purpose of
company’s development under the long-term subsidy
energy conservation and environmental protection.
policy throughout years (horizontal comparison) and
comparing the company’s status quo with companies
2. METHODOLOGY based in other countries from the same field (vertical
comparison). Although policies are authoritative, they
2.1. Literature Analysis are not intuitive enough to let us view the effect of
policies on companies and consumers. Understanding
First, we will analyze various kinds of documents
the performance and tactics of a single company with
and journals to get a basic understanding of the policy
statistics can be more straightforward. For this part, we
of the Chinese government on the electric vehicle,
will employ BYD Co. Ltd (BYD), one of the biggest
including subsidy, tax, market regulations, and company
electric-vehicle producers in China, to conduct the
management. To get first-hand information from
research. We will dig deeper into BYD’s development
government authorities, we will collect information
history since it was founded in 2003, focusing on its
from government websites, especially the State Council
electric vehicle development under the government’s
website. The main information we are going to collect
subsidy policies from 2009. We will also compare its
are (1) Data related to the number of subsidies, if
strategy and development condition with some other
available, of different areas and cities; (2) Past and
companies, including Xpeng Co. Ltd and NIO Co. Ltd
current policies of subsidies; (3) The main reason for the
from China and Tesla Co. Ltd and Renault-Nissan-
government to reduce subsidies and finally cancel them
Mitsubishi Alliance Co. Ltd (RNM Alliance) from other
by the end of 2022; (4) How does the COVID-19
countries.
pandemic impact the electric vehicle market, as well as
big companies in the field, in 2020.
2.3. Summary Induction
2.2. Case Study and Comparison The third method that we are going to use is the
method of summary induction, which is to take multiple
The second method we are going to use is
examples and generalize common features to get to a
comparative analysis. As many countries in the world
conclusion. In the early stage of development, the new
have been coming up with distinguished policies to
energy vehicle industry has immature technology, an
encourage the usage of electric vehicles, we want to
imperfect industrial chain, and weak market demand, so
compare different policies from two angles to
it needs to rely on the subsidies and welfare policies of
understand the effectiveness of China’s subsidy policies
the national government to support enterprises. This
on electric vehicles and the policies’ revolution.
paper summarizes the opportunities and threats that
The first comparison method is horizontal China's new energy vehicles will encounter when the
comparison. By comparing the evolution of subsidy policy is canceled through the study of policy subsidies.
policies, the number of subsidies in different phases of Taking BYD as an example, when the subsidy intensity
popularization, as well as the change of policy along is reduced, it summarizes its response measures. It puts
with difficult periods including the trade war and forward suggestions for the development of subsidy
COVID-19 pandemic throughout years, we can get to policies for new energy vehicles in the future. As
consumers' demand for the intelligence of new energy

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vehicles gradually increases, how will BYD improve its has been formed. The gradual withdrawal of subsidies is
intelligence to increase its market share? inevitable.
The opportunity to cancel the subsidy policy for new
3. RESULT energy vehicles has temporarily increased the sales
volume, and the powerful enterprises will develop better.
3.1. Under the background of the elimination of For the new energy vehicle industry, the sales of new
subsidies, the opportunities, and threats that energy vehicles will be significantly increased before
China's new energy vehicles may face the subsidy policy is canceled. Many consumers are
enjoying new energy vehicle subsidies before the
3.1.1. The Background of China’s Subsidy subsidy retreat. In addition, it is a good thing for
Policy consumers. The retrograde policy has new requirements
for the range and battery structure of new energy
The new energy vehicle subsidy policy refers to the vehicles. Vehicles with a range of fewer than 300
policy issued by the government to promote the kilometers will not be subsidized, eliminating inferior
development of new energy vehicles, mainly for enterprises, and leaving excellent enterprises to provide
vehicles driven by new power energy. New energy excellent products for consumers. It is also a good thing
vehicle subsidy policies mainly include consumer for fuel vehicles. When the subsidy policy is canceled,
subsidy policies and other subsidy policies. Among new energy vehicles and traditional fuel vehicles will
them, consumer subsidy policies generally mean that the return to the same starting line to achieve the same stage
government directly provides cash or financial support of the competition.
to the consumer. By reducing the sales price of new
energy vehicle, to achieve the purpose of expanding The threat after the cancellation of the subsidy
sales. Other types of subsidy policies include policy for new energy vehicles is also obvious. The
technology research and development subsidies, car market will eliminate the enterprises relying on the
restriction policies, and charging pile policies, which policy subsidy. For consumers, compared with new
drive the development of the whole industry. energy vehicles, fuel cars are more convenient for long-
distance travel. Because the charging pile is not
At the beginning of 2020, China's new energy universal, new energy vehicles are not convenient for
vehicle market declined due to multiple factors. To the users of some districts. For enterprises, after the
support the development of new energy vehicles cancellation of the subsidy policy for new energy
industry with high quality, promote consumption, vehicles, the production cost rises, which means that
‘Notice on Financial Subsidy Policy for Promotion and enterprises, suppliers, and consumers need to bear the
Application of New Energy vehicles’ released in April increased cost. For enterprises, accelerating product
2020 [5], extending subsidies for new energy vehicles to innovation, enhancing product competitiveness,
the end of 2022, and pointed out that the new energy reducing costs by technology, reducing costs by scale is
vehicle purchase subsidy will be a state of regression in the most reliable way.
2021 and 2022, stabilize market expectations. In the
early stage of development, the new energy vehicle 3.2. Current Situation of Industrial Policy of
industry has immature technology, an imperfect
New Energy Vehicles Abroad
industrial chain, and weak market demand. Thus, it
needs to rely on the subsidies and welfare policies of the To encourage the development of new energy
national government to support enterprises. However, as vehicles, China began to implement a new energy
the technology matures, the industry chain improves, vehicle subsidy policy in 2009. While China is
and the market demand increases, the government vigorously encouraging the development of new energy
begins to reduce the subsidy quota. vehicles, other countries in the world have also
introduced various subsidy policies to encourage the
3.1.2. Opportunities and Threats that China’s development of new energy vehicles.
New Energy Vehicles May Face
3.2.1. Analysis of Industrial Policy in the United
The price of new energy vehicles has dropped
States
sharply, which has greatly stimulated market demand
and attracted consumers. Consumer subsidies are of To encourage consumers to buy new energy vehicles,
great significance to the development of the industry. the U.S. government offers preferential policies from
They promote new energy vehicles to grab market share several aspects [6]:
and lay a foundation for future development. However,
with the end of the market cultivation period, a market
with relatively sufficient competition between old and
new enterprises, new energy vehicles, and fuel vehicles

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3.2.1.1. Income Tax Deduction generation cars". In addition to the subsidy, the purchase
of this type of car will receive a 100% weight tax
In May 2007, the US Internal Revenue Service deduction and tax deduction. Some offer a 50%
adjusted the personal income tax deduction for reduction in the auto tax. Japan mentioned in the "New
consumers of new energy vehicles. For models that Generation Vehicle Strategy 2010", it plans to build 2
meet the subsidy standard, the limit is set at the million regular charging stations and 5,000 quick-
accumulative sales volume of 60,000 vehicles. After charging stations across the country by 2020.
reaching 30,000 vehicles, consumers will have a 50%
tax reduction. More than 45,000 vehicles will have a 25% 3.2.3. Analysis of Industrial Policy in China
tax cut; More than 60,000 vehicles will not have any tax
breaks. Table 1. The Development Stages of New Energy
Vehicles in China
3.2.1.2. ‘Emergency Economic Stabilization Act’
Years Policies
In 2008, ‘Emergency Economic Stabilization Act’ 2009- China's subsidy policy experienced a starting and
2015 rising stage
stipulated that; starting from January 1, 2009, the first
2016- China's consumption subsidy policy was in a
250,000 consumers who purchased new energy vehicles 2020 declining stage
would have tax credits ranging from $2,500 to $7,500. 2020 Due to the COVID-19, China decided to extend
In addition, state governments have added other policies, the subsidy to 2022
such as Florida waived the extra cost of vehicle From 2009 to 2015, to adapt to the initial stage of
insurance. Some state governments have provided developing the new energy vehicle industry, the
millions of dollars in additional retrograde tax credits. government issued several subsidy policies to support
The highest amount is in Georgia, at $20,000, focus on the rapid expansion of the new energy vehicle market.
commercial vehicles and electric vehicles. In 2009, China's new energy vehicle subsidy policy was
in its infancy. In this section, China's State Council, the
3.2.1.3. What Other States Do Ministry of Finance, and other departments issued
various notices and plans. Its content stipulates the
Some states take the form of consumption tax relief, subsidy standard of various types of energy vehicles. Set
consumption vouchers, and other subsidies. Most up planning objectives, financial subsidies, and
notably, California is the only state so far to use this measures to promote new energy vehicles. In June 2009,
policy, preferring to set standards and let the market the Ministry of Industry and Information Technology
regulate itself. released the "Energy Vehicle Production Enterprises
and Product Access Management Rules" to further
3.2.2. Analysis of Industrial Policy in Japan improve and binding the "New Energy Vehicle
Production Access Management Rules", with the
In the late 20th century, Japan proposed a new
introduction and improvement of the provisions, it
energy technology research and development program.
marks the rise of new energy vehicles for the national
After the 21st century, the development strategy of new
industrial technology strategy [8].
energy vehicles was clarified.
From 2010 to 2015, the national policy further
3.2.2.1. ‘New Generation Vehicle Strategy 2010’ strengthened the promotion of new energy vehicles. At
first, five cities in China -- Shanghai, Changchun,
In April 2010, Japan released the "New Generation Shenzhen, Hangzhou, and Hefei -- launched pilot
Vehicle Strategy 2010"[7], which has become the main subsidies to purchase new energy vehicles. The central
guiding principle of Japan's new energy vehicle government will provide one-time subsidies to plug-in
development strategy. The strategic target values are hybrid and pure electric passenger cars purchased,
proposed from the aspects of the proportion of different registered, and implemented in pilot cities. The subsidy
types of vehicles, battery performance, and cost, standard is determined according to the energy of the
charging stations. For example, the "New Generation power battery pack. For the new energy vehicles that
Vehicle Strategy 2010" published by the Japanese meet the supporting conditions, the subsidy will be
government clearly defines the development goals of given at the rate of 3,000 RMB/kWh. The subsidy is up
new-generation vehicles: by 2020, the sales proportion to 50,000 RMB per plug-in hybrid car and 60,000 RMB
will reach 50 percent; by 2030, it will be 70 percent. per pure electric car [9]. The subsidy funds will be
delivered to the vehicles production enterprises, which
3.2.2.2. The Implementation of ‘Green Taxation’ will sell the new energy vehicles to private users or
leasing enterprises at their prices after deducting the
Japan implemented the "green taxation". Applicable
subsidies. The governments of the pilot cities are the
objects including electric vehicles, hybrid cars, clean
subject of implementation and responsibility of the pilot
diesel, the three kinds of the car was defined as "next-
project of purchasing new energy vehicles. And they

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should arrange certain funds and introduce increase significantly in 2020. Therefore, we predict that
corresponding supporting policies and measures. Given the Chinese electric vehicle market will experience a
support on charging station’s infrastructure construction, period of shrinkage soon after the subsidy is totally gone
purchase and use of new energy vehicles, battery scrap at the end of 2022, and the government will need to find
and recovery system. When the market of new energy a new method to further popularize electric vehicles as
vehicles is fully saturated, and the sales volume rises to the popularization of electric vehicles still has a long
the national standard, the state begins to implement the way to go. The State Council had already published a
subsidy regression policy. During the COVID-19 White Book about the development plan for the new
pandemic in 2020, the sales of new energy vehicles energy vehicle industry from 2021 to 2035 in November
declined, which made the government postpone the time 2020. The White Book talks about several points that
of cancelling the policy subsidies for new energy would further help the Chinese market grow.
vehicles.
4.1. Improving Companies’ After-sales Services
3.3. Analysis on the Development Status of
China’s New Energy Vehicle Enterprises- Take The first policy is improving the after-sales service.
Since the electric vehicle market is still on its way to
BYD Co.Ltd as an Example
being totally mature compared to traditional fuel cars,
As one of the oldest and biggest vehicles producing the after-sales service chain is not fully constructed,
enterprises in China, BYD Co. Ltd (shorten as BYD). creating a gap between customers’ expectations and the
Started with producing traditional fuel cars and batteries, car's actual performance. For instance, the recharge
researched, and developed electric cars, and experienced mileage of the electric vehicle is a very common aspect
rapid development when the government introduced the that would make a gap. Some companies exaggerate the
subsidy policies in 2009 [10]. As the leader of Chinese recharge mileage and do not include the battery
electric vehicles, BYD’s electric car made various replacement into the insurance, which would create a
achievements in the past years. They have high-quality gap between the customer and company and
to ensure the safety of products and various models to unfavorable to the overall popularization of electric
fulfill the need of different groups of customers. These vehicles. Therefore, improving the after-sales service
made them one of the biggest electric vehicle companies system and meeting customers’ needs is crucial for
in the world. long-term development.

However, behind the high-speed development, BYD 4.2. Increasing the Number of New Energy
also faces hardship in recent years. As a company relies
Vehicle Charging Piles
heavily on government subsidies, BYD’s after-subsidy
future is not bright. First, with the emergence of some Increasing the number of new energy vehicle
new electric vehicle firms such as XPeng Co. Ltd and charging piles is also an important part of the marketing
NIO Co. Ltd, the market share of BYD has constantly improvement. Currently, the charging-pile stations are
decreased since 2017. Moreover, as a firm that heavily not widespread everywhere like a gas station in China,
depends on government subsidies, BYD keeps positive especially in small cities. This indicates charging the
profit by getting subsidies for firms. When the subsidy vehicle could be a problem for long-distance travelling
is totally cancelled, they must develop other strategies to and travelling to small cities. Building standardized
make profits as one of their important profit resources is charging stations in more cities and working on the
gone. electric vehicle's infrastructure system can not only
improve customers’ experience but also maintain the
4. DISCUSSION healthy development of the industry.
Throughout the information retrieving from Even though these plans are not directly related to
government documents and journals, comparing China’s the subsidy policies we talked about, these points show
government policies on new energy vehicles from that the government is very concerned about the long-
horizontal and vertical perspectives, and discussing the term development of the electric vehicles market in
Chinese representative firm BYD, we have a clear view China. After the subsidy policies are gone, these plans
about the challenges the Chinese new energy vehicle would be the backbone to ensure the development of the
faces market is viewing. While the Chinese market of electric vehicle market.
new energy vehicles might experience a small boom
before the end of 2022, the sales volume has a very high 4.3. Reducing Taxation
possibility to drop dramatically after the subsidy is
totally gone. Due to various reasons, including the Besides the current plan from the State Council,
Trade War between China and the U.S. and the COVID- there is another possible method for the government to
19 pandemic, the electric vehicle market did not develop the market size of new energy vehicles,
especially electric vehicles. From the experience of the

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