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Sector
Technology
Size
Large Cap
Market Cap £18.44bn
Enterprise Value £17.66bn
Revenue £43.56bn
Position in Universe 50th / 3904

ANALYSIS-China's green car credit scheme turns up heat on carbon-emitters

Sun 18th April, 2021 10:01pm
* China wants to spur EV development with credit system
    * Policy shift from subsidies to tradable credits
    * Pace of shift catching some automakers by surprise

    By Yilei Sun and Tony Munroe
    SHANGHAI, April 19 (Reuters) - A policy shift by China's
government is ratcheting up pressure on automakers to hasten
development of green vehicles or pay rivals such as Tesla Inc
 TSLA.O  and Chinese startups for green credits.
    Regulators are putting more teeth on a system of tradable
green car credits to wean the industry off a decade-long policy
of subsidies which has helped create some of the biggest
companies in the industry. 
    The system gives automakers credits for selling electric or
fuel-efficient vehicles that can offset penalties on their more
carbon-intensive models. 
    The shift has happened fast, catching some global automakers
and state-owned Chinese manufacturers flat-footed.
    Volkswagen AG  VOWG_p.DE , for example, only began counting
the cost of Chinese green car credits in 2020 when executives
realised they needed more to comply with the requirement for the
year, sources familiar with the matter said. 
    The German automaker, which aims to be a world leader in
electric vehicles, had to buy credits from U.S. rival Tesla for
its China venture with state-owned FAW Group  SASACJ.UL ,
sources told Reuters.  urn:newsml:reuters.com:*:nL4N2LT1MW
    FAW-Volkswagen, which sold 2.16 million cars last year, was
the biggest negative credit generator in 2019 thanks to its
popular gasoline sport-utility vehicles.
    Volkswagen told Reuters it was "strategically targeting to
be self-compliant" with the rules in China, and would buy
credits if required. It declined to comment further.
    China has had a green-car credit system since 2017 but
fuel-efficiency standards tightened significantly last year and
many manufacturers failed to comply, according to preliminary
2020 credit data published by MIIT.
    Electric vehicle sales were lower in 2020 than policymakers
had expected, explaining the credit deficit, Haitong
International analyst Shi Ji said.
    "We suggest automakers with large gasoline car sales volume
will accelerate electrification," Shi said.
    All six major state-owned auto groups are struggling to
comply with the credit system, the chairman of state-owned
automaker Changan  000625.SZ , Zhu Huarong, said in January.
    Changan, which has a venture with Ford  F.N , lost 4,000
yuan ($611.86) per car because it needed to buy credits or sell
unprofitable EVs, he told an industry conference.
    
    DRIVING CHANGE
    In modified rules starting this year, regulators also raised
the standards for electric vehicles to qualify for credits and
introduced new standards such as EV power efficiency. 
    Policymakers are considering further tightening the credit
system and are expected to roll out rules for commercial
vehicles this year, said sources familiar with the process, who
declined to be named.
    Driving the changes are officials at China's finance
ministry, who want to shift government funding to other
industries such as semiconductors, according to officials'
speeches and people with understanding of policy discussions. 
    China's finance ministry and industry ministry did not
respond to requests for comment.
    Subsidies helped a swathe of Chinese EV makers including BYD
 002594.SZ  and Nio Inc  NIO.N  improve products and boost
sales. Chinese EV technology suppliers were buoyed as well.
Battery maker CATL  300750.SZ  became one of world's top battery
makers, competing with established players such as Panasonic
 6752.T  and LG Chem  051910.KS .
    Beijing hopes the compliance system will consolidate China's
lead in electric vehicles, with credit trading meant to
encourage automakers that have been slow to develop electric
cars to support EV startups, sources said.
    Tesla, the leading electric vehicle maker, is the top green
credit generator in China, according to MIIT. Tesla reported
receiving $1.58 billion from credit sales last year globally.
    Automakers under compliance pressure include Geely
 GEELY.UL , General Motor Co's  GM.N  China tie-up with SAIC
Motor  600104.SS , Daimler AG's  DAIGn.DE  partnership with BAIC
Motor  1958.HK , another Volkswagen venture with SAIC Motor
 600104.SS . 
    Geely, Daimler, GM all told Reuters they will manage the
credits between different ventures and will comply with the
rules by expanding electric lineup in next years.
    Geely President An Conghui said the group was compliant
thanks to roll-over credits from previous years and new electric
models, and would not buy credits from external companies.
    Daimler and GM both said they planned to expand their ranges
of electric vehicles in China. 

($1 = 6.5374 Chinese yuan renminbi)

 (Reporting by Yilei Sun and Tony Munroe; Editing by Stephen
Coates)
 ((Y.Sun@thomsonreuters.com; +86 10 66271262; Reuters Messaging:
y.sun.thomsonreuters.com@reuters.net))
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