The 1 billion yuan in subsidies came from
the central government in order to promote electric vehicle
(EV) manufacturing in China and bring the country closer to its
goal of having 5 million new energy cars on the road by
The investigation, which was launched in
early 2016, looked at ninety major manufacturers throughout
China. Of the ninety, five were found to have defrauded the
Chinese Government; Suzhou Gemsea, Higer Bus, Wuzhoulong
Motors, Chery Wanda Bus and Shaolin Bus had claimed wrongfully
that they had sold 3,547 vehicles in 2015.
Gemsea Coach, a Suzhou, China-based bus
maker, had their auto-making production license revoked and was
ordered to pay back all of its subsidies received last year.
Gemsea was the worst of the offenders, having received 261.6
million yuan ($39 million) in financial assistance for 1,131
The other four companies have been ordered
to return their subsidies in addition to being fined an
The companies - which were found to have
unsold or unfinished vehicles, or vehicles that were sold
cheaply for teh sole purpose of collecting subsidies -
have also been disqualified from 2016 government
While the generous subsidies sparked an EV
manufacturing gold rush in the country, as well as a sharp
spike in demand for battery related minerals, such as lithium,
the question of whether the benefits outweigh the drawbacks
remains to be answered.
The spot price of lithium carbonate in
rose sharply from Q3 2015 to Q2 2016, driven in a large
part by the flurry of enthusiasm around EVs. Prices of around
$7.7/kg in July 2015 had increased to $26.8/kg by June
But the knock-on effect of China's subsidy
clampdown has since
caused them to stall and
then decline steadily, reaching an average of $19.6 in
Buyers and sellers on the lithium market
are currently looking to hammer out
2017 contract deals, which participants believe will be up
considerably on this year's levels, dragged up by Chinese
The subsidies have been blamed for
attracting the 'wrong crowd’ according to Chinese
market commentator and auto-analyst based in Beijing, Zhang
Zhiyong. Zhang believes the subsidies have attracted companies
that are only in the industry for the generous subsidies. Zhang
believes that the subsidies should be scrapped, which "will
help to clean the sector."
Stella Li, senior vice president for
Berkshire Hathaway Inc.-backed BYD, a Chinese manufacturer of
automobiles and rechargeable batteries, said that the guilty
companies have "disturbed the right market order".
"Bad money will drive out good," said John
Zeng, an analyst at LMC Automotive in Shanghai. "A few rotten
apples are going to spoil it for everyone."
The scandal has sparked China to reassess
their subsidy program, which was due to be phased out by the
end of 2020 regardless.
Subsidy methods are to become more
diverse, according to Mo Ke, chief analyst at RealLi Research,
said at the 2016 Argus Battery Metals Conference in September
in Beijing. Mo Ke told delegates of a procurement subsidy
program or preference system that assessed individual projects
and subsidized those directly.
Mo Ke also told delegates that subsidy
barriers will be raised gradually so as to draw down state
fiscal funds at a less rapid pace.
He added that the goal of
China’s EV policies in 2013-15 was to allow
company growth, overseeing a sharp increase in annual output of
special EVs in China. Mo Ke now believes the policy is shifting
to force companies into growing their technological and
In addition, Dong Yang, executive
vice-president of the China Association of Automobile
Manufacturers, said the government wants to limit the number of
carmakers dedicated to new energy vehicles to 10.
This consolidation may make regulating the
growing industry much easier, at the expense of shutting out
smaller EV manufacturers, entrepreneurs and start-ups.
The consolidation and change of pace in EV
policies will also allow the government to reassess the balance
between energy density and consumer safety risks.
Once a balance has been achieved and
safety measures have been proved effective, China will then be
free to research and develop the 300Wh/kg batteries they are
striving to achieve by 2020.
For more information on the raw
materials used in the lithium-ion (Li-ion) battery industry see
Battery Price Report.