On electric vehicles, China and California aim for more stick, less carrot

China and California, the world’s largest electric vehicle markets, sent strong signals in December that their respective economies will shift away from public subsidies toward sales mandates, as both governments seek more aggressive actions to slash greenhouse gas emissions and pollution stemming from fossil fuel-based transportation.

Earlier this month, China’s Ministry of Industry and Technology released a 15-year “draft development” plan calling for new energy vehicles (NEV) to account for 25% of annual new vehicle sales by 2025.

That target includes medium- and heavy-duty vehicles, Tony Wang, associate director, research and analysis for IHS Markit, told FreightWaves in an email.

The new vehicle targets come as China is phasing out a NEV subsidy program that has led to soaring production and sales of alternative fuel vehicles. Around 1.23 million EVs roam the roads in China, the largest fleet of EVs in any country.

Subsidies will be completely phased out by the end of 2020, to be replaced by mandates that shift more of the burden to manufacturers who will be required to sell increasing numbers of NEVs.

In 2018, EV market share in China clocked in at 4.5%, according to Automotive News China. 

Separately, California last week moved forward with plans to implement the nation’s first electric manufacturing standard for medium- and heavy-duty trucks.

That standard, as it is currently written, would require half of all truck sales in California to be zero-emission vehicles (ZEVs) by 2030. Following a hearing Dec. 12, the California Air Resources Board is expected to further toughen the mandate, amid widespread criticism from community groups that the existing sales targets are inadequate to meeting the state’s air quality and greenhouse gas emissions reduction objectives.

California’s passenger vehicle sales mandate has been in effect since 1998. The program, since adopted by 10 other states, is based on a credit system, in which automakers are required to acquire ZEV credits equal to a specific percentage of non-electric sales.

The credit requirement increases over time, rising to 22% in 2025, at which point ZEV sales would be around 8% of all car purchases.

Under the proposed electric truck manufacturing standard, companies that make clean trucks will be able to sell credits to conventional truck makers that don’t invest in ZEVs.

Subsidies out, quotas in

Stronger credit requirements for passenger vehicles, along with the proposed truck program, come as California scales back subsidies for electric cars, part of a move to balance budgets while investing more resources in lower-income communities and away from affluent buyers.

Federal tax credits for EV purchases are also being phased out.

Pared down incentive programs reflect broader global trends, stated William Drier, an energy research analyst with Navigant Research, in an email.

“Mandates will play an increasing role in driving vehicle electrification,” Drier said. “A number of subsidy policies are coming up on their sunset dates, becoming more stringent, and/or becoming less financially significant.”

Like minds: China and California

To meet its NEV target of 25% by the mid-2020s, China will likely deploy several strategies, with sales quotas ranking high on the list, Wang said.

“We expect [mandates] will replace the current NEV subsidy to play an extremely important role in driving BEV [battery electric vehicle] sales increasing in the future,” he said.  

In some respects, China is following in California’s footsteps as its sales targets are tied to a carbon credit scheme.

China’s program, launched in 2019, requires carmakers to earn carbon credits — generated by EV sales — equivalent to 10% of their annual sales. That rate will increase to 12% in 2020, according to Automotive News China.

It is unclear how the carbon credit program will be structured for heavy-duty vehicles. But generally speaking, according to Wang, manufacturers will have to meet “more and more stringent CO2 fleet credit targets and NEV credit targets by launching, producing and selling more and more BEV vehicles into the market.”

Political headwindsand tailwinds

One big differentiator between China and California EV policies is the level of federal support for zero-emissions targets.

California sued the Trump Administration earlier this year after the president revoked a California waiver allowing the state to set its own vehicle emissions standards. The administration’s efforts to block California’s authority could put the state’s ZEV mandate and the proposed clean truck standard (expected to be adopted in 2020) at risk, although the consensus among legal experts is that California will prevail.

Although several automakers, including GM and Toyota, have sided with Trump in the vehicle emissions debate, those manufacturers will have to comply with similar programs in China if they want to sell vehicles in the world’s largest car and truck market.

Even though China is eliminating its direct federal subsidy, Wang added, other “carrots,” such as suspension of license plate fees for NEVs in certain cities, traffic preferences for BEVs during rush hour and preferential NEV purchaing on the part of government offices will likely continue.