China freezes green car licences amid ongoing quality issues

BEIJING, June 15 (Reuters) - China has put approvals for new electric vehicle ventures on hold until next year, three people familiar with the matter told Reuters, as quality issues continue to dog the world’s largest market for green cars.

Regulators are reviewing licencing procedures and could resume awarding licences under a new process with tougher technical requirements as early as the start of 2018, according to the people, who are founders and executives of startup electric car firms.

“The government wants to give approval to only truly capable and serious players,” one of the startup founders said.

“Some of the companies which have already received the licence have shown a pattern of behaviour that has raised a red flag. The main concern is their technical capability.”

Two of the people said companies that had already received licences may also be subject to further review and could lose their approvals if deemed incapable of launching successful products.

China’s central government vigorously promotes electric vehicles to fight urban air pollution and as a means for its domestic auto industry to compete with foreign rivals with decades more experience making internal combustion engines.

That has included opening the industry to newcomers in recent years, a move that has attracted billions of dollars of investment.

But it also led to some companies selling cars of dubious quality to cash in on subsidies, with dozens of firms found to be cheating a green car subsidy scheme outright last year and prompting the government to raise technical standards.

The National Development and Reform Commission (NDRC) has already issued more than a dozen approvals for electric vehicle projects since last year under a licencing system that is meant to enforce technical requirements.

But the move to temporarily halt new licences indicates quality problems persist.

“The mess in Chinese electric cars isn’t a problem of giving out too many licences, the problems are with cars (made by companies) with licences,” said Li Junfeng, director of an NDRC-affiliated think tank.

Some producers without licences do not have quality issues, he said, with companies such as Nio - backed by internet firm Tencent Holdings Ltd - partnering with traditional automakers to build cars rather than obtaining a licence.

Li said that no decisions had been made about the licencing process but the matter is under discussion.

The NDRC did not respond to a faxed request for comment.

Sales of electric cars have boomed in China since 2015 due to government incentives, including billions of dollars in subsidy payouts for green cars, although they only accounted for 1.8 percent of auto sales in 2016. (Reporting by Jake Spring and Norihiko Shirouzu; Additional reporting by Muyu Xu; Editing by Christopher Cushing)